Microsoft is dropping its stack-ranking employee performance evaluation system where workers are graded on a fixed scale. The company released a memo addressed to its global staff of 99,000 that it will abandon the controversial management technique that caused low morale and lack of cooperation among team members for an approach that is more consistent with the One Microsoft policy being pushed by its outgoing chief executive Steve Ballmer.
The memo issued by Microsoft vice president of human resources Lissa Brummel on Tuesday announced the revamp on how employees will be evaluated. The stack-ranking system that ranks workers on a scale of 1 to 5 has been identified as the source of unhealthy competition and power struggles among team members and between managers.
"It's not saying one system is better than another. It's what system aligns best with what the company needs to get done and what we need to do to go forward," Brummel said.
Microsoft is just one among other companies that decided to drop the management system that became popular in the 1980s. Basically, the system pointed out the poorest performers and encouraged them to exit the organization. General Electric was among the pioneers of such system under its former CEO Jack Welch but it has since dumped the system under the helm of Jeffrey Immelt. The latter focused on helping employees improve their performance and not on adhering to very rigid grading systems.
The email of Brummel to the Microsoft workforce explained that the new management approach will focus on teamwork and collaboration, growth and development of employees, generous rewards budget, and looking at opportunities.
"I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company," the company memo stated.
"This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world changing work," the email further explained.
According to report on The Wall Street Journal, industry experts estimate that about thirty percent of Fortune 500 companies still rank employees based on a "talent management" principles where a certain percentage of employees can be placed on the top category while another percentage is mandated to be in the bottom or poor performing group.
"It's a challenge today for large tech companies to figure out how best to assess and reward employees in light of slowing growth while still retaining the best talent who are best able to thwart the impact of disruptive technologies," said managing director Charley Geoly of Russell Reynolds Associates in an interview with the Wall Street Journal. He pointed out the struggle of tech firms that transition from startups to a dominant force in the technology industry.
