Stack Ranking Makes a Comeback
Trust and transparency are nice to talk about when everything is going well. But with the spate of recent layoffs, some workers are wondering “why me?” Those who weren’t pink-slipped want to know, “How did you decide? And am I next?”
Companies use all kinds of methods to decide whom to let go of when it comes to layoffs. But a method that had fallen out of favor, called stack ranking, is winning attention again.
How Stack Ranking Works
For those not familiar with stack ranking, it’s an employee evaluation method “where employees are graded against each other instead of their results,” said HR knowledge advisor Julie Schweber of the Society for Human Resources Management (SHRM). At times called forced ranking or referred to as the "vitality curve" or "rank and yank," stack ranking asks managers to rank employees along a bell curve with top performers (usually about 20%) in the narrower far left, adequate performers (usually around 70%) in the large center of the curve, and poor performers (usually about 10%) in the narrow right of the curve, explained Schweber. It’s important to note that different companies use different formulas to stack.
The idea is to reward the best performers with raises and bonuses so they keep doing the great work and stick around; retain the adequate performers; and to help the poor performers improve (sometimes via a short performance improvement program (PIP)) or to be managed out of the organization. Former General Electric CEO Jack Welch made stack ranking popular in the 1980s. In Welch's version, the bottom 10% of workers were supposed to be fired each year, regardless of how GE was doing, to make room to bring better talent into the company.
Rewarding Competition Over Collaboration
Schweber said that competitive cultures which valued the results of the individual over collaborative work might successfully use “rank and yank.” Wall Street is probably best known for this, especially now that companies like GE, Microsoft and most others have sworn it off. While employers like Goldman Sachs had suspended ranking workers during the pandemic, eFinancial Careers correspondent Sarah Butcher wrote that it has returned. The company ranks employees in three categories: “‘exceeds expectations;’ ‘fully meets expectations;’ and ‘partially meets expectations.’ 25%, 65% and 10% of Goldman employees are supposed to fall into each category, respectively.”
Butcher added that managers are supposed to have “three significant conversations with their employees during a year. The first conversation, in the first quarter, is about setting goals and the tone and the expectations of the year. The second conversation, midway through, is a light touch coaching conversation asking things like, ‘How's it going? How can I help?’ and offering feedback. The third conversation … is all about performance against goals and ‘expected behaviors.’ It's supplemented by the 360-appraisal process.”
In January, Goldman Sachs announced that it would cut about 3,200 of its workers. This number is likely higher than it would be if the bank had performed better, and the economy was more stable. That said, most Wall St. bankers sign-on for their jobs knowing that getting laid off is a possibility, and there’s not a great deal of shame when it happens. As an NPR headline from Feb. 5 suggested “It's nothing personal: On Wall Street, layoffs are a way of life.”
Related Article: Want to Encourage Collaboration? This Change Model Shows the Way
A Voice in Favor of Stack Ranking
In other fields, facing the threat of being pink-slipped each year is a deal breaker for many jobseekers. "Employees don’t like it," said Schweber, nor do managers who are forced to rate a certain percentage of workers as underperformers even though they are performing well.
"If an employer uses stack ranking, workers should be well aware of what criteria is being used to rate them, what a particular rating means to their employment, and where they stand," she said.
The aforementioned should be true for any kind of employee evaluation process.
Though Amazon periodically denies it, stack ranking is an important management tool used at the company, at least as far as Alykhan Sunderji knows. The former head of Amazon Legal Canada left the company in 2021 after being there for almost nine years. He is now the principal attorney at Sunder Legal.
“I think stack ranking is a very effective management tool,” Sunderji told Reworked. “When you stack rank and have a systematic approach to removing your lowest performers, relative to your other performers, you're forced to make hard decisions. When you remove those folks, you have the opportunity to replace them with better people. And over time your team gets better.”
According to Sunderji, Amazon’s employees are graded against the company’s four guiding principles (which he was able to recite from the top of a ski slope at Whistler): "customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking." Evaluations are generally done twice a year by a committee whose members discuss and debate how individuals should be ranked and where they should sit in the stack.
