The practice of stack ranking, also known as “rank and yank,” has been a widely debated performance management system since its inception in the 1980s by Jack Welch at General Electric. This method evaluates employees by comparing them against their peers rather than against individual performance standards, generating a competitive atmosphere with the intent of identifying top performers and motivating the rest of the workforce. Despite its controversial nature, a significant proportion of Fortune 500 companies still use stack ranking.
The Origins and Intent of Stack Ranking
Jack Welch’s ‘Vitality Curve’
Jack Welch introduced the vitality curve at General Electric to create a high-performing, dynamic workforce. Welch believed that by rewarding the top 20% of employees, encouraging the middle 70% to improve, and terminating or retraining the bottom 10%, the overall performance of the company would be enhanced. This method was intended to eliminate complacency and drive a culture of continuous improvement.
Welch’s vitality curve aimed to foster a competitive environment where only the best performers would thrive. By clearly differentiating between high achievers and underperformers, the system sought to motivate employees to perform at their peak and consistently push beyond their limits. The rationale was that a clear identification of the top and bottom tiers would enable organizations to retain and reward their best talent while addressing and improving the performance of those who lagged behind.
Adoption by Major Corporations
Companies like Microsoft, Amazon, and Google, among others, adopted stack ranking, hoping to replicate GE’s results. The system was seen as a means to efficiently differentiate between high performers and underachievers. However, the experience and outcome varied significantly across these organizations, leading to mixed reviews about its efficacy and fairness.
At Microsoft, the implementation of stack ranking intended to streamline performance evaluation and highlight top talent. However, the company eventually faced significant backlash as the system fostered a competitive environment that stifled collaboration and innovation. Amazon’s ‘purposeful Darwinism’ incorporated a similar approach but emphasized improvement through Performance Improvement Plans (PIPs) rather than outright termination. Google’s unique take on the system focused on promotions, but it too encountered challenges such as employee dissatisfaction and concerns over job security.
The Downside of Competitive Evaluation
Impact on Morale and Engagement
Critics argue that stack ranking fosters unhealthy internal competition, destroying morale and employee engagement. This cutthroat environment can lead to distrust among colleagues, reducing collaboration and teamwork. Employees may end up focusing more on outperforming their peers rather than contributing to the organization’s collective success.
When employees are pitted against each other, the sense of solidarity and teamwork can erode, resulting in a workplace culture where collaboration is sacrificed for individual achievement. In such environments, the focus shifts from achieving organizational goals to merely surviving the competitive performance reviews. This constant pressure can lead to burnout, job dissatisfaction, and a high turnover rate as employees seek less stressful working conditions elsewhere.
Subjective Bias and Inconsistency
Stack ranking often fails to account for the diverse roles within a company, injecting subjective bias into performance reviews. Managers may find it challenging to evaluate employees against a uniform standard when job functions vary greatly. The lack of consistent criteria for different roles can lead to unfair assessments and dissatisfaction among employees.
The subjective nature of stack ranking can also perpetuate favoritism and unequal treatment within the workforce. For instance, roles with more visibility and direct impact on revenue might be rated higher than those that provide essential but less glamorous support. This inconsistency can undermine the credibility of the evaluation process and diminish trust in management.
High-Profile Cases and Lessons Learned
Microsoft’s Experience
Once a strong proponent of stack ranking, Microsoft struggled with the system around 2012. The method led to a culture of competition rather than collaboration, contributing to what some have called Microsoft’s ‘lost decade.’ The dissatisfaction and reduced innovation prompted Microsoft to abandon stack ranking in favor of a more inclusive performance review process.
During the period stack ranking was employed, many Microsoft employees felt pressured to outdo their peers rather than work together towards common objectives. This intensified competitive mindset hampered innovation and stifled collaboration, as employees were less likely to share knowledge and resources. The resulting stagnation in growth and creativity exemplified the adverse effects of an overly competitive performance management system, leading Microsoft to revise its approach and seek alternative methods for performance evaluation.
Amazon’s ‘Purposeful Darwinism’
Amazon’s approach, termed ‘purposeful Darwinism,’ placed low-performing employees on Performance Improvement Plans (PIPs) rather than terminating them outright. However, this practice also faced criticism for its negative impact on workforce morale and the company’s public image. Amazon eventually transitioned to a continuous feedback model aimed at improving employee performance through regular, constructive feedback.
The PIPs employed at Amazon were intended to provide underperforming employees with a structured plan to improve their performance, but they often resulted in heightened stress and anxiety. Employees felt constantly scrutinized and feared for their job security, which impacted overall morale and productivity. Recognizing the detrimental effects, Amazon sought a more supportive performance management approach involving continuous feedback and opportunities for development, aiming to retain talent and foster a more positive work environment.
Google’s Promotion-Based Ranking
Google applied a variation of stack ranking focused on promotions rather than overall performance evaluation. This approach nevertheless created concerns about job security among employees, leading Google to shift toward methods resembling Amazon’s PIPs, albeit with similar challenges to employee satisfaction.
Google’s promotion-based ranking aimed to identify employees ready for advancement based on their performance relative to their peers. However, this created uncertainty and stress within the workforce, as employees worried about their prospects and stability within the company. The resulting dissatisfaction prompted Google to rethink its performance management strategy, exploring models that emphasized continuous improvement and employee growth over rigid rankings.
