Why Stack Ranking Is A Terrible Way To Motivate Employees

Max Nisen

Nov 15, 2013, 23:06 IST

Stack ranking, also referred to as forced ranking, where managers across a company are required to rank all of their employees on a bell curve, has been a controversial management technique since then GE CEO Jack Welch popularized it in the 1980s.

Only a small percentage of employees, typically about 10%, can be designated as top performers. Meanwhile, a set number must be labeled as low performers and are often fired or pushed out, giving the system the popular nickname "rank and yank."

This week, stack ranking popped back into the news when Microsoft announced it was eliminating the process. At the same time, Yahoo CEO Marissa Mayer embroiled herself in yet another HR controversy after employees' complaints on an internal message board about its "Quantitative Performance Ranking" became public via AllThingsD.

The use of stack ranking, which has been almost ubiquitous at large companies for years, has recently plummeted, since many companies now realize it can actually hurt performance. In this case, it looks like Microsoft is on the right side of history, and Yahoo is still in the stone age.

The news that Microsoft would kill its review system isn't too surprising, since aggressive stack ranking was a pet policy of outgoing CEO Steve Ballmer. It's also been a huge source of employee discontent.

According to Cliff Stevenson, senior human capital researcher at the Institute for Corporate Productivity (i4cp), Microsoft is right to ax the policy. When i4cp asked companies in 2009 how many of them used stack ranking systems, 49% said yes. By 2011, only 14% used them.

The companies the researchers identified as high-performing had already moved away from the system. Only 7% of high-performing companies used stack ranking in 2009, and only 6% used it in 2011.

"What's happened in the last 15 or 20 years is that HR has started to take a more analytical approach," Stevenson said. We started to see the rise of evidence-based human resources, and when they looked at the numbers they weren't finding success [with stack ranking]. In fact, they were finding negative correlations to employee engagement and especially to innovation."

Most companies have shifted to systems that are more flexible. Employees may still be rated or ranked, but not along a bell curve or with strict cutoffs. There is also more focus on consistent feedback and how people can improve.

That's certainly a better way to review employees. In a hyper-competitive workplace, where management is essentially asking employees to outperform the people sitting next to them, employees don't have an incentive to share ideas or collaborate.

Instead, the incentive is to focus on the most visible and individual aspects of performance, rather than working together toward broader goals. And at its most extreme, employees may focus on preventing others from excelling. That's exactly what happened at Microsoft, and why it's chosen to drop the practice.

When expectations are poorly explained and the process seems unfair or political, people underperform.

What's more, Stevenson argues that it's extremely difficult to truly measure many workplace skills. Take communication. Tallying the number of phone calls someone makes is hardly valuable. So rankings can end up being arbitrary, unpleasant, and poorly linked with performance.

That dovetails with the personal responses of managers and employees, who typically hate stack ranking.

Still, most companies use some form of numerical ranking, and that's to be expected. It's forcing managers to dole out a set number of bad or excellent reviews, as well as the intense pressure of the "rank and yank" system, that people hate.

Singling people out as "poor" - or the diplomatic Yahoo version, "occasionally misses" - and making them fear for their jobs doesn't inspire them. It scares them. And forcing managers to name a certain number of people as poor performers, even if they don't feel that way, makes them miserable.

A quote from an internal Yahoo message board surfaced by Kara Swisher sums things up nicely:

"I was forced to give an employee an occasionally misses, was very uncomfortable with it. Now, I have to have a discussion about it when I have my QPR meetings. I feel so uncomfortable because in order to meet the bell curve, I have to tell the employee that they missed when I truly don't believe it to be the case. I understand we want to weed out mis hires/people not meeting their goals, but this practice is concerning. I don't want to lose the person mentally. How do we justify?"

Managers end up feeling uncomfortable and may compete with other divisions rather than working with them. Meanwhile, employees may feel discouraged and become less productive.

Stack ranking might be sold as a way to rapidly get rid of dead weight, but in the long run, it only ends up creating more of it.