Stack Ranking to Evaluate Performance - Good or Bad Idea?

Stack ranking, an employee grading system often referred to as “rank and yank” is making headlines again with Microsoft recently announcing it is doing away with the practice. For as long as the practice has been around it’s sharply divided critics and supporters.

When I was in graduate school, I hated my statistics class but loved the bell curve. It meant that I may be a low performer, but I was sure to get a better grade because we were all struggling. “Grading on the curve” helped many of us stay out of the dreaded “below average” category. This form of ranking was beneficial and we welcomed it.

In performance management, the same sort of ranking is not as well liked or accepted, and many gasp at the idea that it’s being done at all. It’s nicknamed, “rank and yank” and refers to stack ranking your employees on a bell curve, where the top 10% are categorized as your top performers. The rest fall into other categories along the curve, with a set number designated as low performers. This group will be fast-tracked out of the company. They’ll be placed on performance improvement plans and separated from the company unless immediate and sustained improvement occurs.

For example, let’s say you have 200 employees in the same type of role, doing the same work with the same set of expectations. There may be about 10% that rise to the top of the group, outperforming the rest. This is evident throughout the evaluation process—high project scores on client work and a high level of internal contributions back to the organization. The middle group, or those that are typically performing at a commendable level or better, will make up the larger number, at about 70% of your selected employee population (and could be further divided into “fair” and “good”). The last group, or the “yank” group, could be as high as 20%.

Rank and Yank?
“Rank and yank” is not as common today as it was several years ago. It was originally coined by Jack Welch during his leadership at G.E. during the 1980’s. It was designed to weed out the poor performers and reward those at the top.

A study by the Institute for Corporate Productivity (i4cp) showed that in 2009, 49% of companies were using stack rating and in 2011, only 14% were using this system. The primary reason for moving away from “rank and yank” is that it’s demoralizing to employees. There are no motivating factors, other than to climb over each other and try to reach the top of that bell curve before anyone else. And what happens when you’re too busy competing with each other? Innovation and creativity suffer. Just ask Microsoft.

The Microsoft Case
Microsoft employees state a “cannibalistic” environment of competition that led to their loss as a tech giant, passing that torch to Apple. Instead of innovating and staying ahead of current trends, employees were told to “be more visible” to leadership. The focus was never on becoming a better engineer but how to stand out in a crowd.

In the July 2012 Vanity Fair article, foolish management decisions, including stack ranking “effectively crippled Microsoft’s ability to innovate.” Contributing editor, Kurt Eichenwald, continues, “Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees.” One employee shared this, “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

Benefits?
I’ve been on both sides of this process. I’ve seen it unfold in a setting where managers are fighting it out with one another, trying to keep their employees on the right side of the bell curve, and I’ve watched numbers flip back and forth like watching the NASDAQ. The averages keep changing and one employee moves from being “on the bubble”—between being in that top 10% and in the “meets expectations” group. At the end of the session, the stats are tallied and you reluctantly agree to the numbers, trying to make sense of it all.

I found only two benefits to this process:

1. Greater Accountability: Performance issues are dealt with and resolved quickly. Managers can’t run and hide, hoping the issue will resolve itself. They must give regular feedback and provide coaching to their team. It’s all about setting expectations, and if those are not met, there are no surprises during the performance review process.

2. Evaluation With Your Peers: Employees are aware there are goals to be met and success depends on performance. Each employee is not evaluated in a bubble but is compared to the work of their peers. So for example, you may think you’re meeting expectations and performing at a commendable level. But if the other three team members are outperforming you on the same tasks, you will essentially be in last place.

Recommendations?
I suggest outlining expectations from the start during the onboarding process and aligning them to the job description. Hold managers accountable for leading and guiding employees through the performance review system. Provide regular feedback and have the difficult discussions when needed. Reward and recognize when appropriate through an employee rewards system. Team work is fostered in an environment that seeks to build one another, focuses on strengths, and strives to reach common goals. Stop force ranking and start innovating.