13 November 2013

Is Stack-Rating the right approach for your company?

Have you heard that MicroSoft is eliminating stack rating?  What took them so long!  My supervisor sent me the link to a Wall Street Journal article that set me on fire with the desire to finally update my blog.  Here is the link: http://m.us.wsj.com/articles/BL-DGB-30765

To be a charitable as possible, I would say that stack rating was invented by someone who loved numbers and finance and wished to manage people using a system of rewards with a direct tie to share-holder value.  Good in theory, but with some unforeseen side-effects

The key hypothesis of this approach to performance management is that all employees could be rated in order of contribution to the company.  These numbers could be then used to make fast decisions about who stays or goes in a period of crisis (fast reductions in force to correct stock value depreciation).

I don't know what it's like to work at MicroSoft, but another CT-based firm was an infamous and used stack rating religiously .  I worked with several of this company's survivors and heard stories.  I reported to one who must have had PTSD from the experience - no lie...  I too survived and lived to tell the tale.

Aptly nicknamed hell-curve - the bell-curve applied quotas that surmised that (for example) 5% of your employees are worthless, 20% are just not pulling their weight, 50% are okay, 20% are above avg, and 5% are amazing.

Under the approach, managers have to fit their people into the 'quota' - compensation departments would see the people reports and an exception report would kick out any groups that didn't fit this model.

So even if the manager had a great staff who all contributed (which should always be the goal) they would be forced to rank 5% every performance management period as candidates for elimination - and start documenting this 'fact' for ultimate termination.  

It creates a highly competitive (high casualty) work environment.  It can be useful for huge and old companies in serious need of trimming the fat.  Companies who've been around forever and have lots of long-term employees getting by (we've all seen it).  Many managers avoid having the tough conversations with employees like the plague, this is a way to make them do it by force.  

Then all they need to do is hire some blood-thirsty sociopaths in HR and away they go... (I don't fit this model - I promise.)  This approach is not sustainable.  Employers make the mistake by not knowing when to stop.  Trim too much fat and then you start going for the muscle.  By then the only employees that remain are workaholics, so stressed out they can't manage their lives - and in a while there is a severe drop in productivity.  

By then, Management and HR has a taste for blood and won't stop without a real set-change.  This approach will likely be followed by other staff changes within senior management, HR and finance.  Step in the right direction and wishing them luck on their journey.

I thanked him very much for sharing the article, I love this stuff and really am glad it's going away, but like I said above, there are reasons for its existence that may actually be justified.

Age-old and well-tested quotes:

"The right tool for the right job."  -Unknown
    Ad slogan used by Right Temper Tools since 1907, but has been in use in America before then.

"Of all the stratagems, knowing when to quit is the best" -Unknown
    Chinese proverb