Uncharted Waters

Nov 13 2013   12:18PM GMT

Ending Stack Ranking at Microsoft, Starting it at Yahoo

Matt Heusser Matt Heusser Profile: Matt Heusser

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.

Unintended Consequences

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.

Imagine you work in a system where you are good at what you do. The system is fair, rewarding top performers, eliminating the bottom 10%, and periodically bringing in new faces. Because you know more than your peers, and can execute better, at, say, HTML5, CSS, and Javascript, you get the good review you deserve.

Now, you could share what you know with your team, help them master the newest javascripty framework — but that would wipe out your differentiation in your review, right? Everyone else would be at your level, and you’d have to go do a lot of spade work to improve this year.

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.

In Non-HR-Speak?

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.)

And Yahoo

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.

8  Comments on this Post

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  • Seekingtester
    Do you have a reference for this - "and the bottom fifth (or sometimes third) are ‘asked’ to leave the organization annually."? FWIW, the statement is grossly wrong (not that it matters anymore).

    And then it goes downhill. Have you ever worked at Microsoft (or a company that does stack ranking). The statements and suppositions in this article seem so far off base that I have to wonder out loud what credentials you have for writing about this topic? Perhaps you should stick to testing topics?

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  • Matt Heusser
    The bit about firing the bottom x%? I got that from jack Welch in the video. That isn't my definition, it is his. It correlates with conversations I have had with Microsoft employees over the years, yes. (Thought at MS it does sound like a longer "counselling out" process with chance to come back.) Have /you/ worked at Microsoft? What organizations did you work at that used forced, quota-style stack rankings? If you disagree, I'm sorry, you'll need to provide your references and experiences.
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  • Seekingtester
    Thanks for the reply. Your writing implies that's what Microsoft does. My sources at Microsoft (and my time there) state that this is definitely how Microsoft used the curve. Or did I miss the time when Jack Welch ran Microsoft?
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  • Matt Heusser
    "My sources at Microsoft (and my time there) state that this is definitely how Microsoft used the curve"

    Uh, did you mean definitely /not/ here? Because it reads like you agree with me.

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  • Matt Heusser
    Yes, I do believe that microsoft practices rank-and-yank, based on public comments, and private interviews. Mini-microsoft is probably the most reputed microsoft insider blog on the topic - http://minimsft.blogspot.com/2005/07/microsoft-stack-ranking-is-not-good.html Of course, from what I can tell, the MS process was more "counseled out over time"-ish (with a chance, for example, to earn your way back in) than what Welch describes.
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  • Seekingtester
    <sigh> - sorry for being so harsh (or for you viewing it that way), but I get annoyed when bloggers like you do slightly more than half an iota of research before writing an article. I complain to the local paper when they do the same thing (except they're less defensive).

    And dude, in no world or dimension I can imagine is MiniMicrosoft a credible news source. For all you know, I am mini. That site is populated by slashdot trash far more than people who have actually worked at Microsoft. Everyone knows that, except, apparently, you.

    You seem to want to write a lot, and that's great. Just please, please research A LITTLE before jumping to wild-ass conclusions or making presumptions that are just flat out false. Or maybe the controversy drums up page hits and $$ for you.

    Finally, don't send me private email. I'm happy to enter it here to prove I'm a real person, but I consider it a violation of my privacy for you to send me mail directly and ask if I'm someone I've never heard of. Apparently, you have enemies, issues, or both. I don't care. As a consultant, I spend a few yours a day reading everything I can to try and get a leg up. When I spot something wrong, I point it out. You're a tester, right - doesn't it mean that you do that for a living?

    Rest assured, I'll try to leave you alone the next time you spout BS, but some self-reflection on your part may be good mojo for ya.
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  • Matt Heusser
    I'll let the readers compare the tone of the rhetoric and decide for themselves who is out of line here. Thank you for your comments.
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  • TomLiotta
    One of the easiest tasks I've had lately is deciding who's out of line here. Simply thinking that MiniMicrosoft is not at all credible would be enough evidence for a decision. Added to the rest, which presents no substance and seems to have an inappropriate tone for no apparent reason, it makes the comments seem pointless. As they started to develop, I hoped to read a reasoned counterpoint. It turned instead to be a disappointing waste of my time. -- Tom
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