Why “Stack Ranking” Didn’t Stack Up For Microsoft

The company’s much-criticized bell curve approach to evaluating employees is going away. The reasons for all the criticism and for dropping it now are telling and something for those in management to consider.

A management technique widely derided as among the worst in the corporate world is heading for the trash bin at Microsoft.

Its use of “stack ranking”—designed to reward the best employees while gradually divesting the company of less-talented workers—had increasingly become a target for criticism and symbolic of the weaknesses of departing CEO Steve Ballmer. More info below:

Survival of the fittest: The stack ranking system required managers in each department to rank employees comparatively by quality, not taking into account whether a worker would be objectively considered a good employee. The rankings resulted in something resembling a bell curve, which became a deciding factor in determining raises and putting a worker’s status up for review. “If you give up on them, they’ll be put on a dead-end track that marks them as more or less useless,” former Microsoft manager David Auerbach wrote in Slate, a publication formerly owned by Microsoft. “The object is to get them out from under you and make them someone else’s problem.” While many in the business world rely on a similar system to evaluate employees (and it does have some defenders), Microsoft’s move to stack ranking drew the most attention.

How bad was it? A 2012 piece in Vanity Fair titled “Microsoft’s Lost Decade” took a more in-depth look at the practice and its results than perhaps anything before or since. “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,” Kurt Eichenwald wrote, then chronicling in great detail how the program led to dispirited employees, endless layers of internal bureaucracy, and a disinclination to collaborate—as employees were concerned that collaborating with coworkers considered to be weak could taint their own status. This, Eichenwald argued, had long-term effects for the software provider: The ranking system discouraged long-term innovation in the name of short-term profits, holding back some of the company’s most innovative initiatives, such as e-book readers that were ready for release in 1999 and mobile platforms that had huge market shares years before Apple and Google had gained footholds in the smartphone market.

Dropping the curve: In an internal memo released to employees this week, Microsoft announced it was moving away from stack ranking entirely and encouraging more collaborative processes among staff members. “We will continue to invest in a generous rewards budget,” wrote Microsoft human resources head Lisa Brummel, “but there will no longer be a predetermined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.” The memo emphasizes that the bell curve has been thrown out in favor of growth and development programs designed to encourage employee potential.

While Microsoft is giving up on the concept, it appears that other companies haven’t followed suit—and at least one has decided to take it up. Reports this week noted that Yahoo has begun using a similar concept and is receiving internal criticism for what some employees called “silent layoffs” made through the system.

Are performance review systems still worth doing? And who does it right? Let us know your thoughts in the comments.

Microsoft's "Stack Ranking" system relied on a bell curve to rank employees. (iStock/Thinkstock)

Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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