Institutions have embraced 'systems' for their ostensible objectivity and, on advice of counsel, because they can help deflect the inevitable legal challenges that ensue.
The most famous - or infamous - system depending on your point of view (and probably your personal experience) was embraced by former GE CEO Jack Welch. He was popularly known as 'Neutron Jack' due to his reputation for acquiring assets but firing most of the employees associated with them. He believed deeply in the so-called 'stack ranking' system which demanded that employees be ranked relative to each other - and that the bottom ten percent be culled, or to put it in a more genteel fashion, 'counseled out.'
The problem with this system is that it pits people against each other out of sheer survival instinct, rather than inculcating the sort of collaborative culture now deemed essential to a multi-cultural economy.
Microsoft imported this system at some point. Despite his recent reputation for generosity and global good fellowship, Bill Gates was a ruthless business executive and his successor, Steve Ballmer, attempted to follow suit. Stack ranking has always been controversial there, as the following article explains, for all of the usually pertinent reasons: it can impede rather than encourage innovation, cooperation and growth.
Now that Ballmer has announced his retirement, the stack ranking system is being replaced with an approach more in tune with the changing economic reality in tech. Since Microsoft has come catching up to do, it can no longer afford to be quite so cavalier with the people it attracts. They have too many other good options and MSFT is no longer even the largest employer in Seattle, its home time. That position belongs to the younger (and not noticeably more indulgent) Amazon.
Interestingly, just as Microsoft abandons this approach, reports have surfaced that Marissa Mayer may be installing it at Yahoo. Smells like consultants have sold this package to her, but based on the MSFT experience, it could be a signal that she's moving on. Whatever the reasoning, this is not the system managers want when their enterprise already suffers from reputational deficiencies. As one observer noted, management should not be wasting time ranking employees from 1 to 5, but should be figuring out how to make every employee a 5. JL
Julianne Pepitone reports in CNN/Money:
Microsoft is getting rid of its much-maligned "stack ranking" method of reviewing employees. The system forced managers to rate a certain percentage of workers as underperforming, no matter what.
The ranking system also helped Microsoft (MSFT, Fortune 500) decide which top performers received promotions and bonuses. But critics and former Microsoft employees alike have said the program pit staffers against each other -- which hampered collaboration and put the focus on internal, rather than external, competition.
Microsoft's new review program focuses on personal performance and teamwork that benefits the company -- which means "no more curve" and "no more rankings," according to an email that HR manager Lisa Tremmel sent to global employees on Tuesday. Microsoft shared the email with CNNMoney.
A Microsoft spokesman would not say when the company first enacted its stack-ranking setup, or how many categories it used to rate employees.
But classic stack ranking -- also known as a vitality curve, or the more blunt "rank and yank" -- classifies employees based on a 20-70-10 system. The top 20% of workers are deemed the cream of the crop, 70% receive adequate ratings and the bottom 10% are characterized as underperformers who potentially should be fired.
That 20-70-10 setup, which former General Electric (GE, Fortune 500) CEO Jack Welch popularized in the 1980s, spawned similar ranking programs at Motorola, IBM (IBM, Fortune 500), Ford (F, Fortune 500) and other companies.
Related story: Should performance reviews be crowdsourced?
At Microsoft, CEO Steve Ballmer reportedly championed the system. Ballmer announced in August that he would leave the company within 12 months. And a scathing Vanity Fair article from August 2012 about Ballmer's tenure -- titled "Microsoft's Lost Decade" -- pegged stack ranking as a major contributor to the company's struggles.
"Every current and former Microsoft employee I interviewed -- every one -- cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees," Kurt Eichenwald wrote in the Vanity Fair article.
But the end of stack ranking at Microsoft comes just as another tech giant has reportedly embraced it.
According to tech blog AllThingsD, Yahoo (YHOO, Fortune 500)employees are reeling from 600 recent firings as a result of a stack-ranking system that was instituted by CEO Marissa Mayer after she joined the company from Google (GOOG, Fortune 500) last year. Yahoo did not return calls for comment.
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