Stack ranking, also known as forced ranking, is a performance management system where employee performance is assessed relative to that of their peers across the organization, rather than against predefined individual performance standards. Traditionally, this method involves categorizing employees into three groups: top performers (top 20%), middle performers (middle 70%), and low performers (bottom 10%), with corresponding rewards and consequences.
This approach is contentious. Proponents argue that a “rank and yank” strategy incentivizes higher performance and identifies low performers. However, critics contend that it fosters a cutthroat environment, undermines collaboration, and adversely affects morale.
Despite its controversy, approximately thirty percent of Fortune 500 companies reportedly utilize stack ranking to evaluate their workforce.
Stack ranking, also referred to as forced ranking or rank and yank, is a performance management strategy used by organizations to assess and categorize employees based on their performance relative to their peers. Unlike traditional methods that focus on individual goal achievement or specific metrics, stack ranking compares employees directly against one another.
What is Stack Ranking?
Stack ranking, also known as forced ranking or “rank and yank,” is a performance management method where employees are evaluated and ranked against each other based on their performance levels. Instead of comparing employees against specific job standards or criteria, they are rated relative to their peers within the organization. Typically, employees are grouped into categories such as top performers (usually around 20% of the workforce), middle performers (about 70%), and low performers (approximately 10%). This ranking system often involves rewarding top performers with incentives like bonuses or promotions while potentially penalizing or removing low performers. The approach aims to drive performance by creating competition but is controversial due to its potential negative impacts on morale, collaboration, and fairness in evaluations.
In a stack ranking system:
- A group: This top tier consists of the highest-performing employees, typically the top 20%. These individuals are recognized for their exceptional contributions with rewards such as salary increases, bonuses, stock options, and opportunities for career advancement.
- B group: The middle tier comprises about 70% of employees who are considered average performers. While they are vital to the organization’s success, they may receive smaller raises and are encouraged to enhance their performance to move into the top tier.
- C group: The bottom tier includes the lowest-performing employees, usually around 10%. This group may not receive salary increases or bonuses, and they are at risk of being terminated if their performance does not improve.
Stack ranking aims to foster a competitive environment and differentiate performance levels clearly within the organization. Proponents argue that it helps identify top talent and incentivizes continuous improvement. However, critics point out several drawbacks:
- Morale Impact: Stack ranking can create a cutthroat atmosphere where employees compete against each other rather than collaborate. This can lead to stress, demotivation, and a decline in teamwork.
- Bias and Subjectivity: Evaluations in stack ranking systems can be influenced by managers’ biases and perceptions, potentially leading to unfair assessments.
- Negative Organizational Culture: The practice of ranking and potentially eliminating employees based on performance metrics alone may undermine trust and loyalty among employees, affecting overall organizational culture and employee retention.
Problems with Stack Ranking:
- Impact on Morale and Engagement: Stack ranking can create a competitive atmosphere where employees feel pressured to outperform their colleagues to avoid being ranked in the bottom tier. This can lead to decreased morale, increased stress, and lower job satisfaction. Employees may perceive their efforts as futile if their ranking is determined more by comparison than by their actual contributions and achievements.
- Internal Competition: While some level of competition can drive performance, stack ranking often fosters unnecessary internal competition. This competition can deter collaboration and teamwork as employees prioritize individual success over collective goals. It may also lead to a culture where employees are reluctant to share knowledge or support each other, fearing it could impact their own rankings.
- Subjectivity and Bias: Evaluating employees based on stack rankings can introduce biases and subjectivity into performance assessments. Managers may unintentionally favor certain individuals or penalize others based on personal preferences or limited interactions. This can result in unfair evaluations that fail to recognize the diverse skills and contributions of team members accurately.
- Limited Development Focus: Stack ranking tends to focus primarily on past performance rather than future potential or growth opportunities. This can discourage employees from taking risks or pursuing innovative ideas that may not yield immediate results but could lead to long-term success. Moreover, it may neglect the importance of continuous learning and development, which are crucial for enhancing employee skills and adapting to changing business needs.
Stack Ranking Examples: Companies That Use Forced Ranking:
In recent years, many companies have shifted away from traditional stack ranking methods that categorize employees into fixed performance tiers. This change reflects a growing recognition of the limitations of such systems in fostering a collaborative and innovative workplace culture. Modern approaches emphasize understanding each employee’s unique circumstances, daily contributions, team dynamics, alignment with strategic goals, and individual motivations.
Examples of Companies Using Stack Ranking
GE Forced Ranking System
General Electric (GE) stands out as a pioneer of stack ranking with its “Vitality Curve,” introduced by former CEO Jack Welch in the 1980s and 1990s. Welch implemented this approach to invigorate the company’s performance amid concerns that GE had grown complacent. The Vitality Curve aimed to differentiate top performers and motivate underperformers through a competitive ranking system. While initially credited with driving significant revenue growth, over time, GE transitioned away from this approach. Today, GE embraces more modern performance management strategies that prioritize continuous feedback and employee development over rigid ranking systems.
