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Microsoft does away with stack ranking

zdnet.com

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Re: Microsoft does away with stack ranking

#11

Post by Zigurd »

ethomson wrote: post #5

This was seemingly inevitable whether this is actually useful or not. Microsoft has been getting increasing heat about our stack ranking system, both from employees and from external people. But I don't think stack ranking is our problem. I think our problem is that we value this notion of the brilliant and excellent individual contributor instead of valuing employees that value teamwork and team problem solving. I s…

I think that's an accurate assessment. It certainly wasn't stack ranking that made J Allard leave. Microsoft has an inward looking culture because there is so much money to play with when Microsoft launches a huge initiative like XBOX or Windows Phone. Google's "moon shots" and Apple's "hobbies" are not instant tickets to the top of the organization.

Overlaid on those high-stakes struggles for control and prominence are some correspondingly huge egos, whence come dogmas like "Everything Windows."

The Enterprise part of the company suffers less from this because the growth there is more organic.

Re: Microsoft does away with stack ranking

#12

Post by potatolicious »

Shenglong wrote: post #7

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lowe…

Not necessarily.

If two people are both performing at about the same level, they can get the exact same bonus. In a ranked system one employee must get more than the other, even though their actual output is pretty close to identical.

Not to mention when you make the ratings tied to rewards, as opposed to punishments, you're removing a lot of politics. Stack ranking discourages high performers from working together, as their performance rating is penalized by their proximity to smart people. Because stack ranking is inherently punitive, this also makes these employees less mobile. So not only are you stuck in a team full of super-ninjas who make you look bad, but the stack rank you got makes you toxic when it comes to internal transfers.

A fixed bonus pool won't fix the "everyone near me is too smart" problem, but it at least would give people a way out to another team. An otherwise good employee who rolled the dice wrong when picking teams does not gain a permanent black mark for it.

Re: Microsoft does away with stack ranking

#13

Post by jrochkind1 »

Shenglong wrote: post #7

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lowe…

There difference is, theoretically, some teams could all be composed of high performers, and other teams disproportionately of low performers.

The forced curve before meant that every team needed to assign x% as high performers and x% as low performers.

Now, how you assign the high and low performers, from a limited pot of 'rewards', when every manager is going to want most of his team to be considered high performers -- well, that's what the 'forced curve' was intended to deal with. But I don't doubt it also led to increased competition and politics and decreased teamwork, as the one well-known critique of it suggested.

Re: Microsoft does away with stack ranking

#15

Post by gesman »

Stack ranking is created by management's inherent inability to trust people.

And that, in turn, is created by management's inability to trust in their own abilities. This is proved to be true in case of Ballmer and overall Microsoft's performance while under his leadership.

These changes are surely a positive sign for Microsoft.

Re: Microsoft does away with stack ranking

#17

Post by bcoates »

Shenglong wrote: post #7

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lowe…

Critical question unanswered by the letter: Is the bonus pool for a team primarily fixed in advance as a law of nature, or primarily determined by team performance as a whole, at the end of the period?

If it's the former, you're right and the details of how individual bonuses are assigned don't matter much.

The latter however would could up real opportunities: a team that gets together and delivers beyond expectations could all be generously rewarded instead of having the weird fight over who was the individual star performer that gets all the credit.

Re: Microsoft does away with stack ranking

#18

Post by DerpDerpDerp »

potatolicious wrote: post #12
Shenglong wrote: post #7

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lowe…

Not necessarily. If two people are both performing at about the same level, they can get the exact same bonus. In a ranked system one employee must get more than the other, even though their actual output is pretty close to identical. Not to mention when you make the ratings tied to rewards, as opposed to punishments, you're removing a lot of politics. Stack ranking discourages high performers from working together,…

It also opens the possibility of giving a team of all rockstars, if they're (as a team) performing highly, a bigger reward pool that can be split evenly between them.

I seem to think it's much easier to convince them your awesome team producing awesome products (and taking in awesome money) should get extra money to spend than it is to convince people you shouldn't have to rank any of your employees lowly when they all have to.

Re: Microsoft does away with stack ranking

#19

Post by davidp »

Shenglong wrote: post #7

We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. Is this not in effect the same as a curve? Giving higher bonuses to one person means giving lowe…

Thanks to the law of averages, a "stack ranking" system isn't harmful as long as the size of the group is sufficiently large. Employees aiming to be in the top 20% of a 5000-person organization are incentivized completely differently from from those aiming to be in the top 20% of a 5-person organization.

I think what they've done here is to allow each manager in the chain to decide how to handle their organization's evaluation and compensation. You could be VP of a 500-person division and instruct your directors and managers to rank everyone in your org in a single pool; or you could delegate to your directors and tell them to do what they think is best for their groups within their own individual budget constraints, which you assigned.

Re: Microsoft does away with stack ranking

#20

Post by r00fus »

ethomson wrote: post #5

This was seemingly inevitable whether this is actually useful or not. Microsoft has been getting increasing heat about our stack ranking system, both from employees and from external people. But I don't think stack ranking is our problem. I think our problem is that we value this notion of the brilliant and excellent individual contributor instead of valuing employees that value teamwork and team problem solving. I s…

Isn't it the case the stacked ranking exacerbated the backstabbing issue?

I see this move overall as a positive one for Microsoft - without removing the perverse rewards to screw over your teammates and other teams, the actual cultural fix can't take place.

I think the culture will shift soon - Microsoft, for more than a decade, had no real competitors. They made more money each year whether they executed (see Win2k) or not (see Vista). Consequently, their biggest threat was actually internal. Stacked ranking enforced this, and prevented internal response.

Now that situation is changing (or has changed). Microsoft is looking at actual competition in the form of Apple and Google as mobile and search erode the desktop. On the datacenter side, Amazon and other cloud provider are threatening Microsoft's server profits.

When the heat gets strong enough, there will be a unifying force within the company (or it'll just crumble - personally don't think that's the case).

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