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Microsoft Abolishes Employee Evaluation System

By Nick Wingfield

November 13, 2013 7:09 am November 13, 2013 7:09 am

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Steven A. Ballmer, Microsoft's departing chief, last week. Critics of “stack-ranking,” a long-standing practice for evaluating employee performance at the company, said rewarding stand-out performers was difficult because everyone was graded on a curve.

SEATTLE – Imagine getting a grade-point average, but instead of being judged by a teacher who has worked with you throughout the year, you are evaluated by a bunch of teachers, some of whom may not know you very well.

That slightly scary proposition explains just some of the misgivings Microsoft workers have had about “stack ranking,” a longstanding practice for evaluating employee performance at the company. In aletter to employees on Tuesday, Microsoft’s head of human resources said the company would end the practice in favor of a new and more flexible system intended to encourage better collaboration among employees.

“Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams,” Lisa Brummel, the executive vice president of human resources, wrote in the letter.

Microsoft’s stack-ranking approach received a surprising amount of attention for what was, after all, an internal evaluation system. “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 a blistering Vanity Fair article about Microsoft last year.

While that story overstated the harmful effects of stack ranking in the view of many Microsoft employees, it clearly represented the views of many others. In a phone call with one Microsoft executive on Tuesday seeking reaction to the end of the practice, the person was positively giddy.

“It’s the single worst thing I’ve seen in my career,” said this person, who declined to be named because, even though ranking system is dead, the Microsoft prohibition against talking to the press without official permission is not.

One of the most hated aspects of stack-ranking process was that, throughout its various forms over the years, it required managers to grade their subordinates on a bell curve. That meant that a few people got great scores, many people got average scores and a few people got bad scores.

In their latest form, the scores were based on a 5-point rating system – 1 being the top score – with annual bonuses tied directly to the scores. It made it difficult to reward a group of standout performers with 1s because the system required managers to limit the number of people at the top end.

“When it came time, you had to still find more 4s and 5s, even if you had already gotten rid of the dead wood,” the Microsoft executive said.

The practice created an incentive for star Microsoft workers to avoid working with other stars since they knew it could hurt their chances of getting a top rating when it can time for employee reviews.

Another irritation for many employees was that managers had to discuss final rankings for their employees with groups of other managers, many of whom did not necessarily know the employees being graded. More articulate, pushy managers could successfully argue for better rankings for their top performers, while a star employee with a tongue-tied boss might get penalized.

The demise of stack ranking is another sign of the sweeping changes happening at Microsoft, including a major restructuring now underway that is aimed at increasing cooperation. The company is also searching for a successor to Steven A. Ballmer, the chief executive, who is departing the company.

The negative publicity around Microsoft’s old employee review system reverberated loudly around the company, according to people who work there. It most likely was a deterrent to some recruits, too.

A strong hint that change was afoot with its stack-raking system was dropped by Ms. Brummel at a recent dinner for senior Microsoft managers.

The executive who spoke Tuesday on condition of anonymity recalled Ms. Brummel saying: “I hope I never have to read another article about our review system ever again.”