"Stack ranking": a good way to encourage backstabbing

While the bell curve is indeed found in nature, it's probably not
found in corporate America. Credit: Wikipedia

Last month, Vanity Fair published a pretty remarkable story on Microsoft and how poorly its management has been adapting to the new challenges of the internet, including Google and Apple. But I noted this rather remarkable section about their employee review system:

At the center of the cultural problems was a management system called “stack ranking.” 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. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor. 

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.” 

Supposing Microsoft had managed to hire technology’s top players into a single unit before they made their names elsewhere—Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon—regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous. 

For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions; those at the bottom usually received no cash or were shown the door. 

Outcomes from the process were never predictable. Employees in certain divisions were given what were known as M.B.O.’s—management business objectives—which were essentially the expectations for what they would accomplish in a particular year. But even achieving every M.B.O. was no guarantee of receiving a high ranking, since some other employee could exceed the assigned performance. As a result, Microsoft employees not only tried to do a good job but also worked hard to make sure their colleagues did not.

“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.”

I am no expert when it comes to employee reviews. It makes sense to me that employees need to be evaluated, both as a team and as individuals. (I've always suggested to my friends that perhaps the Pro Football Hall of Fame should not allow entry by individuals, but by unit, e.g. quarterback + offensive line + wide receivers, etc.) How to do it well and fairly, of course, is the real problem.

But stack ranking or its other monikers cannot possibly be a good way to get intelligent people to work together well. It is probably an excellent way of distributing gains unevenly, though. Thanks, business world.

Readers, I understand that stack ranking has been used in the pharmaceutical research world -- how's it worked out for you all?