Microsoft performance reviews used to be hyper-competitive 'stack rankings.' Then Satya Nadella drove the culture toward collaboration - here's how they work now, according to HR chief Kathleen Hogan.

Microsoft

Kathleen Hogan, chief people officer of Microsoft

• Microsoft's culture has drastically changed in the past six years.
• The performance-review system underwent a change in 2013, which Kathleen Hogan, chief people officer of Microsoft, addressed in a recent interview with Business Insider.
• Performance reviews at the tech giant now emphasize three factors: individual impact, how you contribute to other people's success, and how you leverage other people's work.
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Instead of comparing employees against each other, Microsoft managers evaluate how individuals contribute to the team.

This, says chief people officer Kathleen Hogan, is the big change that came in 2013, when it quashed its "stack ranking" system.

"We really moved from a system that was a forced rating system, where 20% of folks had to get a 1 and 20% got a 2. And largely it was focused on your individual impact," Hogan told Business Insider in an exclusive interview.

But, following Microsoft's massive culture shift, that's all changed: "What we really value is three dimensions," she added. "One is your own individual impact, the second is how you contributed to others and other success, and the third is how you leveraged the work of others."

Microsoft's performance-review system was once notorious for ranking employees relative to each other.

Even high-performing employees would get low scores because the team's scores had to fall along a distribution curve, with 20% of people getting a 1, 20% getting a 2, and so on until 5, the lowest score.

As part of the One Microsoft strategy, which rolled out in 2013 to make the company more efficient and innovative, Microsoft changed its performance and development process. The stack ranking system had to go. Hogan says that the performance review modification was one change that heralded a new era for Microsoft.

In a follow-up, a Microsoft spokesperson told Business Insider that the company does not publicly disclose data reflecting how changes in its performance review system has affected employee performance. The spokesperson did note that managers and leaders no longer allocate rewards based on a predetermined distribution curve.

The mechanics of Microsoft performance reviews, distilled.

Employees at Microsoft meet with their managers in a series of "Connects" to look at their performance instead of meeting with them once a year.

Managers must emphasize more than just individual impact. "We have a little bit of a 'not invented here' syndrome," Hogan said, which means the company favors internally-developed solutions over viable external solutions.

Collaboration is crucial to developing technologies in-house. It's not enough for employees to work on their own projects with their heads down, because they're evaluated based on how they help and incorporate the work of others.

Inclusion became part of the performance review process last year for every employee. Employees and managers have to cultivate a general awareness of other people's ideas and impact, and have conversations around inclusion on a macro and micro scale.

For example, employees should actively create an environment where people of diverse backgrounds can thrive. Microsoft as a company practices inclusive design, or creating products for a diverse audience by considering that diversity throughout the design process.

Besides inclusion, other shared core values include teamwork and collaboration, plus employee growth and development.

The future of performance reviews is conversational.

Microsoft is still working to improve its system. A spokesperson highlighted the launch of Perspectives in May 2018, which is a peer-to-peer technique that addresses the difficulty of giving and receiving feedback: When people ask for feedback, they're generally more receptive to it.

When you ask for a perspective, you're supposed to suggest things that people can "keep doing" and things they should "rethink." Employees can ask for specific input, which is no longer anonymous, and feedback comes directly to them instead of being filtered through managers.

Early reports on the tool were positive.

"We're really recognizing people who were driving impact but were enabling others' success, as well as leveraging others, in the spirit of 'One Microsoft,'" Hogan said.

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