Amazon Stack Ranking
Amazon also adopted stack ranking as part of its performance evaluation strategy in the past. Unlike some companies that enforced strict consequences like terminations for low-ranked employees, Amazon implemented a “Performance Improvement Plan” (PIP) to support underperformers. This approach aimed to provide struggling employees with a structured path for improvement over a designated period, rather than immediately penalizing them. However, similar to GE and other organizations, Amazon has evolved its approach in recent years. The company now emphasizes continuous feedback and development, moving away from the rigid constraints and potential pitfalls associated with traditional stack ranking methods.
These examples illustrate a broader trend among forward-thinking companies, recognizing the need for adaptive and supportive performance management practices that align with contemporary workplace dynamics and employee expectations.
Microsoft Stack Ranking
Microsoft was known for its rigorous stack ranking system, where managers were required to categorize their team members into specific performance tiers, such as top performers, average performers, and underperformers. This system, implemented in the early 2000s, aimed to differentiate employees based on their contributions and align performance with rewards and promotions. However, over time, criticisms mounted regarding its impact on employee morale, collaboration, and innovation. Employees felt pressured to compete against each other rather than collaborate, and innovation seemed stifled in such a competitive environment. Recognizing these drawbacks, Microsoft announced the discontinuation of stack ranking in 2012, opting for a more collaborative and developmental approach to performance management.
Google Employee Ranking System
Google, known for its innovative approaches to organizational culture, also experimented with performance ranking systems. Unlike traditional stack ranking systems that penalize bottom-ranked employees, Google’s approach—known as “slacker” ranking—focused more on identifying top performers rather than categorizing and potentially penalizing low performers. This approach aimed to foster a culture where employees could focus on personal growth and skill development without the fear of punitive measures for being ranked lower.
Alternatives to Stack Ranking
Stack ranking once favored for its perceived ability to drive performance, has come under scrutiny for its potential to create unhealthy competition and demotivate employees. To foster a more positive work environment and enhance employee engagement, organizations are increasingly adopting alternative approaches to performance management. Instead of pitting employees against each other, these alternatives emphasize regular performance reviews focused on constructive feedback and goal-setting. Employee recognition programs play a crucial role in acknowledging achievements and reinforcing desired behaviors, boosting morale across the organization. Fair and transparent performance evaluations that consider individual contributions within team contexts are replacing rigid ranking systems. Providing ample opportunities for professional development and creating a culture of continuous feedback further supports employee growth and satisfaction. By cultivating a supportive workplace environment that values communication and inclusivity, organizations can build a high-performance culture where employees thrive and contribute to long-term success.
How to Rank Employee’s Performance
Implementing a robust system for continuous performance management (CPM) is crucial for effectively evaluating employee performance. CPM involves ongoing tracking of each employee’s progress towards company objectives, aiming to pinpoint areas for improvement and foster continuous skill development.
At its core, CPM operates on principles of continuous analysis, agile management, and real-time feedback. By setting clear performance standards aligned with organizational goals, managers can guide employees toward success and measure their performance regularly against these benchmarks. This proactive approach allows for early identification of potential issues before they escalate.
Unlike traditional stack ranking systems that often breed internal competition, CPM promotes a culture of open dialogue and collaboration. Regular performance reviews provide opportunities for constructive discussions where managers and employees can exchange feedback, set new objectives, and align expectations. This two-way communication not only enhances clarity but also empowers employees to take ownership of their professional growth.
Integral to CPM is the practice of 360-degree feedback, which gathers insights from peers, subordinates, and supervisors. This comprehensive feedback mechanism offers a holistic view of an employee’s performance, leveraging diverse perspectives to assess contributions and identify areas for improvement. Tools like Factorial’s 360 Performance Assessment streamline this process, offering valuable real-time data that enriches decision-making and supports strategic development initiatives across all organizational levels.
FAQs:
- What is the difference between stack ranking and continuous performance management (CPM)?
Stack ranking is a forced distribution method where employees are ranked against each other, often resulting in a fixed percentage of low performers. In contrast, CPM emphasizes ongoing feedback, goal setting, and skill development aligned with organizational objectives, fostering continuous improvement rather than competition.
- How does continuous performance management benefit employees?
Continuous performance management promotes regular feedback and dialogue, empowering employees to understand their strengths and areas for growth. It supports professional development through clear goal setting, ongoing coaching, and opportunities for skill enhancement, fostering a supportive work environment.
- Is stack ranking still effective in today’s workplace?
While stack ranking can create urgency and identify top performers, its competitive nature often leads to reduced collaboration and morale issues. Many organizations now prefer CPM for its focus on holistic employee development and strategic alignment with business goals.
- What are the challenges of implementing a stack ranking system?
Implementing stack ranking can pose challenges such as fostering internal competition, demotivating employees in lower-ranked categories, and relying on subjective evaluations. It may also create a culture of fear and discourage risk-taking and innovation among employees.