Microsoft Changes Performance Review System (Forced Ranking Method)
In an email to all of Microsoft’s global employee base, Lisa Brummel, Microsoft’s executive vice president of human resources announced that Microsoft will no longer be employing a forced ranking system ( also known as a stack ranking review system) to manage its global workforce’s performance.
The system previously employed by Microsoft relies on managers forcefully assigning employee ratings to be included in one of five categories. The top category being those who are top performers, and the bottom carry those who will be asked to find other jobs.
The forced ranking performance review system was immortalized by its use with general electric, and championed by Jack Welch. For the last two decades it has been used in some of the world’s most known companies with mixed success.
Generally, managers complain from having to use the system because in many instances it forces them to get rid of top performing employees just to satisfy the requirement of the review. In addition it creates a culture of backstabbing, political intrigue, and in severe cases, dishonesty, and outright negligence. In the past, Jack Welch has defended the performance review system by arguing that true top performers want to be surrounded and to work with people just like them, though he never addresses variability in the tasks that those top performers may be asked to accomplish.
Microsoft executives comment that the review system was timely and was necessary for the things that Microsoft needed to accomplish over the last decade, and now that Microsoft has different goals and is in the process of restructuring its business lines, it makes more sense to adopt a different review system which does not rely on forced ranking. Of course this is as long as managers stay within their “compensation budget” says Brummel.
The full text of Brummel’s e-mail to employees is below:
To Global Employees,
I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company.
This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives. This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world-changing work.
To learn more about the new approach to performance and development, please join me for a Town Hall today at 2:00pm PT, either in person in building 92 or via webcast (see details below).
Here are the key elements:
· More emphasis on teamwork and collaboration. We’re getting more specific about how we think about successful performance and are focusing on three elements – not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others’ success – and how they add up to greater business impact.
· More emphasis on employee growth and development. Through a process called “Connects” we are optimizing for more timely feedback and meaningful discussions to help employees learn in the moment, grow and drive great results. These will be timed based on the rhythm of each part of our business, introducing more flexibility in how and when we discuss performance and development rather than following one timeline for the whole company. Our business cycles have accelerated and our teams operate on different schedules, and the new approach will accommodate that
· No more curve. 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.
· No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.
We will continue to align our rewards to the fiscal year, so there will be no change in timing for your rewards conversation with your manager, or when rewards are paid. And we will continue to ensure that our employees who make the most impact to the business will receive truly great compensation.
Just like any other company with a defined budget for compensation, we will continue to need to make decisions about how to allocate annual rewards. 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.
I look forward to sharing more detail with you at the Town Hall, and to bringing the new approach to life with leaders across the company. We will transition starting today, and you will hear from your leadership in the coming days about next steps for how the transition will look in your business. We are also briefing managers and will continue to provide them with resources to answer questions and support you as we transition to this approach.
I’m excited about this new approach that’s supported by the Senior Leadership Team and my HR Leadership Team, and I hope you are too. Coming together in this way will reaffirm Microsoft as one of the greatest places to work in the world.
There is nothing we cannot accomplish when we work together as One Microsoft.