Why are Amazon, Facebook and Yahoo copying Microsoft's stack ranking system?

Indeed. Why can't you simply measure people against a consistent, externally-defined bar, and reward them based on their share of their performance group?

e.g., Employees who hit the bar are in group C, employees who exceed it are in group B, employees who are extraordinary are in group A. Each group has a portion of the bonus pool, and each member of a group gets the same as every other member of their group.

You can still get rewarded for better work, but now you're no longer working against an arbitrary bar defined by your peers. If you, hypothetically, have a team full of rockstars then everyone shares the bonus pool equally. Done.

Also, what's up with tying raises (not bonuses) to performance rankings? At the end of the day people will leave if they can get paid more elsewhere. The best/only way to ensure your employees don't leave is to keep paying them at or near what they can get on the open market today. That guy may be the weakest engineer on your team, but he's still a good engineer and can do a lot better than the shitty 2% raise you've stuck him with.

I've noticed that companies tend to fall into two philosophical camps, both of which can be successful if executed right. One camp says that you should create a great process so that you can stick anyone in it and they can be successful. Another camp says you should get great people and the process will work itself out. I'm illustrating the extremes to clarify the picture: even process-driven firms need good people, and people-driven firms need good processes.

I'm not sure there's actually a "right" answer to the question, so much as you need to make sure you execute in the right way against the strategy you've chosen, although I do think that certain industries and firm sizes tend to advantage one over the other.

A few jobs back, I worked with a person that was incredibly brilliant, and a very prolific developer. Unfortunately he made everyone around him miserable in countless ways (definitely a prima donna). He would rewrite large sections of code and change core user functionality without asking product managers or other developers. When confronted, he refused to revert his changes because he had done it right and "everyone would see once it was released".

His abilities and contributions would likely put him at the top of a stack rank, but overall he may have hurt the company more than he contributed.

Law firms are generally considered awful places to work because they're in a service business where people are compensated, in part, on their ability to respond to client requests at 2 am. But that aside, there are a lot of very sensible management practices in law firms, that have arisen through more than a century of practical experience in a "knowledge worker" field where employee performance is not easily quantified.

It's in vogue to criticize law firm management for problems that are properly attributed to the structural dynamics of the industry (slowing growth in demand), but I've never found such criticism convincing. Indeed, I think a lot of the historical conditions that led to the current management practices of law firms are similar to the conditions faced by top technology companies today. Google and Facebook don't need to figure out how to get adequate performance from large numbers of mediocre people, like Big Corps often do. Rather, they are in a position where they have plenty of money to hire the top talent, but face an experience shortage. How Cravath, and others, responded to the similar situation in the early 20th century was institutionalized training, lockstep, and "up or out" combined with a substantial equity carrot. Instead of searching high and low for experienced professionals, Cravath hired them right out of school and taught them everything they needed to know. They kept people moving up within the organization, and offered a very real chance for substantial equity in the firm.[1] Those that didn't quite cut it were pushed out, but to a soft landing because the industry as a whole was growing and there was very high demand at other organizations for people with that brand name and that training. Those conditions don't really hold true for law firms today, but seem very similar to me to the conditions faced by Google, Facebook, etc.

Incidentally, I think Fog Creek's system is great, and is practically quite similar to lockstep: http://www.joelonsoftware.com/articles/fog0000000038.html. There are essentially just four levels (9-12) for engineers who are neither interns nor fellows, and compensation is fixed, and public, at each level (except for a small percentage of each level that might get "superstar" status and compensation halfway to the next level). There are no individual bonuses, just profit-sharing bonuses that are based on company performance and also fixed at each level. Promotion between levels is based on a holistic analysis rather than strictly seniority, but that's probably a useful tweak to lockstep.

> Lockstep bonuses only apply to associates

Quite a few New York firms are still lockstep throughout the partnership. When firms abandon lockstep, its because of profitability: only a handful of firms are so profitable that they can compete for rainmakers while maintaining a lockstep regime. Since were talking about Google, Facebook, etc, in this thread, I don't think that constraint is relevant.

> and are usually a function of the senior attorneys' inability to provide meaningful feedback and performance management, not a desire to reduce competition.

Senior attorneys aren't great at providing feedback, but at least they see your work product, day in and day out. Engineering managers usually aren't reviewing and editing every line of code you commit!

I've worked as a software developer and also as a lawyer at a pure lockstep firm, and I preferred the management experience at the latter. The major things I appreciated were the flat management hierarchy and the strict separation between lawyers and non-lawyers. On even a big matter, there was maybe two to three levels above me. That was about the depth of the management hierarchy at the startup I worked for, which was 1/30th the size. And from screening interview to exit interview, I was never evaluated by a non-lawyer. HR was strictly for logistical support, not evaluation. And at the firm, even when feedback was weak, it was always from someone who had actually seen my work product, not some manager who heard from someone else about my work product. When I was at a software company, I spent a lot of time doing image management: making sure that someone important knew what I was up to. It was effective when it came to bonuses and raises, but it probably wasn't the most productive team dynamic. At the firm this wasn't even a concern. The partner on my matter saw my e-mails and often saw my work product. The only thing an administrative person tracked was my overall hours, and all I really worried about other than doing good work was making sure I kept my hours within the acceptable range.

[1] Even today, when partnership odds are considered a long-shot, a new hire at Cravath has a much better shot of becoming partner than a new Googler does of achieving a high VP-rank. This is at least partly because of eschewing the idea of hiring VP's from a separate class of professional managers rather than by promoting from within the technical ranks. This equity carrot is key to getting smart people to put in a lot of work for the benefit of the company.