All posts in Performance Management

Stack ranking and Yahoo!

Pebble stackYahoo CEO, Marissa Mayer, made HR news again this month when the firm announced that they were implementing stack ranking, following news from Microsoft that they were abandoning the practice the day before. Company employees and the wider business community met the news with understandable criticism. Nevertheless, let’s assume that a very smart CEO has it right this time.

Let’s jump back a year when Mayer announced she was going to eliminate 20% of her workforce. There has been a year of planning and research into the most effective and strategic way to achieve that. The people at Yahoo are most likely quite educated on stack-ranking, the benefits and risks associated, and ways to ensure success.

The strategy could be successful, if she and her HR team have asked, “What are we trying to achieve with this approach, and why are we doing it?”, and aligned themselves with the answer. The team should understand the outcomes they are trying for – they chose a proven technique that will drive out the bottom performers, as well as people who are not buying into the One Yahoo! concept. Yahoo will have estimated that there will be collateral damage, including the regrettable losses of high performing talent. Yahoo would have identified and quantified the value of all roles within the organization, and can align rewards to those roles based on the true value they bring to the organization.

Marissa Mayer has most likely identified the best opportunities throughout all of the business units to drive increased value, and has developed compensation plans that align that strategy to the rewards she will confer upon relevant employees for delivering the goals.

Yahoo has also demonstrated they can make a plan and then commit to acting on that plan at pace. They probably set the go-live for the initiative to start in 90-120 days, just as Microsoft’s new acquisition, Nokia, did when they implemented their new talent strategy. It is also unlikely that Yahoo sees stacked ranking as a viable long-term practice. It is a short-term measure designed to cut the earlier mentioned 20% of their workforce, a 20% that is underperforming and needs removing if Yahoo is going to succeed.

Some thoughts on Marissa’s talent strategy:

  1. Stack ranking works, but you have to have great performance measurement.
  2. Stack ranking can have unwanted consequences – regrettable losses, lower employee engagement, risk-aversion, less innovation, less cross-functional collaboration and other bad behavior.
  3. Stack ranking fails if you cannot accurately value specific roles and identify how high performing employees maximize those roles.
  4. You have to know what success looks like, tell your people what great looks like, and then let them get on with it.
  5. Make sure you don’t get rid of technically low-level performers who in reality enable and foster high performance within the teams they serve.

Stack-ranking is a proven, yet blunt instrument which will likely achieve the goals that Yahoo are trying to achieve in the short-term, but there are refined approaches that can leverage and analyze complex data to deliver the outcomes you want, while mitigating collateral damage.  It is also important to note that while many may be breathing a sigh of relief over Microsoft’s new approach, it remains to be seen whether Microsoft will become a more effective competitor as a result. Let us assume, that Microsoft has done the same or deeper due diligence, changed their performance management system to something that better aligns with their strategic goals.

Strategically aligned HR uses the evidence available to identify problems and deliver the best solutions. Yahoo and Marissa Mayer believe their solution is stack ranking. Microsoft thinks it is something different. Know; don’t guess what the  best solution is for your particular situation and how that  achieves the desired results.

The Wisdom of Performance Distribution Curves

We love reading the Sonar6 e-mail newsletter. They obviously have a great communications team and they get their message across in a fun and engaging way.

In their latest newsletter they make a point about the use of performance distribution curves in performance reviews. Their point is that forcing people to a curve is a mistake and we completely agree with that.People Performance Distribution

However, there is a very important place for performance distribution curves in performance management that we haven’t seen anyone talking about.

When people are advancing in their careers, taking on new challenges, and growing within themselves they will not always be masters of their domain. While they learn they work their way back to, and beyond, being a “3”.

And this is perfectly OK and expected. Organizations should expect to have a certain percentage of their population learning “on the job”, during which time they won’t excel in their current role. Organizations should plan to sustain part of the workforce under-performing as an investment in their future (repeated low scores for the same individual is a different story).

In fact, companies that expect many 1 and 2 raters (being the current under-performers) expect their managers to invest in their charges, expect that people grow in their roles. It is not about normalizing people and their performance, it is about identifying how many people we can support in their career advancement at any given point without compromising the company’s goals.

If your company has a year when “you just have better people, who perform better” your manager is letting you down. She’s not challenging the team, she’s not investing in the future, and just watch all of those “better people” drop their performance or leave over time because the personal challenge and fulfillment of working for your company has gone.

Performance distribution curves are an important management measurement tool. Publish them, communicate your expectations about what they mean behaviorally, and report on them. Don’t retrofit your performance ratings to match them – that’s missing the point entirely.