'Stack ranking' employee eval practice falls out of favor

It's no surprise that Microsoft ditched its oft-criticized evaluation method, says HR expert

Microsoft's abandonment of its so-called "stack ranking" method of evaluating employees should not come as a surprise, said an expert in human resources today.

"Forced ranking does appear to be out of favor," Kerry Chou, a senior practice leader with WorldatWork, an association of human resources professionals, said in an interview. "More organizations are ending the practice where you have to have, for example, 10% or 5% of all employees in the lowest-ranked category."

On Tuesday, Microsoft's head of human resources, Lisa Brummel, told employees that the firm was ditching its former method of ranking workers. Long called "stacked ranking" -- but which Chou termed "forced ranking" -- the management practice required team leaders to assign a set percentage of their members to five categories, including top and bottom rankings.

Rankings, as at most companies, were used to award promotions and bonuses, while those in the bottom-most category usually were pushed out of the firm, or left on their own accord.

By all accounts, the stacked ranking was widely disparaged by employees, and was blamed for Microsoft's cut-throat culture, which pitted workers and teams against one another. According to outside analysts, the competitive climate often limited or slowed Microsoft's inability to innovate, or even to keep pace with rivals like Google and Apple in areas such as search and tablets, as more energy was spent in-fighting with other teams or actively sabotaging their efforts, than in moving Microsoft forward.

One oft-cited example was Microsoft's decision to not sell an iPad-specific version of Office, a move many believed resulted from the Windows group overruling the Office team in the debate in order to boost its chances of meeting goals, and thus receiving bonuses and promotions.

This summer, CEO Steve Ballmer began to reorganize Microsoft, with one of its goals better collaboration among teams. At the time, Ballmer said that stacked ranking would remain.

But in an email to employees this week, Brummel said, "We are changing our performance review program to better align with the goals of our One Microsoft strategy," using Ballmer's label for the strategic pivot to device and services, and the ensuing reorganization. "This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact."

Forced ranking was never as popular in companies as many thought, said Chou. A recent survey conducted by WorldatWork, for example, pegged the practice to just 12% of American companies.

A much larger percentage of businesses -- approximately 30% -- used "forced distribution," in which companies either strongly urged managers, or required them, to put workers into category "buckets."

The terms "stacked ranking," "forced ranking" and "forced distribution" are often used interchangeably, said Chou, but the first two actually more properly refer to the practice of comparing all employees to all other employees, not just to those within each team.

"When I think of forced ranking, I think of a specific process where it's really across the entire organization, where everybody is against everybody else," said Chou.

Critics of Microsoft's performance management, including past employees and managers, often cited the unfairness of the practice, saying that they were forced to put some team members into the lowest-ranking bucket, even though they considered them superior to even the best in other teams.

"Think of the situation applied to Harvard's students," said Chou, coming up with an example. "Someone at Harvard has to be the worst Harvard student, but that person is probably still better than those at most public institutions. But [in forced ranking] someone has to be at the bottom."

But the belief by managers that their employees are better than those on other teams is not only widespread, but natural and understandable, said Chou.

"Managers know their own employees better than those [outside their teams]," said Chou. "In many cases, they've hired them personally. So it's natural for them to think their own [workers'] functions are the most important, and thus their own [personal] functions are the most important.

"In forced ranking, there's always a tendency to rate more of their employees above average," Chou added, referring to managers' evaluations. "If it goes unchecked, more and more will be above average."

And then what's the point of an evaluation when, as in Garrison Keillor's Lake Wobegone, "all the children are above average?"

In fact, forced ranking and/or forced distribution practices are sometimes implemented by companies to dampen that tendency, said Chou, to instill what he called more management "discipline" in evaluating employees. Some companies implement it thinking that it will be only for a while, and that once they feel like the performance evaluations are where they should be they will taper off the dog-eat-dog practice.

Chou called forced ranking "on an extreme" end of management philosophies, and said that was one reason why it was losing favor. "Some of those people [who once used it] are now saying that the benefits they got from it were outweighed by the cultural cost," said Chou.

Stack or forced ranking is not inherently bad, or as some have claimed, evil, Chou countered. Its success, like any practice, requires managers to "buy into" the practice. "Every [evaluation] method has advantages and disadvantages. But it's important in most organizations to identify those who are really moving the needle," he said, and thus reward them.

"We do see evidence that its popularity is waning, and see more companies moving away from it or thinking about moving away from it," said Chou. "In Microsoft's case, apparently the cost of doing this outweighed the benefits they thought they were getting."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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