microsoftlogoMicrosoft is doing away with one of its most controversial internal practices, the “stack ranking” process that has long rated employees on a fixed curve, which had the effect of giving a lower standing and compensation to some employees even in cases where their managers might have felt they deserved more.

The new program will replace Microsoft’s fixed curve and ratings with a new system that lets managers hand out raises and bonuses as they see fit, within the limits of their overall budget for compensation.

Lisa Brummel, the company’s head of human resources, said in an interview with GeekWire that the prior system was designed for an era when Microsoft was focused on employees as individual performers within a vertical corporate structure. The One Microsoft reorganization, which reshapes the company’s divisions around functional disciplines rather than products, is meant to make Microsoft more collaborative across teams — with major releases and updates coming at a faster pace.

Lisa Brummel
Lisa Brummel

“A forced distribution wasn’t getting at the teamwork principles that we really want to get at related to One Microsoft,” Brummel said.

[Follow-up: Farewell, stack rank: Why this change is so big for Microsoft]

Stack ranking does have some supporters, but it also has been blamed for fostering dysfunction at Microsoft and reducing morale among employees. At an internal presentation this morning, managers clapped when Brummel announced that the employee review process would be overhauled, and by the end of the presentation they gave a standing ovation.

Brummel said the changes are “a nod to our manager base,” trusting them with the autonomy to make these decisions.

This is just the latest in a massive series of changes at Microsoft this year, including the companywide reorg, CEO Steve Ballmer’s planned exit, and the pending acquisition of the Nokia smartphone business.

These changes come at a time of fierce competition for technical talent across the industry, as Microsoft competes with startups and large tech companies to recruit and retain top employees.

Here’s the full text of Brummel’s email to employees.

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. …

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.

Lisa

Comments

  • http://www.christopherbudd.com Christopher Budd

    Holy cow. This is huge. I mean, really huge.

    Of course, the thing is it’s already done a LOT of damage. I know a lot of excellent people who left and this was factor.

    Not sure if this is enough to bring people back, but at least it may not drive people away now.

    • Kelly Sieben

      Come back Christopher!

      • geeber

        I wonder how they’ll handle the legions of employees that adapted their work culture and management philosophy to the brutal realities of the annual stack rank competition. It’s a hugely positive move, but the damage will take years to correct and old deeply ingrained survival skills die hard. I wouldn’t rush back if I were you. Not until there’s a lot more turnover.

        • http://www.christopherbudd.com Christopher Budd

          It’s a very fair and accurate comment. It also remains to be seen what they replace it with and if the curve is really gone. After changes in 2008 or so to minimize the curve some groups like Office continued to operate as if it were still there.

          All told, it means we have to wait and see.

        • zymara

          Depends on the team/division. My team was already trying to do a lot of what the new policies reflect, so our adaptation began long ago. I despised the stack ranking system but have no fear on this team of remnants lingering.

  • Tony

    Only took them 20 years to fix it!

  • Guest

    Lisa Brummel trying to save her butt in the parting CEO aftermath. Let’s hope she doesn’t get away with it, she caused so much damage.

  • http://blog.findwell.com Kevin Lisota

    Odd timing for this move. Seems more appropriate for a new CEO to roll something like this out, no?

    • guest

      Agreed. Very odd timing, unless some of the teams shipping major releases for this holiday (and about to be reorg’d) needed some flexibility on the comp/review side of things.

    • shrg

      If they’d have let it go much further it would have raised concerns that it wouldn’t be effectively gone for the next review cycle. And it’s a pretty good sign that all their finalists for CEO were probably going to get rid of it anyway.

  • Scarlett_Ang

    Sounds like a good thing to do. The old way, from what I’ve heard, really siffled teaming, and I think that’s why some of their products in the past haven’t been as great as they could have. This will be good, IF the management doesn’t abuse the new system and reward their ‘slacker buddies’ instead of those who are true team players.

  • Slaggggg

    In an industry that prides itself on logic and truth, it’s odd to see so much joy around a change that removes truth and caves into allowing everyone to feel they are above average.
    Is this just a feel-good measure? Now we don’t have to tell 50% of the people they performed below the mean of performance … but everyone gets the same financial result anyway?
    This may make people feel better .. but it’s hard to see how it will drive better individual performance. Now it will be much easier for managers to say “everyone’s great” and ignore the mathematical fact that half of the people are not above average.

    • shg

      Stack-ranking and truth are mutually exclusive terms. It rewarded the worst aspects of corporate culture at the expense of innovation and morale. At worst it fostered lying about your direct reports’ qualities; at best it forced managers to scour and find something, anything that could be used as a mark against hard-working employees.

      Only sociopaths and misanthropes would defend stack-ranking as good practice. I’ll let you decide which one of those you are.

    • FormerSofty

      I saw first hand how this system caused severe dysfunction within Microsoft. There were very mediocre teams with very average employees who received huge pay increases and stock packages, while teams full of high performers that had very good employees who were stack ranked low and were put on the “death watch” list. It was a total joke and everyone there knew it.

    • TheTruth

      The faster you begin the unlearning process from living in a stack rank world, the better off you will be. If you don’t, you soon won’t be employable anywhere, including Microsoft.

