How Stack Ranking Works in Your Performance Review

Vanity Fair recently lambasted Microsoft for losing its innovation prowess. The magazine  blames the Redmond giant’s management style, and takes specific aim at its stack ranking review system.

Every current and former Microsoft employee [Eichenwald] interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees

Stack ranking is a pretty simple system. Every manager ranks their employees into buckets of a certain size. X percent are top performers, Y percent are the next tier down, and so on. On a team of 15 people, there might be three top tier slots, eight middle tier slots, and four bottom tier slots. No matter how good the team is overall, everyone’s going into one of those tiers. Stack ranking can be applied to individuals or to teams — any definable subsets of a larger group.

The argument for stack ranking is pretty simple: Not everyone is above average. In any group of people, some will perform better than others. Stack ranking makes a manager separate the rock stars and the weaker links. It’s a transparent system that identifies the best of any group, whether it’s a team, division, department, etc.

There are some major downsides, however. Stack ranking foments competition among peers on a team — there are only so many top slots — and diminishes cooperation among its members. It’s also not comparable across teams: A top tier person on team A might have gotten a bottom tier ranking on team B, even if team B was just that good. Lastly, as with any review system, the rewards go to those who best “game the system,” not necessarily to the best overall performers.

But like it or not, stack ranking is pervasive. GE used a form of it for years and is frequently credited with popularizing it. Microsoft will certainly continue to use it, at least for a while. Other companies ranging from IBM to Pepsi to a decent percentage of Fortune 500 companies also use stack ranking.

So, my question: Would you go work for a company that used a stack ranking review system? Tell me in the comments below.


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6 Responses to “How Stack Ranking Works in Your Performance Review”

  1. Jimmy Lozano

    I’m NOT AGREE with this system develop, because of this:

    “” Every manager ranks their employees into buckets of a certain size. “”

    So… what happen when the decision from “The Manager ARE WRONG or HAS INTEREST”

  2. I agree that not everyone is above average, but I disagree the system is transparent. What are the criteria for the “stack ranking”? It is objective, or subjective?

    I know a manager who frequently “stack ranked” his staff. Two subordinates who were placed low in the stack were also frequently the same staff members who others turned to for answers.

  3. Interesting post, Catherine. The biggest problem with stack ranking is that is pigeon holes employees into a generic rating system. Like traditional performance reviews, stack ranking probably doesn’t consider every goal that was worked on or achievement that was made. As you touched upon, one of the goals of stack ranking is likely to provide a more “transparent” workforce. However, there’s nothing really transparent about this since it provides yet another generic ranking system without giving employees the tools they need to be better workers. Further, the performance style of each employee is different, which needs to be considered when they are being appraised.

    The more sensible alternative is to encourage real-time feedback instead of stack ranking employees. Real-time feedback offers employees the direction they need as a goal is being worked on, not a year later or through putting employees in stereotypical groups. Employees are aware of their performance through actual critiques, not a generic system. This is what really improves performance, engages employees, and provides a more productive workforce.

    • Jimmy Lozano

      —-“”Employees are aware of their performance through actual critiques, not a generic system.””—-
      Good point Morgan

      But, more than the Employees are aware of their performance, they are aware about “what the bosses are thinking and what the bosses want the employee TO DO.

      So… what happen when the employee has the reason in what he are doing and the boss realizes but, does not want to know about his situation?

  4. Outsourced Sam

    The real problem is having a knowledgeable enough manager to know how to evaluate performance. Years ago I had a manager dumb enough to ask me why it took me as long to build the underlying game engine as it took my coworker to create some message boxes. He simply had no clue how to evaluate the problem at hand and the degree of skill it took to do the jobs. It his eyes I was the under-performer even though I was doing a job that my coworker didn’t have the skill to do.