Performance management systems are a cornerstone of organizational success, affecting employee morale, productivity, and retention rates. Among the plethora of methods available, stack ranking has emerged as one of the most debated systems. Originating from its popularization by General Electric (GE) CEO Jack Welch in the 1980s, stack ranking focuses on evaluating employees against each other rather than against predefined standards. This approach aims to identify the top 20% of performers, encourage the middle 70% to improve, and manage out the bottom 10%. But how exactly does this method work, and why has it seen both widespread adoption and significant backlash?
The Origins and Concept of Stack Ranking
The stack ranking system, popularized by Jack Welch, operates on the principle of evaluating employees within a company through direct comparison. Typically implemented using a bell curve, stack ranking divides the workforce into distinct performance categories. The top 20% of performers are rewarded handsomely with raises, bonuses, and other incentives. The middle 70% are not left behind; they receive smaller raises coupled with constructive feedback and encouragement to improve. Conversely, the bottom 10% are often subjected to performance improvement plans or termination. The primary intent behind this stratification is to cultivate a highly competitive and high-performing workforce.
In theory, the merits of stack ranking seem to justify its implementation. By recognizing and rewarding the top echelon of performers, companies aim to retain their best talent. Encouraging the middle tier to strive for excellence serves to uplift the average level of performance across the organization. Finally, managing out the bottom 10% is intended to eliminate low productivity and ensure overall efficiency. However, the method’s application in real-world settings reveals complexities and challenges that question its efficacy.
Criticisms of Stack Ranking
Despite its popularity in certain corporate circles, stack ranking has come under intense scrutiny for several reasons. One of the most significant criticisms is that it often fosters unhealthy internal competition. This creates an environment where coworkers become adversaries rather than collaborators, undermining teamwork and hindering the achievement of collective organizational goals. The system, designed to promote excellence, paradoxically breeds distrust and conflict within teams, which can be detrimental to overall productivity and innovation.
Furthermore, employee morale and engagement can suffer dramatically under a stack ranking regime. The perpetual threat of job loss instills a culture of fear, leading to decreased job satisfaction and higher turnover rates. Employees who are constantly worried about falling into the bottom percentile may become risk-averse and less likely to take initiative or innovate. Instead of striving toward exceptional productivity, they might focus on meeting the bare minimum to avoid being ranked last. This counterproductive cycle not only stifles creativity but also drives valuable talent away from the organization.
Another critical drawback of stack ranking is the potential for subjective bias and unfair comparisons. Evaluating employees against each other without consistent standards and clear performance metrics can lead to evaluations that reflect managerial prejudices rather than actual employee contributions. This issue becomes particularly problematic when comparing employees from different departments or roles, where job responsibilities and expectations vary significantly. For instance, evaluating a salesperson against an administrative assistant using the same criteria is inherently unfair and renders the evaluation process meaningless.
Real-World Implementations
Several major corporations have adopted and subsequently abandoned stack ranking due to its adverse effects. Microsoft is a notable example of a company that initially embraced stack ranking with full vigor. For years, managers at Microsoft were required to rate their teams from top to bottom. However, this approach led to what is often referred to as a ‘lost decade,’ where the company stagnated while competitors advanced. The constant internal competition and declining morale made the system unsustainable, prompting Microsoft to drop stack ranking in 2012.
Amazon followed a somewhat similar approach with its ‘purposeful Darwinism.’ Placing low performers on performance improvement plans (PIPs) instead of outright termination seemed a slightly more humane approach. However, the underlying culture of systemic stress and cutthroat competition eventually led Amazon to pivot toward a continuous feedback model. This change aimed to mitigate the negative cultural impact of stack ranking and foster a more collaborative environment.
Google’s initial use of stack ranking was primarily for promotional purposes rather than overall performance evaluation. However, the company recently adopted an Amazon-like system with Support Check-Ins (SICs), similar to PIPs, to manage underperformance. This shift has been met with resistance, underscoring the widespread dissatisfaction that stack ranking engenders among the workforce. Employees, already wary of the competitive pressures, found the new system just as demoralizing, reinforcing the notion that stack ranking may not be the ideal method for performance management in the current work environment.
Alternatives to Stack Ranking
Considering the drawbacks, companies are increasingly exploring more inclusive and effective performance management methods. One popular alternative is continuous feedback, which emphasizes regular check-ins and constructive dialogue over annual evaluations. This approach focuses on guiding employees in real-time, fostering improvement and development without direct comparison to colleagues. By providing constant, actionable insights, continuous feedback helps employees understand their strengths and areas for improvement, promoting personal and professional growth.
Psychological appraisals represent another compelling alternative. Rather than concentrating solely on past achievements, psychological appraisals assess an employee’s potential abilities. By evaluating cognitive traits and skills, this method aims to place employees in roles where they can excel, thus boosting overall organizational productivity. This approach recognizes that each employee has unique strengths that may not be immediately apparent through traditional performance metrics, enabling a more personalized and effective performance management strategy.
Objectives and Key Results (OKRs) represent a goal-setting framework that aligns individual objectives with company goals. This method shifts the focus from direct comparisons to actionable milestones and continuous progress. OKRs create a more collaborative and cohesive work environment by setting clear expectations and providing a roadmap for achieving them. Employees are encouraged to work toward common objectives, fostering a sense of unity and purpose within the organization.
The Future of Performance Management
Performance management systems are crucial to the success of any organization, impacting employee morale, productivity, and retention rates. Stack ranking, one of the many performance evaluation methods, has become a subject of intense debate. This method gained prominence in the 1980s under the leadership of General Electric (GE) CEO Jack Welch. Unlike traditional systems that measure employees against fixed standards, stack ranking compares employees against one another. The aim is to identify the top 20% of performers, push the middle 70% toward improvement, and address the bottom 10% by potentially phasing them out.
The process works by ranking employees in tiers based on their performance, fostering a competitive environment that can drive significant results. Supporters argue that this method helps to clearly identify top talent and motivate average performers to step up their game. However, the system has also faced substantial criticism, with detractors pointing out that it can create a cutthroat atmosphere, undermine teamwork, and harm overall morale.
Despite its polarizing nature, stack ranking has been adopted by numerous organizations seeking to replicate GE’s results. Yet, the backlash has led many companies to either adapt the strategy to be more inclusive or abandon it altogether in favor of more collaborative approaches. In summary, while stack ranking has had a notable impact on performance management, its efficacy and ethical implications continue to spark debate in the corporate world.
