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Pay for performance fail? Microsoft finally dumps forced stack rank

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Tim Low, PayScale

Much has been written, and much more will be, about Microsoft’s decision this week to eliminate their previous performance review process. Up until now, Microsoft relied on a forced stack rank where managers were required to grade employees on a bell curve, and thus also requiring ranking some employees at the low end of the curve.

This system was exposed most brutally in the Vanity Fair profile of Microsoft in August, 2012. Many current and former Microsoft employees attribute at least some of Microsoft’s problems in missing big new markets, and underperforming as a stock over more than a decade to this practice which pitted employee against employee and essentially ignored any team incentives while creating an individualistic culture that was political, and prone to internecine squabbles and non-cooperation.

Getting pay for performance right is no small feat and Microsoft’s choice to use a system developed for a completely different company and industry (GE under Jack Welch) proved divisive and according to many not talent-friendly. In the current landscape where talent acquisition and retention is again becoming a competitive differentiator, it seems Microsoft has had to rethink a much-maligned HR process that seemed ingrained in their culture.

Among many lessons, the most important one is that linking pay to performance must not have the effect of demoralizing a large portion of the employee population or your organization will be winning a battle but losing the war.

Want to learn how to match compensation to perfomance?

Read the PayScale guide: Strengthen the Link Between Pay and Performance.

3 Comments

  1. 3 Tim Low 21 Nov

    Well said, Kevin. It's going to be interesting to see if Microsoft can get more 'team win's' like not missing major market opportunities by taking away the forced curve. Thanks for your comment.

  2. 2 Kevin Carroll 20 Nov
    Performance Management
    – Forced Ranking (The Normal Curve)

    As a global VP of Strategic
    Human Resources I never wanted to be leading an organization that had it most valuable
    assets for long term success fit the normal curve.  Why be normal or average in any of the factors
    required to successfully run a business? 
    What happens next is you have Shareholders along with the Executive Leadership
    Team setting expectations for the employees that suggest they should be a Global
    Industry Leader.  This would be a great
    topic for a Scott Adams & Dilbert .

    If you want your
    organization to win you should not be looking at average in any area or
    functional expertise.   You are looking for a competitive advantage in
    the Market.  You cannot afford to be
    average in areas such as Finance, Research, Product Development, Marketing
    & Sales, Manufacturing, Distribution and Accounting.  My recommendation is that the engine of
    success in your Organization is your EMPLOYEES.  Engaged, creative/innovative caring and hard
    working team of employees is what drives success.  The foundation for creating this type of a
    culture with in an organization is the responsibility of the Leadership.

    I expected that
    every employee understand the organization’s purpose, the Vision and the Values
    of the organization.  Also, individually
    each employee should have clarity on the expectations of the work that they are
    assigned.  For most of us, work is a key
    element in our lives and we want to be part of an organization that adds value
    to our customers and to society.  The
    Leadership is responsible for building this organizations culture.  They must provide the direction, training and
    the tools so that each employee can be successful.  In addition, the Leadership has to live the
    Vision and Values in their daily actions and that would include respect and integrity.   That
    involves many skills and actions include listing but also included in the role
    of Leadership to hold every Team member accountable for their responsibilities.  Leaders have to lead and they cannot hide
    behind the science of the “Normal Curve” to take action.  Employees will make mistakes that have to be
    discussed and corrected.  If the employee
    is in a position they cannot succeed, Leadership has to deal with that issue base
    on the facts and always insuring due process. 
    Failure on the part of the Leader to address a performance issue ends up
    in lowering the standards of the Team to the lowest common denominator.  This is often misunderstood and a Team performance
    issue when in fact if is simply a Leadership Failure. 
  3. 1 Mike 18 Nov
    I've often wondered about these systems-- maybe they work better in big companies, but if they have locations in smaller/rural areas, shafting (and then having to recruit and replace B performers) is not an easy proposition.

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