Alternative Performance Management Systems
Continuous Feedback Models
Continuous feedback involves regular check-ins between managers and employees, providing timely and constructive criticism. This method fosters an open communication culture, allowing employees to recognize their strengths and areas needing improvement without the fear of direct competition against peers.
In a continuous feedback system, employees receive real-time insights into their performance, enabling them to make immediate adjustments and improvements. This approach nurtures a more transparent and trust-based relationship between managers and employees, promoting an environment conducive to growth and development. Employees feel more valued and are likely to be more engaged, knowing that their contributions are recognized and that they have support to enhance their performance.
Psychological Appraisals
Psychological appraisals assess an employee’s potential based on cognitive abilities and personality traits. This approach uncovers the latent talents of employees, guiding companies on how best to utilize each team member. Psychological appraisals help create a supportive environment that nurtures individual growth.
Companies using psychological appraisals can identify strengths and areas for development that might not be apparent through traditional performance reviews. By understanding an employee’s cognitive and personality profile, organizations can tailor development programs and allocate tasks that align with each employee’s strengths, fostering a sense of fulfillment and efficiency. This personalized approach can improve employee retention and satisfaction, as individuals feel their unique contributions are recognized and valued.
Objectives and Key Results (OKRs)
OKRs focus on setting specific objectives linked to measurable key results, offering a clear framework for performance evaluation. This model aligns personal goals with organizational objectives, empowering employees to track their progress and contribute effectively to the overall success of the company.
By establishing clear and measurable goals, OKRs provide employees with a structured path for achieving their targets. This alignment of personal and organizational objectives ensures that everyone is working towards the same vision, promoting cohesion and collective success. Regular updates and reviews enable employees to stay on track and make necessary adjustments, fostering a dynamic and responsive work culture that can adapt to changing needs and priorities.
The Resurgence of Stack Ranking and Ongoing Debate
Renewed Interest in Stack Ranking
Despite its criticisms, some companies continue to employ or reintroduce stack ranking, seeking to harness its capability to pinpoint top talent and incentivize improvement. Firms like IBM and Meta have shown a renewed interest, suggesting that stack ranking may still have a place in certain organizational contexts.
Proponents argue that stack ranking, when implemented correctly, can create a high-performing workforce by clearly identifying top performers and encouraging a culture of excellence. Some companies believe that by tweaking the traditional model, they can avoid the pitfalls of the past and leverage the competitive aspect to drive sustained improvement. However, the renewed interest in stack ranking is not without controversy, as critics continue to highlight the potential downsides of fostering an overly competitive and stress-inducing work environment.
Balancing Motivation with Well-Being
The challenge lies in balancing effective performance management with maintaining a healthy, collaborative workplace culture. While stack ranking can motivate top performers, it risks creating an atmosphere of fear and competition. Companies must carefully weigh the benefits against potential downsides.
Achieving a balance involves implementing systems that recognize and reward top performers while providing support and development opportunities for all employees. Companies should consider hybrid approaches that combine the competitive elements of stack ranking with frameworks that emphasize collaboration, continuous feedback, and personal growth. By doing so, organizations can aim to foster a motivated, high-performing workforce without compromising on employee well-being and morale.
Shifting Trends in Performance Management
Moving Towards Supportive Models
The trend among leading organizations has been to move away from competitive performance ranking systems towards models emphasizing ongoing feedback and employee development. By prioritizing support and growth, companies are finding more sustainable ways to enhance performance.
Supportive models like continuous feedback and OKRs offer a more holistic approach to performance management, focusing on the long-term development of employees rather than short-term competition. These models provide clear, objective standards for performance, encouraging employees to take ownership of their progress and actively contribute to organizational success. By fostering a positive and engaging work environment, companies can enhance both individual and collective performance, leading to more enduring success and higher employee satisfaction.
Emphasizing Fair and Equitable Evaluations
To foster long-term success, companies need to implement fair and equitable performance evaluations. Structured systems tailored to individual roles and clear performance metrics can help avoid bias and ensure that all employees feel valued and motivated.
Fair and equitable evaluations involve understanding the unique contributions and requirements of each role within the organization. By creating performance criteria that are role-specific and removing subjective bias, companies can ensure that all employees are assessed on a level playing field. This approach not only enhances fairness but also boosts morale and engagement, as employees see their unique efforts recognized and appreciated. Transparent and consistent feedback mechanisms further reinforce trust and loyalty, leading to a more cohesive and high-functioning workforce.
Conclusion
The practice of stack ranking, sometimes referred to as “rank and yank,” emerged in the 1980s thanks to Jack Welch at General Electric. This performance management system evaluates employees by comparing them against each other rather than against set individual performance standards. This method aims to create a competitive environment that highlights top performers and pushes others to improve. Despite its controversial reputation, many Fortune 500 companies continue to use stack ranking. Critics argue that it fosters a cutthroat atmosphere that may discourage teamwork and damage morale. Proponents, however, believe it clearly identifies the most valuable employees and helps companies allocate their resources more effectively.
Stack ranking’s primary goal is to weed out underperformers and boost overall productivity by rewarding high achievers. Under this system, employees are often categorized into tiers: top performers, adequate workers, and those in need of improvement. Those in the lowest tier risk termination, ostensibly motivating individuals to strive for excellence. While its effectiveness remains a topic of intense debate, the enduring presence of stack ranking in many large corporations underscores its perceived value in certain management philosophies. Its impact on corporate culture and employee morale continues to be scrutinized and reevaluated in today’s evolving workplace dynamics.
