Rank-and-yank evaluations, also known as stack ranking, have made a comeback among some of the largest tech companies. The premise of this type of evaluation is a bell curve distribution, ranking the performance of individuals against that of the entire workforce at the company. Traditionally, the top 20% of performers are rewarded while the bottom 10% are let go.
The practice, made famous at GE under Jack Welch, was intended to increase productivity. However, it eventually fell out of favor because it was fear-based and incentivized individuals over the team, reducing collaboration and encouraging cutthroat behaviors.
According to a recent Korn Ferry article, the argument in favor of bringing stack ranking back is that technological innovations have enhanced the ability to rank employees. Not everyone agrees with this assessment. “Tech is on the leading edge of exploring new analytics, but the key is whether they can tie all this to better outcomes,” says Sid Cooke, a senior client partner and member of Korn Ferry’s CEO Succession and Coaching practices.
During the early 2000s, more than four in ten companies employed a variation of the stack ranking system. But the number started to decline when the results didn’t materialize. During Microsoft’s “lost decade,” Steve Ballmer used stack ranking evaluations, and according to Kurt Eichenwald in a Vanity Fair article, “Every current and former Microsoft employee I interviewed—everyone—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees,”
Part of the challenge is human bias. Whether purposeful or not, managers are rarely objective in their evaluation of employees. Research has shown that women receive harsher feedback than men. It is also challenging to compare individuals from different departments to one another. The evaluation of sales people versus finance people versus operations people is so different that it is like comparing apples and oranges.
The primary concern with stack ranking is its impact on company culture. For example, “By assisting a colleague to do better, you could be helping them to get a promotion at your expense, or worse, putting your job at risk. In such an environment, “why would I go out of my way to help my colleague succeed?” says Arvinder Dhesi, a Korn Ferry senior client partner specializing in organization strategy.”
When Elon Musk acquired Twitter, he employed a rank-and-yank tactic, resulting in the dismissal of nearly 80% of the staff. The result, monthly users dropped by 15%, and ad revenue fell by more than 50%.
If HR is doing a good job, over time, the number of poor performers will decrease to the point that solid employees will end up ranking at the lower end of the bell curve.
Instead of using fear-based tactics to improve performance, methods that motivate employees are a more effective way to enhance productivity and employee engagement. Listen to their needs and ensure they have the tools and processes in place to do their best work.
Be clear in setting goals and provide continuous, ongoing feedback. Set up employee recognition programs that reward teams when they hit a target. Creating a culture that values employee development, open dialogue, and challenging goals that require everyone to strive for excellence fosters a motivated, driven, and collaborative environment.