Microsoft abandons employee-ranking system

Microsoft is abandoning a ranking system that has been blamed for hampering innovation and pitting employees against one another.
Employees learned of the move in an email from Lisa Brummel, Microsoft’s executive vice president of human resources, on Tuesday.
The system, known as “stack ranking,” has become emblematic of much that is wrong with Microsoft’s corporate culture.
Employees have called it the most destructive process inside the company, blaming it for crippling Microsoft’s ability to innovate, according to a Vanity Fair article, “Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant,” published in June last year.
Stack ranking forced managers to give a predetermined proportion of employees in a team a top, fair or bad annual review, even when all team members did an excellent job.
This led to employees competing with each other instead of competing with other companies, according to one developer cited by Vanity Fair.
Now, though, Microsoft has decided to stop the ranking system, Brummel told employees via email on Tuesday. The email was shared with IDG News Service by Microsoft’s German corporate communications department on Wednesday.
“I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company,” she wrote.

No more in-fighting

Stopping the rating system was one of the changes made: “No more ratings. This will let us focus on what matters—having a deeper understanding of the impact we’ve made and our opportunities to grow and improve,” Brummel wrote.
Microsoft will also stop its pre-determined targeted distribution rewards program, she wrote, adding that managers 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. This will make it easier for managers to allocate rewards, she said.
There will also be more emphasis on teamwork and collaboration. Microsoft will be more specific about what is deemed a special performance and will not only focus on the work an employee does, but will also evaluate how the employee uses ideas from others and what they contribute to others’ success, she said.
Furthermore, there will also be more focus on employee growth and development. Through a process called “Connects” there will be more timely feedback to help employees learn, grow and drive results, she wrote.
The changes were devised after obtaining feedback from thousands of employees over the past few years, and following a review of numerous external programs and practices, she wrote. The transition to the new system started on Tuesday, she said.
Microsoft is currently undergoing a vast restructuring that is aimed to help the company innovate faster and operate in a more coherent manner. The restructuring should focus the company on a single strategy, said departing CEO Steve Ballmer when he announced the his plan in July.

Stack ranking -- considered by a number of current and former Microsoft employees as a major detriment, both career- and morale-wise -- is no more at the company.

Microsoft is announcing to its full-time employees on November 12 that there will be no more curve and no more reviewing "on the curve" at the company. Lisa Brummel, head of human resources for the company, sent an e-mail to employees notifying them of the change today, according to my contacts.
There will be "no more curve," Brummel said in her email, and there "will no longer be a pre-determined targeted distribution."
While other companies, including Amazon, Facebook and Yahoo, have their own versions of stack ranking that allows them to weed out "low performing" employees, it's Microsoft that's been criticized in the press for the stack ranking process.
A 2012 cover story by Vanity Fair, entitled "Microsoft's Lost Decade," famously bashed Microsoft and CEO Steve Ballmer for the stack ranking process, via which leaders need to rate a percentage of employees as top performers, good performers, average and poor.
Brummel's mail said that the decision to change the way employees are ranked is part of the company's "One Microsoft" philosophy and strategy. Teamwork and collaboration are going to be given more priority in the way employees are evaluated, going forward, she said.
Here's a copy of Brummel's mail to the troops:

To Global Employees,
I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company.
This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives. This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world changing work.
To learn more about the new approach to performance and development, please join me for a Town Hall today at 2:00pm PT, either in person in building 92 or via webcast (see details below).
Here are the key elements:
  •   More emphasis on teamwork and collaboration. We’re getting more specific about how we think about successful performance and are focusing on three elements – not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others’ success – and how they add up to greater business impact.
  •   More emphasis on employee growth and development. Through a process called “Connects” we are optimizing for more timely feedback and meaningful discussions to help employees learn in the moment, grow and drive great results. These will be timed based on the rhythm of each part of our business, introducing more flexibility in how and when we discuss performance and development rather than following one timeline for the whole company. Our business cycles have accelerated and our teams operate on different schedules, and the new approach will accommodate that.
  •   No more curve. We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined 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.
  •   No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.
We will continue to align our rewards to the fiscal year, so there will be no change in timing for your rewards conversation with your manager, or when rewards are paid. And we will continue to ensure that our employees who make the most impact to the business will receive truly great compensation.
Just like any other company with a defined budget for compensation, we will continue to need to make decisions about how to allocate annual rewards. Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams.
I look forward to sharing more detail with you at the Town Hall, and to bringing the new approach to life with leaders across the company. We will transition starting today, and you will hear from your leadership in the coming days about next steps for how the transition will look in your business. We are also briefing managers and will continue to provide them with resources to answer questions and support you as we transition to this approach.
I’m excited about this new approach that’s supported by the Senior Leadership Team and my HR Leadership Team, and I hope you are too. Coming together in this way will reaffirm Microsoft as one of the greatest places to work in the world.
There is nothing we cannot accomplish when we work together as One Microsoft.
Lisa

A few readers have wondered aloud as to why Microsoft is making this move now, given that CEO Steve Ballmer's replacement is expected to be named any time now. My personal guess is this is a move meant to calm the troops (and keep them loyal and engaged) in a time when there's lots of upheaval at the company.

