Stack Ranking

Many company’s, particularly US owned, staff evaluation schemes are based on ranking their staff, and additionally rewarding the top 20% and firing the bottom 10%. (This idea comes from the US, probably from GE; firing people because they are not as good as someone else is illegal in the UK and much of Europe.) Basically it is not about continuous improvement, it’s based on a world view that thinks people are lazy and need fear to make them work hard. Fear of not getting a bonus, or fear of dismissal. This cynicism and hate will never build a successful firm.

These schemes, known as Stack Ranking are in the news again as staff discontent at Yahoo!’s quarterly appraisal scheme is publicised. This is reported in the Economist, in an article called “Firms that keep grading their staff ruthlessly may not get the best from them” who credit All Things D with breaking the Yahoo! aspect of the story, in an article called, “Because Marissa Said So” — Yahoos Bristle at Mayer’s QPR Ranking System and “Silent Layoffs”, which rather excitingly quotes from the internal anonymous bulletin board site. This is not the first time that the issue of Stack Ranking has hit the press as Vanity Fair reported on the internal dissent that Microsoft’s scheme caused in an article published last year called, “Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant”. According to the Economist, Microsoft are turning away from Stack Racking and in the “All Things D” article, Meyer is quoted as saying that the quotas are not compulsory although it’s clear that some managers believe it is. It was compulsory and enforced by software in Sun Microsystems, now defunct, and commonly is compulsory because it’s designed to cull the lower performing staff, although possibly the most destructive part of the scheme is the impact it has on the best performers.

Fixed success and failure ratios means that people compete; it is designed to make them do so. The Vanity Fair article, quoted in the initial post, about Microsoft,

“It leads to employees focusing on competing with each other rather than competing with other companies.”

Today, we are looking at the cataclysmic effect of a whole industry, in fact several, where people are working for bonuses and focus exclusively on what’s good for them, not what’s good for their market, customers, suppliers, regulators and neighbours.

Some argue it’s about budgets and expectations, but the crude pre-determined assessment of winners and losers and the threat of dismissal are massive signposts as to the truth behind these programmes. Furthermore, if it’s just about budget management, as argued by Curtis Jackson, in his well researched and yet flawed article, Stack Ranking: Why are Amazon, Facebook and Yahoo copying Microsoft’s performance review system?, these programmes use a language of lies, and nothing disguises the fact that the scheme encourages competition and not collaboration.

There are two aspects worth commenting about these schemes, the first is the lack of natural justice within these schemes and the second is the destructive seeds they leave. This creates a personal division where the Trade Unionist in me is outraged by the unfairness, while the economist and consultant in me is interested in the problem as a whole.

At the beginning, the pre-determined scores mean that people are being judged on criteria they can’t control. The most important factors that can’t be controlled are the performance of others. The impact at the top, where people whose performance warrants a bonus yet fail because they are working with others who are ranked higher, will lead to people, leaving or coasting. It is clear from my experience at Sun Microsystems that good performers would not join elite teams. At the bottom, people are harassed by being put on performance improvement plans, which are unwarranted or impossible or in those jurisdictions that permit it fired. Even where bottom-up feedback schemes exist, they are subject to management retaliation. It should be noted that in many companies that operate this scheme managers trade with their peers for positions in the curve; you give me a best performer place this year and I’ll give you a ‘needs improvement’ or a promise for next year.

The comments about talent choosing its home, both rejecting elite teams, and by going elsewhere and the fact that Enron, Sun & Microsoft all used it just goes to show, it’s not the successful that do this; although it would seem that Apple, Amazon and Facebook use a version of this scheme, but not Google.

It’s not a bell curve, it’s a bell end curve.

It’s wrong because,

  1. it judges people on criteria they can’t control,
  2. and is thus illegal in large parts of the world
  3. many will give up by freeloading or leaving
  4. it encourages a drive to mediocrity as the majority of the staff are deemed beyond reward or dismissal
  5. it makes people compete within the company, not the competition and causes a loss of competitive advantage
  6. top performers work for themselves not the company, nor their customers
  7. it conflates appraisal with reward, making appraisal harder to perform honestly
  8. it’s a management distraction, because frequency drives management’s time horizons
  9. building good teams is hard/impossible; good people won’t join good teams
  10. it’s rarely/never applied to the executive team

ooOOOoo

Microsoft have stopped using the scheme.

For more ….

  1. Steve Gillmor on Stack Ranking and Microsoft at Techcrunch, an analysis of Microsoft’s lost decade with a passing reference to Vanity Fair article. He’s not a fan and argues that the scheme damaged Microsoft’s ability to innovate.
  2. Dare Obasanjo on Microsoft, their competition and stack ranking. This looks at new age competitors who all use it too. He is basically of the view there is no other answer; Unions have a different view.

3 Comments.

  1. An employment contract is a contractual agreement. It places duties on both sides of the agreement. An indefinite employment contract is just that, it can be terminated on grounds of redundancy, gross misconduct or because the employee cannot perform their normal duties. In the case of redundancy, in most of the world this is regulated by law, and employees are compensated for the employer breaching their side of the agreement. In the case of gross misconduct, this is also regulated by law, but where gross misconduct occurs, a dismissed employee will rarely receive compensation, often losing even their notice entitlement.

  2. It’s taken a while to publish this and maybe it should be given more structure. It was initially written in 2014 but nor published until today. Perhaps I should look up the economic literature, although we all know about Wally’s theorem, should managements measure performance to ensure staff earn their wages, or use that money to bonus them for working hard.

  3. It’s also probably time to remember that old joke about Stalin & Breznev’s Soviet Union, “… they pretend to pay us and we pretend to work.”