There is always a well-known solution to every human problem–neat, plausible, and wrong.
- H.L. Melcken
It’s an interesting time in Silicon Valley. Microsoft, fresh off this summer’s reorganization, has ditched stack ranking, the controversial process by which all employees are rated, and the bottom fifth (or 10%, or some percentage) are ‘asked’ to leave the organization if they can not improve their scores. Meanwhile, according to the Washington Post, Yahoo has picked it up.
First, let’s examine the practice.
It Starts With Jack Welch
To hear Jack tell it, “rank and yank” is a decent, righteous, human thing to do.
“That Bottom Twenty? Tell them, basically, why they should move on. And don’t do it in a guillotine job, but have a conversation over the course of a year of so, tell them what their shortfalls are, tell them they are in bottom 10%. Don’t give them a raise of any kind, don’t give them that 2-3% that keeps people hanging around. Cut off the salary issue, and then ask them to leave, and say ‘Let’s over the next several months work together to get you in the right place.’”
The alternative, at least according to Welch, is to hold onto people, give them tiny raises, and, when you hit a bump in the road, have a large layoff where you ‘take out the trash’, leaving people who were never told they needed improvement no time to upskill or find the right job for the skills they go have.
Welch makes the practice sound honorable, downright saintly, doesn’t he?
For some reason, it reminds me of the the Mencken quote just a little bit too much.
What makes it so vicious is the nature of its forced bell curve — managers must assign 10% to the needs improvement group, regardless of how well they perform.
Stack ranking rewards secrecy, gaming behavior, and short-term rewards (do what you need to get the good review this quarter) over the best long-term interests of the company.
You don’t have to take my word for this; the executives at Microsoft came to the same conclusion. To find it, you only have to carefully parse the HR-speak an all-employee memo that came out earlier this week, announcing the death of stack ranking at Microsoft:
This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives
• 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.
Microsoft went to exit interviews and found people hate forced stack ranking. It creates competition, secrecy, and a culture of fear that prevents people from working together when honest collaboration might possibly lead to an admission of weakness. (Matt says: That’s like, all the time.)
While Yahoo has long been considered “in a slump”, the company has increased profits for the quarter ending 30 september from 175 million in 2012 to 212 million in 2013. This is not a company about to go under, that needs to force a layoff — it’s more a company that needs to do something to tell Wall Street that things have changed, to restore some luster to a ‘sinking’ brand. (Gross revenue, or raw sales numbers, by the way, are down 5%. I can take a guess at what fueled that profit, and it is a vicious cycle called cost cutting.)
This week, according to press reports, Yahoo is getting into the Stack Ranking game.
You can reframe that as my opinion. Plenty of people like what Welch has to say, including wall street, who rewarded him with 20% annual compounded stock increase over his time as CEO of GE. Certainly, the layoff alternative he presents is not appealing, but it is also what is known as the fallacy of the false dilemma — presenting a series of options as one single either/or choice.
We can do better. Yahoo can do better.
More to come.