February 12th, 2014

Microsoft stops cruel employee rating system

Jack Welch, the former CEO of General Electric, “Neutron Jack,” and “CEO of the Century,” famously practiced and preached that the “top 20% of performers deserved to be handsomely rewarded while the bottom 10% should be replaced.” His “winning” strategy was to instill fear in all workers that at any time they could drop into the abyss of the lowest 10% and be banished.

Companies copied the practice of forced distributions for performance ratings, then acting on the arbitrarily discarded 10%-ers. One such company was Microsoft. They called it “stack ranking.” Microsoft used a 1 to 5 scale, with 1 being the best and dictates that 20% of employees get a 1, 20% get a 2, 40% get a 3, 13% get a 4, and 7% get a 5 — a forced distribution not based on merit. Groups were also ranked against each other. Managers then had to fight among themselves to get resources.

The system compelled managers to fire people while ignoring actual performance criteria. It is a cruel system to both inaccurately rated workers and rating managers. It pits employee against employee, fostering a bullying culture. It creates zero-sum competition within the ranks that consume every worker’s emotional energy. Here’s how one manager described it:

When I became a manager I was forced to stack rank and kill off several people. It was the cruelest, most vicious form of management ever devised. The philosophy was to get rid of the bottom 10% and refresh the ranks. I found myself forced to get rid of people who had devoted many years of service to MSFT’s success but had either burned out or had suffered some other life crisis (illness, death, divorce etc) which caused them to rank last. So rather than work to improve our people we got rid of the heart of MSFT culture. I hated it. I loathed it. And it caused me to burn out too. I left in 2000. Just in time to miss the burst of the Tech bubble. Yet our district manager, (who shall remain nameless), thrived in all of this chaos and turned it into a lucrative career. Such was the politics of MSFT at the time. Kinda like the old Star Trek parallel universe episode. Where you advanced by forming alliances and killing off your competition. And hence the decline of MSFT since the late 90’s. Yet some people came out on top. Cruelty isn’t even the right word.

Microsoft under the Steve Ballmer regime has been criticized for losing its way in the marketplace. Part of the “lost decade” was the mismanagement of people, creating what many considered a “cannibalistic culture.” Ballmer brought stack rankings to Microsoft.

Practices like Welch’s model, once adopted, are rarely abandoned. They define the “new normal” workplace, de-senstitizing us to escalating cruelty in the process.

But this story has a happy ending. On Nov. 12, 2013, Microsoft HR EVP Lisa Brummel notified employees that changes were happening to affect the workplace culture. Two points are especially relevant:

No more curve. We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. 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.

No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.

Stacked ratings at Microsoft are dead. Yea!!!!!

We wish MS luck in restoring some humanity to the culture. If you or someone you know works at MS, please write and tell us if resultant changes are genuine and positive or not.


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This entry was posted on Wednesday, February 12th, 2014 at 12:38 pm and is filed under Good News, Tutorials About Bullying, WBI Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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