Main content

Yahoo's use of stack rankings - deplorable or overblown?

Jon Reed Profile picture for user jreed November 26, 2013
Summary:
Is there more to the stack rankings controversy than pushing Yahoo through the Internet spank tunnel?

Four candidates competing for one position.
Recently the HR practice of  'stack rankings' pounded the wires. Bloggers pointed out the irony of Yahoo adopting a perceived archaic practice just when Microsoft was abandoning it.

I'm always up for bashing Yahoo and wary of any system that formalizes jockeying for position, but in this case I decided to reach out to some HCM experts.  Is there more to the story than pushing Yahoo through the Internet spank tunnel?

Framing the Yahoo HR controversy

Kara Swisher at allthingsd.com was amongst the first to report on the story. The gist? Evidently Yahoo has been using an employee ranking system as part of an amped-up quarterly review and performance assessment process initiated by CEO Marissa Mayer, intended to identify the best (and worst) performing employees.

In her follow-on post, Swisher can't 100 percent confirm whether the new stack ranking system is mandatory (Mayer insists it is optional), and whether it has directly led to the layoffs of 600 workers. But we did get detail on the most concerning allegation: that managers are compelled to rate some employees as underachievers even if they are not. Swisher:

Some inside the company are incensed that the "Quarterly Performance Review” system forces managers to rank some of their staff with designations of “Occasionally Misses” and “Misses,” even if it is not the case, via what is essentially a modified bell curve. Those fired recently had gotten lower scores at least two times in recent quarters, said multiple sources, as I reported last week.

That was enough to fire up the spank tunnel. A piece on Forbes got the hyperbole going with a title that called stack rankings at Yahoo an 'epic fail.' The gist of the critique? Stack rankings reward political schmoozers over those who are focused on getting things done:

The winners in the stack ranking game are the engineers and marketers who spend all their time meeting with each manager who will decide whether they get a bonus or get fired. And during those meetings, the winners talk about all the great things they claim to have accomplished. The losers in the stack ranking game are the people who decide that their accomplishments — whether it’s developing a customer-pleasing new piece of software or implementing an effective marketing campaign– will speak for themselves when it comes to deciding their position in the stack.

Sounds pretty unappealing, unless you are a gladhander.

But in the comment thread, some readers took issue with the rant.  One objection: 'Your assumption here is that the most powerful incentive in Yahoo’s stack ranking system is politicking. But if Yahoo implements an objective-based ranking system, then it could boost productivity.'  Another reader was blunt: 'I use stack ranking in our company and have gotten rid of all the dodo birds.'  (Not sure I want to work for that reader, but anyhow...).

Expert views and research

We can continue this discussion in two ways. One is by critiquing Yahoo from a fantasized moral high ground. I'm not going that route because I haven't seen enough facts in the public domain. But we can certainly revisit performance assessment, and honestly ask: are such practices are in step with modern approaches to talent?

I asked HCM expert and SAP SuccessFactors consultant Luke Marson for his take on stack rankings. Marson wrote:

From my perspective, this practice and the behavior it creates does not bode well for any organization or its biggest assets – its employees. The problem with this type of employee ranking is that it can force good – but not great – employees into a position where they are rewarded less than they deserve. There is also the issue of engagement and collaboration. If employees are always “fighting” against their colleagues instead of openly collaborating then the work of both individuals and teams becomes siloed and overall organizational performance degrades.

I found Marson's point about a chilling effect on internal collaboration compelling as I have seen that plenty myself when dealing with larger organizations. Marson is also skeptical of an obsession with eliminating underperformers, versus building an appealing culture for top talent:

Disengaging employees – particularly those already under-performing – does nothing to develop a long-term sustainable organization or become more competitive at a time when fiscal efficiency is required. If you really want to keep and improve your high performers then making the workplace a battle-ground for noticeable performance milestones is the wrong way to go about it. You will quickly find that the high-performing individuals will move to another organization – much more easily than the low performers can – which could quite possibly be the competition.

Research seems to support Marson's point. In a recent piece, Business Week cited two reports: one concluding that employee performance doesn't behave like a bell curve (see the PDF for details). This report summarizes research that found most employees are slightly worse than average, with the exception of a few superstars.

Relevant to Yahoo's example, stacking employees against each other is particularly detrimental in the midst of layoffs. Business Week cites the conclusion of MIT professors in 2006 who wrote (PDF): 'As the company shrinks, the rigid distribution of the bell-curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.'

Microsoft's changes are revealing

Given that Microsoft scrapped its own curved ranking system for worker reviews, I went looking for answers. As in, why abandon it now? The story: Lisa Brummel, Microsoft’s executive vice president of human resources, recently sent a memo to the company’s 99,000 staff explaining that managers will no longer be required to rate workers on a fixed scale of performance.

The timing, given Microsoft's re-invention and leadership shifts, is rather telling. As Bloomberg reported, Microsoft is nixing this long-standing practice, 'seeking to foster more teamwork and collaboration as the company restructures to focus on devices and services.'

Is the changing nature of work forcing the hand? Bloomberg:

“GE and Jack Welch were leaders in this and Ford tried it, but it’s never really caught on and the nature of work is changing,” said Fred Foulkes, a professor of organizational behavior at the Boston University School of Management. “You can’t just keep cutting the bottom 10 percent.”

A piece on HBR.org brought out a newsworthy aspect of Microsoft's decision. According to a Corporate Executive Board survey, only 29 percent of companies use stack rankings. But more than 90 percent of those surveyed use some kind of ratings system. And yes, Microsoft is abandoning that also. 'No more ratings' is the new mantra.

HBR blogger Marcus Buckingham draws out the implications:

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.

Now we are treading into deeper waters and a much more important debate.

Final thoughts

I'm not going to dispense with performance management systems in this blog, but it's a classic example of why we should be wary of the pseudo-news shockers that bog down our headlines. While page view mongers move on to the next stack ranking brouhaha, tougher questions that perplex corporate managers remain unsolved.

In this case: how do you get the best of measurement tools while shedding their negative consequences (those being measured don't tend to like it under the best of conditions, and if there is perceived inequity, they are out the door).

At press time, I heard back from Naomi Bloom, who knows a thing or two about HR. She challenged me to avoid generalized condemnations:

I think the real issue here isn't whether a particular HRM practice is right or wrong (although there are clearly ones which are illegal/immoral/unethical), but whether it's appropriate within a specific context. When HR managers apply the same practices under different conditions, they are surprised to get quite different results.

As to the void in HR leadership that can lead to imposing the wrong organizational policies, she adds:

A major reason why great HRM is rare is because there are very few, in my experience, great HR strategists/leaders, and they are so dependent on the rest of the executive team to implement their recommendations.

The research I did for this story honestly surprised me. I expected to gather ammunition to condemn stack rankings. Instead, I found myself grappling with the much more difficult problem of rewarding high performers without alienating team members whose cooperation is fundamental if the silos and turf wars that prevent real collaboration are to be broken down.

As vendors aggressively push performance measurement, this discussion is far from over. But I would argue that the latest preoccupation with catering to high performers is short sighted. Bringing out the best in those who are motivated but struggling - not to mention making imperfect teams greater than the sum of their parts - is a far greater HR challenge than chasing rock stars around with trays of holiday chocolates. If systems align with a winning culture, great. If not, tossing them might be better than shoehorning.

Image credit: Four candidates competing for one position. © BlueSkyImages - Fotolia.com

Loading
A grey colored placeholder image