Microsoft may soon be a much nicer place to work, thanks to the company's announcement that it's doing away with its infamous "stack ranking" employee performance reviews.
In a company-wide email obtained by the Wall Street Journal, Lisa Brummel, executive VP of Redmond's human resources department, explained that managers will no longer be required to rank their employees on a bell curve, as in the old system.
"We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution," Brummel wrote. "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."
Previously, Microsoft managers were required to rank a certain percentage of their employees as "top performers," another segment as "good performers," and on down to "poor performers" – even if, in their own opinion, their entire teams delivered equal performance.
This type of rank-and-reward system, known as "stack ranking," has its origins with General Electric in the 1980s under CEO Jack Welch, who was eventually named "Manager of the Century" by Fortune magazine in 1999. But the policy won few accolades as it was implemented at Microsoft, with critics charging that it drove talented employees away from the company by unfairly labeling them as underperforming and forcing them to focus on competing with their peers.
A 2012 article in Vanity Fair magazine went as far as to blame stack ranking for what it called "Microsoft's lost decade," claiming the practice was responsible for a series of stumbles, such as Microsoft missing the boat on e-readers and allowing iOS and Android to outpace Windows Phone.
In her email on Tuesday, Brummel said that not only would Microsoft no longer require managers to rank employees on a curve, but that it is doing away with numeric rankings altogether. Instead, she said, Microsoft will focus more on teamwork and collaboration, and future performance reviews will take into account how employees work with others, in addition to evaluating their individual success.
"This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact," Brummel wrote.
The move comes as Microsoft continues to restructure around the new "One Microsoft" strategy that was recently introduced by outgoing CEO Steve Ballmer, who is expected to announce his replacement by the end of the year.
Brummel said the new employee review policy takes effect starting on Tuesday, although it will take a while for all of Microsoft to transition away from the old system. The company is holding a town hall meeting on Tuesday afternoon to further discuss the changes. ®