Why Stack Ranking is a Disaster

Jack Welch famously fired the lowest ranked 10% of his managers every year.  He was regarded as someone who led by brute force and it's hard to argue with his results.  Yet, when you look at GE's performance since Jack left and the long-term results of "rank and yank" as it's sometimes called, it's not all that great.  Their stock hasn't performed all that well since 9/11 and many believed that the process of rank and yank robbed GE of significant future talent and ultimately contributed to GE's stagnation. Microsoft tried the same method which led to the loss of outstanding people and created one of the most arguably dysfunctional companies in our region.  I rarely meet anyone who's a happy employee at Microsoft anymore.  Usually when someone tells me about their experience at Microsoft, the conversation leads to the problems in their department combined with overwhelming internal politics, finger pointing and what they describe as a lot of people who add nothing.  Microsoft created that culture.  Zune!  Enough said.

I believe the fights, turf wars, and politics are frequently born from the process of stack ranking.  I believe it's one of the most detrimental management gimmicks ever devised along with the, "annual review."  Finally, some of the biggest companies in the US are starting to catch on.  Microsoft, Accenture, Adobe and many others have dumped their annual reviews and are eliminating the practice of stack ranking.  It's about time.

If an organization is to flourish, it must have teamwork and immediate feedback and human nature what it is, not everyone can be a star at the same time.  Employees have performance cycles and in my experience, some of the employees who were once unnoticed, with the right support and encouragement go on to become major contributors.   You'd think the flaw with stack ranking should be obvious; for someone to look good, someone has to look bad.  How can this method possibly cultivate a spirit of teamwork?

I've not been a fan of the annual or quarterly review because I think it delays the harder conversations that should take place in real time.  It shouldn't be a surprise to any employee about how they are doing day to day.  I believe in constant feedback and the continuous process of constantly checking results on a weekly basis, without micromanagement.  What's our goals?  How are we tracking against those goals?  How are you doing?

We won Seattle Business Magazine's Midsize Company Best Place to Work 2015 because of how we treated our employees.  We didn't spend the most on benefits nor were we the company with the fattest payroll per employee.  In fact, I'd bet we were just slightly above average in total benefits.  We won the award by taking a true interest in our employees' careers without just giving them lip service.  We treated them with respect and listened to what they had to say, even if we don't always agree from person to person.  Each employee is also given a chance to take on additional projects or pursue ideas that could result in tangible benefits to the company.  We continually modified our org chart to accommodate changes in our market and to better utilize the skills our employees were developing along the way.  We did our very best to give our people a chance to move up in the organization as we created new roles.  We also went out of our way to acknowledge employee contributions and to make adjustments to positions, so that each employee gets a chance to continue to improve.  I strongly believe in immediate feedback and if an employee is doing well, they know why and if they are not performing as expected, every attempt is made to correct the situation.  At the time I left the company, we had the highest ranking in the state on Glassdoor.

I got rid of quarterly performance and annual reviews because I strongly believe that if I write something that tells a direct report something they don't already know, I have even bigger problems.  While all employees want to know where they stand, this should be an ongoing discussion with immediate feedback.  This avoids the giant quarterly surprise while focusing on immediate progress results about how we're doing and where we're going.  It runs in parallel to the philosophy of a nimble company.

I was a working musician all through school and it would be like going on tour and waiting until you're home weeks later to discuss how each musician was playing.  Anyone in a band knows that the sooner you correct anything on stage, the better you become.  Feedback should be immediate, not every quarter or every year.  Can you imagine a quarterly review in professional sports?  Athletes are measured by each sporting event in real time.

Rather than a review, I prefer to discuss the status of various projects and review what is and isn't working and why.  Small business can't afford to run like a big business and venture capitalists sometimes offer really crappy advice when they prematurely advise a company to run like a big company.  I believe that the advantage of any small organization is that they remain nimble and that they focus on their bigger mission.  It's easy to pile completely useless process on management at a time when the company's business has to adapt to rapid change.  In fact, this is what so many companies get wrong, is the recognition of how fast they have to change and modify their plans in order to grow.  I understand the value of documenting and scoring the performance of employees when companies reach a size where they can measure consistency between entire divisions and where they have to follow some metric.  But again, not a luxury a small company can afford when those managers have other more important tasks to consider.

When I was a volunteer skate instructor, your starting point is usually a terrified student who's on wheels for the first time in their life.  Most of the time, fear completely overshadows everything.  I couldn't imagine barking out lessons then saying we'll check results in a month or two.  Instead you start with an assessment of where the student is exactly and your goal is to build confidence in parallel to building skills.  The steps are simply, challenge, reinforce, encourage, review progress, praise improvement.  If the move is mastered, you go on to the next one.  You reward even the smallest progress and constantly use prior accomplishment to reinforce new objectives.  You then repeat the process, again and again and then continually circle back to show what the student has mastered.  This process repeatedly turned some of the most frightened skaters into masters at the sport and the parallel of both skills and confidence reinforced each other.

The goal is results, not process.  This somehow gets lost with some companies.  I think about what's most efficient when pursuing company goals.  Some companies are in real trouble and don't know it for a variety of reasons, but rather than address the problems, instead look to more process as a means of arresting their problems.  It never ever works and usually accelerates the downfall.