This post is from August 27, 2013 and is updated with reformatting on January 23, 2022.
Microsoft employees and the market are celebrating the exit of Steve Balmer and hopefully the exit of the much hated employee “stack rank” system at Microsoft which must be at least partly to blame for Balmer and Microsoft’s troubles. Since the stack-rank Microsoft style of employee ranking is after all a bell-curve, like Jack Welch GE performance evaluation system pictured alongside, the question is: Why does a bell-shaped ranking of employee performance seem to work at GE and not at Microsoft?. Here are some thoughts:
- GE and Welch advocate candor: Instead of seeing the performance appraisal as paper work or some kind of political play, Welch advocates frankness and candor. Here every employee is given feedback not just once a year but as often as possible. Welch writes(Pages 104 and 105, Winning 2005 Edition- with Suzy Welch) :
- The performance review document should be not more than two pages. Jack Welch used to send hand written notes to direct reports covering only two things (a) what the person did well and (b) how he thought that the person could improve.
- Should measure quantitative goals (how long did you take to develop that new product compared to the agreed time? ) and behaviors ( are your team members feeling burnt out or energized?).
- Informal evaluations should be done by every manger for her/his team and communicated frequently. At least one formal face to face evaluation must be done a year and preferably two evaluations, where the employee is told clearly where she/he is performing in relation to team colleagues.
- There must be a professional development component in evaluations to allow the individual to grow in her direction of choice. Must ask who will potentially replace the manager when she moves up to another role.
All these things happen in a flat organization where roles,responsibilities,reporting and deliverables are crystal clear and understood at the manager and team level. Incidentally, the appraisal system promotes innovation and team work.Now consider the Microsoft stack-rank, conducted in a multi-layered organization:
- Lack of candor at Microsoft :As David Auerbach explains in detail at Slate.com, employees were graded in absentia. Microsoft and the ratings could be completely overturned as the managers at every level jockeyed to get their people better rated. Auerbach writes ….”for years Microsoft did not admit the existence of the stack rank to nonmanagers.”
As teachers from elementary school to Universities and graduate programs know, most students are willing to put up with a heavy work load and any hard grading, that the teacher comes up with. However, no student is willing to put up with grading ( again a bell curve) where the grading process and criteria are not perceived to be clear, transparent and fair to all students in the class.
It is quite amazing that many large companies including Microsoft, seem so reluctant to tell each employee exactly how they are doing and how they can improve. By avoiding candor, not only is the bottom 10% devastated but the middle 70% does not want to take any risk and innovate.Microsoft’s lackluster innovation output points to exactly this situation.