Employee Evaluations: Microsoft’s Most Destructive Force?

Steve Ballmer

No longer will the performances of Microsoft’s (NASDAQ:MSFT) 99,000 employees be evaluated in the confines of the quota-dependent bell curve system. The company’s longstanding review practice — known as stack ranking — was a process that required each business unit’s management team to review an employee’s performance and assign a certain percentage of those employees to specific categories: top performer, good performer, average performer, below average performer, and then poor performer. The evaluation was often conducted by someone who was not closely familiar with the employees work.

Even worse, many former Microsoft workers say that ranking system pushed colleagues to compete rather than collaborate with each other, especially because some employees in a unit would be given poor reviews simply to uphold the stack ranking method. That system has now been relegated to the trash.

In an internal letter sent to employees on Tuesday, Lisa Brummel, Microsoft’s executive vice president of human resources, said the company was implementing a more flexible system in place of stack ranking, one intended to encourage better collaboration among employees. “Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams,” Brummel wrote.

A collaborative Microsoft is what Chief Executive Officer Steve Ballmer wants to create, or at least launch, before he retires sometime in the next nine months. The company memorandum authored last summer — which introduced the new company philosophy known as Microsoft One — explained that one of the company’s three new dimensions for improved performance was the work environment, with Ballmer stressing the importance of employees “working together with more collaboration and agility around our common goals.”

Ostensibly, the change in the Microsoft’s employee review process would be of little importance outside the technology community had it not been for two scathing critiques of the system that have appeared in the eighteen months. They suggested that Microsoft’s decision to drop its stack-ranking system is more than a mere internal change that will have no direct impact on consumers. Rather, both David Auerbach — a former Microsoft software engineer — and Vanity Fair’s Kurt Eichenwald — who interviewed former and current Microsoft executives — argue that that system made Microsoft a company that has “fallen flat in every arena it [has] entered. By leaving that system behind, the technology company may be able change its current course.

Ballmer has taken a great deal of criticism for the poor performance of Microsoft’s stock since he assumed the leadership position in 2000. The stock has lost more than 35 percent of its value in the past 13 years, a symptom of Microsoft’s inability to keep up with the changing technological trends. At one time, the company dominated the tech industry, but since 2000, competition from rivals like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) — companies better positioned to profit off the technology’s turn to mobile computing — has left Microsoft playing catch up. But the company’s key releases in search and tablets have fallen flat, or at least short of surpassing the competition. With each passing product launch, competitors are pulling farther ahead. Eichenwald, in his August 2012 Vanity Fair piece, highlight Bill Gates’s successor — Ballmer — as the responsible party.

Eichenwald blamed Microsoft’s obsessive focus on Windows and that stack-ranking system as the root cause of the software company’s “lost decade” and cannibalistic culture. He interviewed a number of former and current Microsoft employees who all cited the internal evaluation system as the most destructive force inside the company because it was “something that drove out untold numbers of employees.” That means “if you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” a former software developer told Eichenwald. “It leads to employees focusing on competing with each other rather than competing with other companies.”

To further highlight that point, Eichenwald wrote that supposing Microsoft had managed to hire technology’s greatest minds into a single unit before they had reached success elsewhere — Apple’s Steve Jobs, Facebook’s (NASDAQ:FB) Mark Zuckerberg, Google’s Larry Page, Oracle’s (NYSE:ORCL) Larry Ellison, and Amazon’s (NASDAQ:AMZN) Jeff Bezos — “regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous.”

Auerbach confirmed this assessment, although he noted that “to be fair” the stack-ranking system predated Ballmer. “As a software developer and later development lead at Microsoft between 1998-2003, I had to evaluate others and be evaluated myself under this system,” he wrote. “And I can say that yes, stack ranking is as toxic for innovation and integrity and morale as media reports made it out to be, and then some.” In his opinion, the evaluation process was “both a cause and a symptom of the corporation’s decline.”

Follow Meghan on Twitter @MFoley_WSCS

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