Is their performance management system one of the reasons of the Facebook crisis plaguing 2018? That is the thrust of CNBC’s story. It explains how the giant of social media runs its stack-ranking scheme, which is packed with angry ex-employees raging against its injustices and alleging that it created an atmosphere like a cult.
Stack-ranking (also known as ‘rank and yank’ or the ‘vitality curve’) is a method made popular by General Electric and Jack Welch for performance management. It’s essentially the firm-wide survival of the fittest. It presumes that a workforce can be broken down into a variety of distinct levels of efficiency. General Electric had a 20-70-10 three-tier structure (top 20%, middle 70%, and bottom 10%), while Facebook has a system with at least seven stages.
The ranking system’s basic assumption is that your top performers produce the most outstanding outcomes and should be rewarded for doing so; that the remainder of your workers display acceptable standards of performance; and that your bottom performers (‘yank’ in rank and yank) should be fired.
If stack-ranking was made famous by Jack Welch and General Electric, Steve Ballmer and Microsoft made it infamous. A widely acclaimed 2012 Vanity Fair article related the decade-long collapse of what was the most profitable business in the world to the now-former CEO and his favored practice of performance management.
Microsoft, Amazon, and General Electric themselves have all backed away from stack-ranking since then. But that didn’t indicate that it had died. The trust was clearly upheld by Facebook, and while specific figures are difficult to come by, it was not the only company to do so.
To ranking workers, there’s an undeniably satisfying logic. There are superstars and bad performers in every organisation. And who doesn’t want a scheme that rewards the former and weeds the latter out of it? Darwinism in the business sounds like a winning formula because it offers a competitive atmosphere in which workers drive themselves to succeed and innovate.
What’s more, stack-ranking creates continuous renewal, as individuals in the company are reviewed every year and the poor are discarded. It also enables you to set norms. It will help a company better recognize their ideal candidates by finding out who the top workers are.
Ultimately, stack-ranking can be particularly desirable to executives. Stack-ranking offers a structure for difficult discussions, though there is tension in trying to categorize those who report to you. On the surface, measuring relative ability, rather than intrinsic ability, seems less cruel.
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.
The concepts of stack-ranking, most bizarrely, do not allow for the concept that stack-ranking can be effective. Imagine that your system does what you want it to, and the sense of rivalry instilled in your workers has gotten rid of all but the best performers for many years. Even if you have removed inappropriate output absolutely, stack-ranking also allows you to presume you have a subclass of workers that should be eliminated.
Stack-ranking restricts talent acquisition artificially. If you assume that someone in one department who is underperforming will succeed in another, how would you make the case if they are stamped as a low performer? There’s nothing you can do to escape the feeling of unfairness, even though you worked hard to ensure that your stack rating was fair.
We are susceptible to over-confidence as a species and multiple studies indicate that we appear to overestimate our skills. Students were asked to rate their driving skills in a well-known instance from the eighties. As the study states, “93 percent considered themselves to be more skilled drivers in one group 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, 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.
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.
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