The Merits of 'Rank and Yank'

While its usage has recently declined, some notable organizations still embrace stack - or forced - ranking when it comes to employee evaluations. Some say such a method can produce 'toxic' results, while others call it the 'kindest' form of management.

Wednesday, September 25, 2013
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A high-performing company requires a high-performing workforce -- and that means you need a weeding-out process for routinely culling the low-performers from your ranks.

This is the fundamental rationale behind the employee-evaluation system known as stack ranking, forced ranking or -- more colloquially -- "rank and yank," which was popularized by former General Electric CEO Jack Welch and subsequently adopted by many other prominent corporations. In stack ranking, managers are required to rank employees into five or so groups based on their performance -- those in the top group receive bonuses and promotions, while those in the bottom are separated from the organization.

Microsoft was among the companies that adopted stack ranking. Last year, an extensive report in Vanity Fair by writer Kurt Eichenwald cited complaints by current and former Microsoft employees that the process encourages employees to compete with one another rather than cooperate, while managers were preoccupied with "horse trading" with one another to ensure their prized employees weren't given low ratings that could put them in danger of being forced out.

Eichenwald's piece received renewed attention with last month's surprise announcement that Microsoft CEO Steve Ballmer retire within the next 12 months. In recent years, Microsoft's stock price has stagnated and its efforts over the last decade to move into hot new areas such as tablet computing and online search have mostly fizzled, although its core software products remain profitable.

In an interview with the Seattle Times last month, Ballmer defended stack ranking.

"I think everybody wants to work in a high-performance culture where we reward people who are doing fantastic work, and we help people who are having a hard time find something else to do," he said.

Welch has also defended the approach. In an interview with the Wall Street Journal last month, he described the ranking system as "the kindest form of management. [Low performers] are given a chance to improve, and if they don't in a year or so, you move them out."

A Microsoft employee, who asked to remain anonymous because he wasn't authorized by the company to speak to the media, says he believes Microsoft's performance-evaluation system is fair and disputes the allegations by some Microsofters quoted in the Vanity Fair piece that the system has hurt the company's performance.

The system does, however, pressure employees to ensure their manager's peers -- not just their manager -- are aware of their good performance, he says.

"[The system] has helped me pay more attention to the 'socialization' of my work -- to not only do a good job and deliver results, but have those results shared with more than just the person whom I immediately report to," he says.

In his most recent evaluation, the employee says he received the highest score possible. During the previous year, however, he'd received a mid-range score.

"I'm the same worker doing the same caliber of work -- the only change is that I've learned there are rules to the game," he says. "During that first year, it was a daunting task figuring out -- in addition to doing a good job -- how to convey the importance of what I was doing. There's a lot of selling required in addition to performing."

Stack ranking is not nearly as popular as it once was: From 2009 to 2011, the number of companies that reported using a forced-ranking system declined from 42 percent to 14 percent, according to a study by the Seattle-based Institute for Corporate Productivity, a long-time critic of the approach.

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Other experts concur that stack ranking has lost its luster.

"It's not a sustainable model -- it can really produce a form of toxic leadership," says Marsha Ershaghi Hames, a practice leader for education solutions at New York-based LRN, a firm that advises companies on culture and ethics. Many clients have moved away from stack ranking in recent years in favor of a "trust-based" approach that focuses on helping managers provide quality feedback, she adds.

"It fosters a healthier, more self-reliant culture," says Ershaghi Hames. "You coach managers on how to make those hard decisions about poor performers and then let them exercise their best judgment. If you're hiring good leaders, then you should be able to extend your trust to them."

Stack ranking is based on "norm referencing," says management consultant Jeff Howard -- the idea that intelligence is innate, fixed at birth and unequally distributed. Not coincidentally, he adds, many CEOs tend to see themselves in the top group.

The approach can force organizations to make potentially destructive decisions, says Howard, who's advised Wall Street firms on management strategies in the past and is currently CEO of the Efficacy Institute in Waltham, Mass.

"Consider the Boston Red Sox -- there is no bottom group on this year's team," says Howard. "But under stack ranking, you'd be forced to take the current team and divide them into groups just so you can do the manly thing and get rid of the bottom group.

"You'd be getting rid of highly capable people just for the sake of adhering to the system," he says.

A strong recruiting process invalidates the need for stack ranking, says Howard.

"During my freshman orientation at Harvard back in 1965, the university president told each of us to look to the person on our left and to the person on our right," he says. "We all held our collective breath, because we thought we knew what he'd say next. But here's what he said: 'We expect all three of you to graduate on time and with honors -- because Harvard does not make admission errors."

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