How Do You Stack Rank? An In-Depth Look at This Controversial Performance Management Practice

Hey there! As a fellow tech geek with a passion for data, I wanted to provide a comprehensive overview of stack ranking. This controversial employee evaluation method has its defenders and detractors, so let’s unpack exactly how stack ranking works and its upsides and downsides.

What is Stack Ranking?

Stack ranking, also known as forced ranking, involves managers rating employees compared to their peers rather than against objective criteria. Employees are distributed along a bell curve, designating a fixed percentage as:

• Top performers (top 20%)
• Average performers (middle 70%)
• Low performers (bottom 10%)

This means that no matter how strong your team is, someone has to end up on the bottom rung. Proponents argue this creates healthy competition, while critics say it leads to demoralizing employees.

The Origins of Stack Ranking at GE

No discussion of stack ranking is complete without looking at GE under Jack Welch in the 1980s. Welch pioneered the “Vitality Curve” and “rank and yank” system.

“Rank and yank simply means 10 percent of employees, the bottom 10 percent, get zero rating. We rank everybody and the bottom 10 percent go every year.” – Jack Welch

With rank and yank, GE systematically laid off the bottom 10% of performers each year, regardless of absolute performance. Welch claimed this improved productivity dramatically.

During his tenure, GE became the world’s largest and most valuable company. Many sought to copy Welch‘s stack ranking secrets, often with less success.

How Rank and Yank Works

The rank and yank flavor of stack ranking codified by Jack Welch works as follows:

• Managers rank team members along a 5-point curve during performance reviews
• The bottom 10% scorers are labeled low performers without debate
• Low performers are put on performance improvement plans or dismissed
• To avoid “yanking” or firing too many employees, managers inflate scores
• Rank and yank is repeated every review cycle to continually remove low performers

Companies like Amazon and Yahoo have implemented versions of rank and yank, despite Welch himself later calling the system “harsh.”

The Effectiveness of Stack Ranking: The Research

Proponents claim stack ranking motivates employees and improves results by tying ratings to rewards. But what does the data say?

• A 2006 study found bottom-ranked employees at firms were 20% more likely to seek new jobs.
• Another study found employees unhappy after layoffs stayed disengaged, harming productivity.
• Microsoft found stack ranking led to unhealthy competition and potentially smart employees being fired randomly.
• A 2016 analysis found forced ranking has questionable long-term effects on performance.

While more research is needed, evidence against stack ranking appears to be mounting. Next, let’s look at some tech companies’ experiences specifically.

Case Study: Microsoft’s “Lost Decade”

Microsoft adopted stack ranking in the mid-2000s under CEO Steve Ballmer. Managers were required to slot employees into pre-defined boxes.

• Top performers: 20%
• Good performers: 40%
• Average performers: 30%
• Poor performers: 5%
• Unacceptable performers: 5%

Low-ranked employees faced bonus cuts or firing, regardless of team or role.

This policy was blamed by some for creating constant infighting between teams and individuals. Many smart engineers focused on protecting their rank rather than collaborating.

Ballmer himself admitted stack ranking led to “unhealthy competition” at Microsoft. The company stagnated in the 2000s and missed the boat on major tech trends like smartphones. This lost decade of innovation is what ultimately led Microsoft to ditch stack ranking.

Why Do Companies Use Stack Ranking?

With all the criticism, why do organizations still use stack ranking? Here are some of the benefits advocates claim it provides:

• Identifies top talent and poor performers objectively
• Rewards top performers and avoids complacency
• Focuses managers on differentiation between employees
• Provides data to inform compensation and promotions
• Cultivates competitiveness between employees
• Weeds out poor performers if coupled with rank and yank

However, even supporters admit stack ranking has downsides and must be implemented carefully.

How to Make Stack Ranking Fairer and More Effective

I don’t believe enforced curves are the best way to evaluate talent. But if your company uses stack ranking, here are some tips to make it as fair as possible:

• Use clear weighted criteria combining metrics and manager discretion
• Train managers on limiting bias when comparing employees
• Have managers justify rankings with evidence
• Rotate managers to rate employees across different teams
• Communicate purpose and process openly with employees
• Balance with self-evaluations and peer reviews
• Don’t share exact ratings, present them relatively
• Set expectations that compensation/promotion is not guaranteed

The key is to remove subjectivity and ensure the focus stays on individual development areas, not the rating itself.

Alternative Performance Management Methods

Rather than pitting employees against each other, what are some other options for evaluating performance?

360-Degree Feedback: Combines self-evaluation with feedback from managers, peers, subordinates, and sometimes customers. Provides a holistic view.

Management by Objectives (MBOs): Employees set specific, measurable goals aligned to company objectives. Performance measured against goals.

Weekly One-on-Ones: Ongoing weekly check-ins allow managers to provide continuous feedback, not just annually.

Peer Feedback: Confidential peer reviews can supplement manager ratings by aggregating feedback from colleagues.

OKRs (Objectives and Key Results): Team sets ambitious objectives and tracks quantitative key results over a quarter. Focuses on outcomes.

Combining methods provides a balanced approach. Stack ranking has a role but works best when complemented with techniques focused on employee growth and development.

The Future of Stack Ranking

Is there still a place for stack ranking in the modern workplace? Opinions differ on whether the costs outweigh the benefits.

On the one hand, some data-driven managers prefer enforced curves to quantify performance. Ranking also provides useful data for compensation and promotions.

However, rigid quotas seem at odds with contemporary management philosophies centered on empathy, growth mindset, and teamwork. Forced competition risks harming culture.

My view is that while ratings have a use, checkbox exercises should never dictate employee value. Opportunities to develop and improve are what matter most.

The Bottom Line

I hope this overview has helped explain how stack ranking works and why it remains so controversial amongst business leaders. It originated with Jack Welch’s GE in the 1980s but was popularized in tech companies like Microsoft.

Proponents believe stack ranking motivates staff and improves results. But critics argue it leads to unhealthy competition, bias, and hostility. The truth likely lies somewhere in the middle.

Done right, stack rankings can provide one data point to measure performance. But other methods like OKRs and peer feedback help ensure holistic employee growth and avoid some of the pitfalls of forced curves.

What do you think? Does stack ranking have a place in today’s workplaces? I welcome your thoughts on this debated practice. Feel free to share any experiences you’ve had with stack ranking yourself.