Sunderji went on to explain that stack ranking may have advantages over other methods. “The first is that when you stack rank, you invariably have to get feedback from many people (vs. one manager rating one worker) because it is not just the manager’s decision. The second is that when you stack rank, you must validate your position on the rank, and if you have bias, it will be called out. That bias could be negative or positive. We've all heard of how certain types of people, take tall white men, might do really well. Those positive biases are caught in the room. Or, if you have somebody that makes a bias comment, a classic example is ‘this woman is argumentative’ — this could be called out much more easily because you have to do it in a collaborative process. Whereas in a non-stack rank system the opportunities for that kind of audit just don't exist,” he said.
It's important to point out that once the stacking is done, the worker(s) at the bottom of the stack aren’t automatically fired. “I think a person who performs less well relative to their peers may just have more areas of improvement than that other person,” said Sunderji. He added that if “you're trying to keep that person on the team, the discussion isn't like, well, relative to these people, you are worse. The discussion is about their areas of improvement, and whether they're able to make progress towards them.”
While opponents of stack ranking insist that those who are at the bottom of the stack are almost always fired, Sunderji disagrees. “As a manager, I would much rather turn around a low performing employee than have to go through terminating that person after a performance improvement plan, and then have to find somebody new and train them,” he said.
Learning Opportunities
Related Article: Companies Are Not Families
Arguments Against Stack Ranking
Stack ranking has fallen out of favor at most companies. “The trend is to create a culture of support and recognition,” said Schweber, adding that more modern approaches advocate for providing feedback at least quarterly.
“Employees perform better when they receive continuous, real-time feedback rather than punitive feedback once a year,” said Dave Carhart, vice president, advisory services at Lattice, a maker of performance management software.
The word “punitive” refers to a forced distribution where some worker(s) has to be placed at the bottom even though their work was up to par. Not only that, but if a worker is competing with their peers, the belief is that cooperation and collaboration aren’t valued as highly as individual performance. (To be fair, this is only true if cooperation and collaboration aren’t factors that go into the ranking formula. There are many managers who don’t want superstar-only teams, consider the lessons learned from sports.)
Other arguments against stack ranking according to Carhart, and others, is that not everyone on a team or in a group has the same responsibilities. Take, for example a scrum team or even a soccer team, different members have different jobs. So rating a product owner against a member of the development team makes no sense.
“You need to step back and look at (an employee’s) contributions holistically, including the actual performance and the impact of the role,” said Carhart.
Ryan Smith, when he was CEO of Qualtrics told ABC News that stack ranking was fine “for evaluating performance in a sales organization, where managers may want to heighten competition .… It's less well suited for evaluating engineers, among whom management may want to create closer collaboration.”
Carhart also argued that stack-ranking isn’t flexible the way more modern evaluation systems are where individuals and teams can learn how they are doing at any point in time and can track their impact as it relates to an organization’s objectives and key results.
“Employees and managers become more engaged this way, they can clearly see how individual goals relate to their departmental and company goals. They have a sense of ownership,” said Carhart.
Related Article: How to Develop a Feedback System That Actually Helps Your Team
The Framework Doesn't Matter: Clarity of Expectations Does
All of this said, it’s important to add that most employee evaluation systems are specific to the employer. Stack ranking doesn’t work at Amazon the same way it worked at GE. Microsoft’s performance management process leverages information from check-ins, performance journals where employees organize work-related activities that impact their performance, stakeholder feedback and annual reviews. MIT’s includes employee self-assessments, multi-rater feedback, annual and mid-year conversations to align and adjust goals and expectations and more.
Regardless of what framework an employer uses, employees should always know how they are being evaluated and where they stand.
About the Author
Virginia Backaitis is seasoned journalist who has covered the workplace since 2008 and technology since 2002. She has written for publications such as The New York Post, Seeking Alpha, The Herald Sun, CMSWire, NewsBreak, RealClear Markets, RealClear Education, Digitizing Polaris, and Reworked among others.
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