Why Stack Ranking Systems, Like The One Marissa Mayer Instituted At Yahoo, Are Completely Outdated

Marissa mayerREUTERS/Denis BalibouseYahoo CEO Marissa Mayer.

When Marissa Mayer became Yahoo’s CEO in 2012, she was faced with restoring a failing internet giant back to its former glory.

Shortly after joining the company, she implemented a Quarterly Performance Review system, which was similar to a Google practice, Business Insider’s Nicholas Carlson writes in his book “Marissa Mayer and the Fight to Save Yahoo!.”

It had managers place their employees into “buckets”: 10% in “greatly exceeds,” 25% in “exceeds,” 50% in “achieves,” 10% in “occasionally misses,” and 5% in “misses.”

In a company-wide meeting in October 2013, Mayer agreed to have employees anonymously submit questions and have colleagues vote on the best ones. There was an overwhelming backlash against the QPR, according to Carlson.

The first question Mayer read to her audience illustrated the main problem with QPRs and other “stack ranking” systems:

I was forced to give an employee an occasionally misses, [and] was very uncomfortable with it. Now I have to have a discussion about it when I have my QPR meetings. I feel so uncomfortable because in order to meet the bell curve, I have to tell the employee that they missed when I truly don’t believe it to be the case. I understand we want to weed out mis-hires/people not meeting their goals, but this practice is concerning. I don’t want to lose the person mentally. How do we justify?

This particular question received 1,531 votes from employees and was just one of many. And gripes against the stack ranking system weren’t isolated to Yahoo.

According to a 2012 Vanity Fair profile of Microsoft, the large majority of Microsoft employees under CEO Steve Ballmer found stack ranking to be the most destructive force within the company, saying that it “effectively crippled Microsoft’s ability to innovate.” It eventually shed the practice in late 2013.

Many large corporations have done the same in the past several years. Research from the Institute for Corporate Productivity shows that 49% of the companies it tracks used a stack ranking management system in 2009, while only 6% of those same companies did two years later.

Stack ranking became widely practiced in the 1980s and remained popular for nearly three decades after Jack Welch used it to great success as CEO of GE. Welch explains the initial effectiveness of this system in a USA Today interview from 2005:

It’s letting the bottom 10% know where they are and then giving them a chance to move on. About 70% (of the bottom 10%) leave on their own. Who wants to be on the bottom once they know it? You don’t fire them. That’s being mean. This is not a mean-spirited thing. It’s you sitting across the table from me and telling me, “Jack, you’re not measuring up. You’re going to have to improve.” If I don’t, you tell me that it’s best for me and my family to find someplace else to work.

But when many companies put it into practice, they weren’t flexible with their reviews. If a team sheds a few blatant underachievers in a couple rounds of these reviews, then a competent worker is one step closer to being on the bottom for slightly underperforming on team-wide goals compared to one of his colleagues.

“What’s happened in the last 15 or 20 years is that HR has started to take a more analytical approach,” says Cliff Stevenson, senior researcher at the Institute for Corporate Productivity. “We started to see the rise of evidence-based human resources, and when they looked at the numbers they weren’t finding success [with stack ranking]. In fact, they were finding negative correlations to employee engagement and especially to innovation.”

Teams do not neatly fall into bell curves of performance, the current consensus finds, and instead should be reviewed on an individual basis.

Additional reporting by Max Nisen.

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