Trouble with the Curve? Why Microsoft is Ditching Stack Rankings

“No more curve,” said Lisa Brummel, Microsoft’s EVP of HR last week, curtly dismissing Microsoft’s much-derided but iconic practice of ranking each team member on a forced distribution. This was big news, the lead of many a business section. After all, this practice of “stack ranking,” of being forced to rate every single one of your team on a bell curve from excellent to poor (even if the whole team had, in fact, performed excellently) has been singled out by everyone from HBR to Vanity Fair as one of the reasons for Microsoft’s inability to foster high-performing teams, a major cause of its “lost decade.”

And not just big news, but welcome news for anyone who has ever struggled to keep a straight face while telling a direct report that a “3” really isn’t that bad, that it truly does mean “meets expectations,” and that, hey, sixty percent of the company gets that rating, so don’t be too down on yourself.

However, welcome as it is, Microsoft’s ditching of stack ranking isn’t the big news—according to a Corporate Executive Board survey, only 29% of companies use a forced curve in their performance management system. No, the big news came in the next paragraph of Lisa’s email:

“And no more ratings,” she said.

No more ratings? According to the CEB study, more than 90% of all companies surveyed use some kind of rating system to measure performance. Every single one of the big Human Capital Management (HCM) software companies, from Oracle to CornerstoneOnDemand to SuccessFactors, uses ratings as the lynch pin of its platform. These ratings—of overall performance, and of the many competencies that apparently combine to create overall performance—are the raw material for everything else that the company does to and for its people. These ratings feed compensation. They guide succession planning. They pinpoint performance gaps and then trigger the necessary training and learning interventions. These ratings are the lingua franca of performance, and are so central to performance management that HCM software providers are competing with each other to see who can help managers generate them faster, explain them better, and display them ever more graphically. All systems are designed to produce something. For HCM systems, that something is ratings.

So, if Microsoft is ditching ratings, if they are saying that ratings hinder performance rather than help it, what does that mean for the 90% of us who labor every six months to generate them for our teams? And what does it mean for the software providers whose systems compel us to do so?

Hard to say, of course—after all, on the day Microsoft announced its rejection of ratings, Yahoo was publicly struggling with the fall-out from its botched re-launch of stack rankings. Nonetheless, when Microsoft throws out ratings, and on closer scrutiny one discovers that in the last year many other companies, such as Adobe, Medtronics, Kelly Services, NY Life, and Juniper have done the same, it’s time to sit up and pay attention. Performance, how we manage it, measure it, and reward it, is changing. And so now is an excellent time to ask ourselves “What is the world we are leaving behind and where precisely are we headed?’

The world we are leaving behind is unquestionably a deeply unpopular world—not only do most managers dislike their performance management system, but most human resources professionals don’t like theirs, either. One cause of this dissatisfaction is a misunderstanding of motives: managers think that their performance management system is designed to help them accelerate the performance of their people. I would argue that a performance management system should be designed primarily for this purpose, and indeed some purport to be—but scratch the surface and you quickly learn that they aren’t.

Instead the purpose of these systems is twofold: first, to allocate compensation fairly; and second, to align each individual’s goals with the values and strategies of the company. These aren’t nefarious purposes—they are actually rather sensible—but they are clearly secondary or at least tangential to helping employees become more productive.

Companies could probably alleviate some of the current dissatisfaction by being more straightforward that the performance management system is not for you, the employee; it is instead a company system, designed to ensure a bell curve of compensation, and alignment to company goals. Not a particularly uplifting positioning, I grant you, but at least employees and managers would be able to judge it on its own terms.

Of course, this wouldn’t fix the underlying problem of ratings – which is that, for a variety of reasons, they turn out to be bogus (a topic I will address in a follow-up post). Perhaps most managers have long suspected this. Perhaps their dissatisfaction with performance management systems stems from this suspicion. Either way, Microsoft’s rejection of ratings has done all of us a service. It shines a harsh spotlight on the approach that defines performance management today, and helps others see that it is seriously overrated.

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