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Pay for performance fail? Microsoft finally dumps forced stack rank

http://www.bonkersworld.net/images/2011.06.27_organizational_charts.pngTim Low, PayScaleMuch 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.

http://www.bonkersworld.net/images/2011.06.27_organizational_charts.png

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.

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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 performance?

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


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Mike
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Mike

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.

Kevin Carroll
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Kevin Carroll

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… Read more »

Tim Low
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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.

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