Facebook has put stack-ranking back in the spotlight. Critics say that while the practice might be appealing, it results in troubling outcomes.

Is one of the causes of Facebook’s scandal plagued 2018 their performance management system?

That’s the thrust of a recent report by CNBC. It details how the social media giant runs its stack-ranking program, and is filled with disgruntled ex-employees railing against its injustices and arguing that it created a cult-like environment.

What is stack-ranking?

Stack-ranking (also called ‘rank and yank’ or the ‘vitality curve’) is a performance management system made famous by General Electric. Basically it’s company-wide survival of the fittest. It assumes a workforce can be broken down into a number of discrete performance levels. General Electric had a three-tier 20-70-10 system (top 20 per cent, middle 70 per cent, and bottom 10 per cent), while Facebook has a system of at least seven tiers.

The essential premise of the ranking system is that your top performers deliver your most impressive results and should be rewarded for doing so; the bulk of your staff demonstrate adequate levels of performance; and that your bottom performers should be dismissed (the ‘yank’ in rank and yank).

A premature funeral

If Jack Welch and General Electric made stack-ranking famous, Steve Ballmer and Microsoft made it infamous. A widely acclaimed Vanity Fair article from 2012 linked the decade long fall of what was the world’s most valuable company to the now former CEO and his preferred performance management practice.

Since then Microsoft, Amazon, and General Electric itself have all backed away from stack-ranking. But that didn’t mean it died. Clearly Facebook maintained the faith, and while exact numbers are impossible to come by, it wasn’t the only company to do so.

The appeal

There’s an undeniably pleasing logic to ranking employees. Every organisation has its superstars and poor performers. And who wouldn’t like a system that rewards the former and weeds out the latter? In-company Darwinism seems like a winning formula because it promises an environment of competitiveness where employees push themselves to excel and innovate.

What’s more, stack-ranking generates continual renewal, as every year people in your organisation are assessed and the weak are culled. It also allows you to set standards. Figuring out who the top employees are can help an organisation better understand their ideal candidates.

Finally, stack-ranking can be particularly appealing to managers. While there is stress in having to categorise those who report to you, stack-ranking provides a framework for tough conversations. On the surface, it seems less cruel to assess relative ability, rather than inherent ability.

The problems

In that original Vanity Fair article, one former Microsoft employee neatly sums up the critical fault of stack-ranking.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review. It leads to employees focusing on competing with each other rather than competing with other companies.”

Stack-ranking means your performance evaluation is at least partially separated from your actual performance, and often inappropriately tied to your colleagues’ performance.

Worse still, your ranking is arbitrary and there is no room for anything but one uniform ‘reality’. Microsoft’s system simultaneously insisted that employees within teams were on a bell curve and that all teams are on a flat line. So it actively worked against attempts to create a high performing team.

Most bizarrely, the principles of stack-ranking don’t allow for the idea that stack-ranking can be effective.

Imagine your system does everything you want it to, and over many years the sense of competition instilled in your staff has gotten rid of all but the best performers. Even after you’ve completely eliminated unacceptable performance, stack-ranking still requires you to assume you have an underclass of employees that should be culled.

Here are some of the other issues critics have with stack-ranking:

• In order to better stand out, top performers have an incentive to work with as few other top performers as possible, which both limits their individual growth and prevents top performing teams.
• Everyone is incentivised to devote time to office politics (using up time they could spend on helping the company). Also, a talent for office politics can become just as valuable as being talented at your job.
  • If there’s a peer component to evaluation, like at Facebook, then politics will be horizontal as well as vertical. More time will be wasted as you need to ingratiate yourself with everyone.
• Stack-ranking incentivises short-term thinking, as failure to get tangible wins within a performance management period harms your ranking
• It makes moving into management a wise individual strategy, causing over-bureaucratisation of your organisation (this happened at Microsoft)
• Stack-ranking artificially limits talent management. If you think someone underperforming in one department might excel in another, how can you make the case if they’re stamped as a low performer?

Lies, damn lies, and lawsuits

Even if you worked diligently to make sure that your stack-ranking was fair, there’s nothing you can do to avoid the perception of unfairness.

As a species, we’re prone to over confidence and numerous studies prove that we tend to overestimate our abilities. In a well-known example from the eighties, students were asked to rank their driving skills. As the study says, in one group “93 per cent believed themselves to be more skilful drivers than the median driver”.

Combine this inability to accurately evaluate our own performance with a system that arbitrarily evaluates it and you have a perfect storm for employee dissatisfaction. Indeed, as HRM has written about before, performance pressure of this sort causes staff to lie and cheat – not out of selfishness but out of self-preservation.

It would also be remiss to not mention that stack-ranking has left a lot of companies open to being sued. If your organisation has an unaddressed bias against women or minorities, or even just a culture of garden variety favouritism, stack-ranking means that these potentially unlawful practices are explicitly tracked.

Microsoft and Uber both had to hire lawyers to defend against claims of illegal sexist practices tied to their stack-ranking. And in 2002 Ford paid $10.5 million to settle two class action suits.   

Possible exceptions

Some people point out that there are situations where stack-ranking can be more appropriate. If you need collaboration to succeed, such as with a marketing team, then stack-ranking doesn’t work. But it might be suitable for competitive environments, such as your sales department.

The counterpoint here is that even when you want healthy competition, too much of it might encourage unacceptable levels of risk-taking. It can be unwise to take the naturally competitive nature of a sales team and raise the stakes even higher. After all, a lot of the worst behaviour revealed by the Banking royal commission has been laid at the feet of reward systems that focussed too much on short term success.

When it comes down to it, in a world with so many modern performance management alternatives, why would you go with one that has its theoretical roots in 19th century Social Darwinism?