![]() ![]() Let's say you have 10 people who would all rate 8/10 at a company that rates their employees against an objective scale. Typical of the water-cooler debate over stack ranking are comments posted onįortune article about Microsoft's action, which included remarks such as these: What's vital is that performance-review and compensation systems be aligned with and support an organization's overall mission and values, have the backing of senior leaders, and be clearly communicated and explained to line managers and employees throughout the company. ![]() A pay philosophy that may work best for one company, at one point, may not be the right solution for others. Organizations have different cultures, and those cultures change over time, as does corporate leadership. … And there's nothing that quite forces that more than employees knowing that they expect to know how that manager ranks them, and then asking that manager, 'Tell me where I rank and tell me why.' " At GE there was only one objective, and that was to force honesty. ![]() Similarly, David Calhoun, CEO of Nielsen Holdings and former vice chairman of GE,įortune magazine that he still uses and supports stack ranking, saying, "I'm a fan of relative ranking, a big fan. Then you evaluate and reward people accordingly. If you want teamwork, you identify it as a value. One criticism of stack ranking specifically, and pay differentiation generally, is that it devalues teamwork. "Most experienced businesspeople know that 'rank and yank' is a media-invented, politicized, sledgehammer of a pejorative that perpetuates a myth about a powerfully effective real practice called (more appropriately) differentiation," Welch wrote. Wall Street Journal op-ed published in the wake of Microsoft's announcement, former General Electric CEO Jack Welch, credited with popularizing stack ranking while running GE,ĭefended the process-when it’s done right. It produces an environment where employees compete with each other more than with competitors in the marketplace." "Rank stacking is punishing to the rater and the ratee. ![]() "If you are hiring competent people, what does it say about an organization when 10 percent of those people fail each year?" management consultant Aubrey Daniels commented to Nevertheless, critics refer to it derisively as "rank and yank," meaning that employees who end up in the bottom ranks are often fired or encouraged to leave. SHRM Online article " Integrating Performance Management and Rewards at Microsoft.")Īt many companies, and in particular at technology firms. (For more information about how stack ranking worked at the software giant, see the This was intended to allow the company to invest its compensation budget more heavily in positions deemed most critical and in disciplines most significant to the company's success, such as engineering, research and development. The single rating triggered increases in merit pay, bonuses and the awarding of restricted stock units, with the size of the increase tied to factors such as job family and discipline. Stack Ranking: Job Ratings and Rewards and Microsoft Targeted distribution limits the percentage of workers in each rating category. A 3 rating equaled target compensation that was competitive with what was offered in the local job market. The rating ranged from 1 (highest) to 5 (lowest). Employees received one rating based on their manager's assessment and a calibration process (typically with managers one or two levels above the employee). The stack ranking system was put in place for Microsoft's 2011 performance reviews. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget." We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Seattle Times reported, Lisa Brummel, Microsoft’s head of human resources, wrote in a Nov. The most contentious aspect of this approach was its targeted, or forced, distribution requirements, which meant managers had to designate a small percentage of their direct reports as underperformers. announced it had ended its controversial "stack ranking" employee-review and compensation system and no longer requires managers to grade employees against one another and rank them on a scale of 1 to 5. ![]()
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