Announcements on ‘Stack Rankings’ Touch Off Debate

By Bill Leonard Nov 22, 2013
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Call it whatever you like, but there’s no denying that the employee performance review process known as “stack rankings,” “differentiation,” “bell-curve assessments” or even “rank and yank” stirs up passionate debate among business leaders who either love it or hate it.

Interest in the controversial process was rekindled on Nov. 12, 2013, when a news story revealed that Yahoo was adopting a stack-ranking system to evaluate employee performance. The issue burned even hotter when, just hours after the Yahoo story broke, officials at Microsoft Corp. announced they were scrapping the company’s employee stack-ranking system.

The polar-opposite decisions of these two high-profile information technology businesses opened a media floodgate, and out spilled dozens of opinions on which company made the right decision. And while Yahoo officials have not confirmed or denied the reports, Chief Executive Officer Marissa Mayer has been roundly criticized for the decision—though media coverage of Microsoft’s policy change has been mostly favorable.

“I really don’t know why people have been so harsh in their criticism of Marissa Mayer,” said Libby Sartain, SPHR, an HR management consultant and former vice president of HR at Yahoo. “She has her reasons for doing this, and she is well-known for taking a different path and changing things up.”

Jack Welch popularized the idea of stack-ranking assessments in the 1980s when he became chief executive officer of General Electric. The system distributes workers in several “stacks,” or categories from the highest to the lowest performers. Employees in the low-performing categories are subject to dismissals, which led many critics to dub the assessment practice rank and yank.

“Love him or hate him, Welch used the system to change GE’s corporate culture, and you can’t deny that he got excellent results,” said Bruce Sevy, director of leadership assessment at Korn/Ferry International. “Marissa Mayer seems to be facing a similar challenge at Yahoo. Since we’re on the outside looking in, none of us can say for certain why Yahoo took this step, but it’s pretty clear that something had to be done.”

A Perennial Issue

According to Sevy, it’s not shocking that companies are either adopting or moving away from stack-ranking evaluations.

“It happens all the time. Performance management is a perennial issue that businesses struggle with,” he said. “Companies adjust and move back and forth on how they use stacked rankings constantly.”

Sevy added that most performance management systems include some form of stack rankings.

“It’s just the way things are done,” he said. “Whether employers want to admit it or not, employees are generally ranked in some way as either good or poor performers.”

A stacked-ranking system, such as the one initiated by Welch at GE or proposed at Yahoo, tends to be more structured and most likely will require that a certain percentage of lower-performing workers be dismissed. In the GE system, the lowest 10 percent received pink slips.

“It’s definitely not a performance evaluation system that I would ever recommend using,” said Sartain. “But in some situations it can be very effective. Only time will tell if it works at Yahoo.”

Creating a Climate of Distrust?

The major drawback of stack rankings, according to Sartain and other sources familiar with the issue, is that the system can create an organizational climate of competition and distrust.

“It really pits employees against each other because they are ranked and compared to the performance of others,” said Aubrey Daniels, Ph.D., a management professor at Furman University and chairman of the Atlanta-based consulting group Aubrey Daniels International. “If you are looking to foster a culture of collaboration, stacked ranking systems will do just the opposite.”

A collaborative workforce is crucial to success in the IT industry, according to a chief HR officer (CHRO) at a data-services firm.

“It’s the nature of most IT professionals to want to crowdsource and collaborate on projects,” said the CHRO, who asked not to be identified. “I don’t think people in this industry respond too well if they feel they are in direct competition with their co-workers. Just look at what happened at Microsoft.”

Co-workers as Competitors

Seeing colleagues as competitors and not knowing whom to trust were employees’ chief complaints about Microsoft’s former ranking system, according to several sources familiar with the situation. Some employees even admitted to being paranoid about their officemates. According to one source, several Microsoft workers actually believed that their efforts had been sabotaged or good work not recognized just to make them look bad and, ultimately, boost their colleagues’ rankings.

“It’s built into the stacked-ranking system to make co-workers competitors and not collaborators,” said Daniels. “And that’s not the kind of workforce most employers want or need.”

Welch responded to the criticism that the system bred contempt instead of collaboration in an opinion piece that ran in The Wall Street Journal a few days after the news about Yahoo and Microsoft broke. He wrote that perceptions that the system damages teamwork haven’t rung true in his experience and that the concerns about faltering collaboration can be resolved easily.

“One of the most common criticisms is that it destroys teamwork,” Welch noted. “Nonsense. If you want teamwork, you identify it as a value. Then you evaluate and reward people accordingly. You’ll get teamwork, I guarantee it.”

A Setup to Fail?

Welch defended the system, which he called differentiation, by saying it was about building great work teams through consistency, transparency and candor. However, Daniels disagrees and has been a harsh and vocal critic about the practice.

“Essentially, you’re automatically categorizing part of your workforce as failures,” Daniels said. “And if you set them up to fail, then most likely they will do just that. Instead you want a system in place that expects and encourages every employee to succeed, and I think with the proper motivation and guidance, businesses can get there.”

Daniels and Sartain agree that Yahoo’s recent struggles indicate a management problem, not a workforce performance problem.

“How many CEOs has Yahoo had in the past three or four years?” Sartain asked. “Management hasn’t been stable for a while there, and I know we’re seeing the effect of that now. I think Marissa Mayer has made some good decisions and some not so good, but that comes with the territory, and she has a very tough job to do.”

Bill Leonard is a senior writer for SHRM.

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