Microsoft abandons forced ranking of employees

Software giant drops ‘stack ranking,’ a system pioneered by GE but now unpopular 

 

Bloomberg Enlarge Image

Microsoft will no longer ask managers to grade employees against one another and rank them on a scale of one to five.

Microsoft Corp. is abandoning major elements of its controversial “stack ranking” employee-review and compensation system, the latest blow against a once-popular management technique.

The Redmond, Wash., software company said it would no longer require managers to grade employees against one another and rank them on a scale of one to five. The system — often called “stack” or “forced” ranking — meant a small percentage of Microsoft’s 100,000 employees had to be designated as underperformers.

 

The rankings were a key factor in promotions and in allocating bonuses and equity awards under Chief Executive Steve Ballmer, who in August said he plans to retire within a year. But many current and former Microsoft employees complained the system resulted in capricious rankings, power struggles among managers, and unhealthy competition among colleagues.

Microsoft MSFT -0.01%   said Tuesday it is dumping the numerical rankings in favor of more frequent and qualitative employee evaluations. The change took effect immediately.

That makes Microsoft the latest in a series of companies to eliminate forced ranking, which was widely copied in the 1980s after rising to popularity at General Electric Co. GE -0.04%   under Chief Executive Jack Welch. The system was often referred to as “rank and yank,” because poor performers were encouraged to leave the company.

“Some think it’s cruel or brutal to remove the bottom 10% of our people. It isn’t,” Welch wrote in his book, “Jack: Straight from the Gut.” “There is no cruelty like waiting and telling people late in their careers that they don’t belong.”

But GE has moved away from its numerical review system under Welch’s successor, Jeffrey Immelt. Immelt prefers reviews that candidly tell an employee where they are not measuring up and what they need to do to improve, without rigidly adhering to certain percentages.

An expanded version of this report appears at WSJ.com.

Photograph by Britta Pedersen/dpa via AP Photo

Microsoft CEO Steve Ballmer at the opening of new Microsoft headquarters in Berlin, Germany on Nov. 7

At the same time that Yahoo (YHOO) was taking heat for adopting a new system that forces managers to rank workers on a curve, Microsoft reportedly decided to back away from its own practice of so-called stack rankings.

Microsoft (MSFT) has been known as the ur-example of pitting employees against one another in an attempt to reward the excellent and weed out the weak, which gained widespread popularity in the 1980s after then-Chief Executive Jack Welch brought the ranking system to General Electric (GE). The problem is workers generally aren’t thrilled about having to play Game of Thrones at the office. David Auerbach, a former Microsoft employee, recently told Bloomberg Businessweek that the practice had employees feeling helpless and “encouraged people to backstab their co-workers.”
Microsoft’s move is a sign of the times. As I wrote earlier this week, corporate America has largely lost confidence in management programs that jam employees onto bell curves:

VIDEO: Microsoft Removes Employee Ranking System

“Basically, many people have lost faith that ranking employees works, and some research suggests that employee performance doesn’t follow a bell curve at all. Instead, most people are slightly worse than average (pdf), with a few superstars. And while a bit of pressure can motivate people, constantly pitting employees against one another is terrible for morale. In a company that is going through layoffs, this gets worse over time (pdf), wrote several MIT professors in a study of forced rankings in 2006. ‘As the company shrinks, the rigid distribution of the bell curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.’”

Expedia (EXPE) got rid of its long-standing rankings system last year in what it described as an effort to rehumanize the relationship between employees and their bosses. “We wanted performance management to be less ‘event-oriented’ and to be something that manager and employees engage in as a regular part of how they do business together—not a look back at last year and assigning a grade to it,” wrote Connie Symes, the company’s executive vice president for human relations, in an e-mail. She says that a majority of employees like the new system better.
Adobe Systems (ADBE) dropped performance reviews altogether last year, after noticing an uptick in employees leaving right after the annual round of meetings. It was certainly a bonus that doing so immediately cut out 80,000 hours of work each year, but the company said that the whole idea of performance review seemed antiquated. ”The business all around was changing, but the mechanisms to manage and support our employees were stuck in a time warp,” Donna Morris, head of the Adobe’s HR department, told Human Resources Executive.
But Dick Grote, who literally wrote the book on forced rankings, notes that abandoning something that has proven unpopular is easier than replacing it. Employers still need to figure out who is doing well. “What we’re left with is a problem. It’s important that people’s performance be evaluated so they know where they stand,” he says.

STORY: Microsoft Is About to Dethrone Apple as the S&P 500's Power Stock

The desire for a change is good news for Grote, who runs a performance-management consultancy: He just signed a contract with McGraw-Hill (MHP) to write a book about the way forward.