  • jqpabc123

    Any system has drawbacks. The problem with the new system — it is totally dependent upon the manager/employee relationship — which doesn’t necessarily have any relationship to production or potential or brilliance or anything of real benefit to the company. Don’t tell me you haven’t seen how this often plays out.

    • anon

      I’m thinking you didn’t actually live under the old stack ranking system as MS, because if you did, you would have realized how ironic your comment is.

  • grapegeek

    For those defenders of the stack ranking system, give me a break. Microsoft hires some of the best people in the world to work for them and you are telling me that 50% of them are below average? Jeesh… at any other company they would kick ass. Time for a change… drove me and a lot of friends out of the company to go work at other places that don’t do this

  • Out For Justice

    “reaffirm Microsoft as one of the greatest places to work in the world”. Underachieved!… bye Lisa!…

    • Raw Omlet

      Undoubtedly. I would be also great to revive the HR dept. at MS. Starting with Lisa. HR has stopped being the business partners they should and once were. Instead now focused on attrition (positive and negative), tied to fiscal cost restructuring. Sad…

  • Mike Kinney

    This is a huge, and great, step forward. Hopefully the new system will re-empower managers, at all levels, to reward employees as they see fit — within budget. In the old system (as a few years ago) there was a radical difference in compensation between the 79% and 80% rated employees (and similar disproportionate rewards for meets / exceeds) that was more exaggerated the higher you went in the org. This schism was built into the model, enforced by the process, and caused huge dysfunction the higher up you went.

    It will take time and a very focused effort to change the culture and embrace this.

  • FormerSofty

    Lisa Brummell should be one of the many who got shuffled out with a ranking of 5. Microsoft lost so many excellent employees due to this ridiculous stack rank system. I personally know people who were driven out of the company because of this review system. These very same people are valued employees of companies that are crushing Microsoft competitively…nice move Lisa! Microsoft so deserves your incompetence.

    • Stitchweaver

      The stack rank system was in place long before Lisa Brummel.

      • FormerSofty

        The system that caused so much controversy within Microsoft was put in place around 2008. It essentially forced managers to rank employees on a curve within narrow groups. Lisa Brummell was most certainly responsible for that system.

        • http://www.openbuddha.com/ Al Billings

          Uhm, no, because I left in 2006 and that system had been forcing managers to “grade on a curve” for many years before I left.

          • Googled

            I was a director with numerous reports under me. I had whole teams with high performers who were reviewed and compensated as such. True, on the whole there had to be a curve within broad groups, but the 1 thru 5 system that FormerSofty is referring to was Brummell’s and I agree that it was the system that caused so many good people to be forced out. It was around 2008 or 2009 that it was initiated.

      • TruthHurts

        Brummell was appointed the CPO back around 2005, as I recall. Regardless of whether or not she came up with the ranking system, she had ample time to fix it. Instead, she magnified its effects by implementing the 1-5 system about 5 years ago. I agree with FormerSofty that she is as much to blame for the ill effects of this antiquated system as whomever started it…maybe even more to blame.

  • TruthHurts

    I find it funny that Brummell comes out with this radical change that she positions as being consistent with the “new” Microsoft, but somehow defends the old system as appropriate for its time. Let’s get real here. Brummell knows all too well that the old system was a failure. Now that new leadership is coming, she’s trying to proactively control the damage of her flawed system. I think it’s time for dear Lisa to move on with Steve.

  • Common Sense People

    Seems too little too late. This poor company has lost most of its top talent. Take a look at the senior management that has vacated in the last year. Get Ballmer and Brummel out of there and maybe there may still be a chance.

  • Guest

    This is a good plan. Thank you for implementing it.

  • panacheart

    Oddly enough stack ranking had the opposite effect of what it was supposed to do, even before Brummel was in HR. Rather than keeping the best performers, most of the really bright people left. Creative people, outgoing people, risk takers, they all left. Like dealing with an abusive spouse, anyone with self pride left the relationship and started a new life. What Microsoft got was a work force that held on due to fear, and the belief that they weren’t good enough to go anywhere else because they believed the nonsense they were fed during annual reviews.

    I think the goal was to make people feel like they constantly needed to work harder on results and self improvement while surrounding them with employees on H1 visas that worked longer hours for less money.

    I still remember my last annual review, when my boss said “you still don’t have a long term personal improvement goal”, and I responded “my goal is to never do another annual review again”. I’m all for self improvement and constant learning, but I don’t need some random manager to beat it out of me.

    • TruthHurts

      Hahaha! I remember the “long term personal improvement goals” and all the mid-year career discussions. On the surface, they look like a really nice way to improve yourself and career. In reality, they ended up being just a big useless procedural pain. I had bosses tell me to “just put something in there so we can complete the review” and “whatever you put there will be forgotten by next year anyway…” When I first started at MSFT, I took a lot of time constructing the goals. After a couple of years, you realize you shouldn’t spend anytime on it and just copy/pasted from the previous year.

      • panacheart

        funny. So true. It was like writing term papers for philosophy class in college

  • LoyalMSFTian

    How about giving Lisa a 5 rating for the damage she (and Kevin?) have caused. There is absolutely no accountability at the top. I hope that’s the first thing that changes when the new CEO takes over.

  • FreeAsIAM

    I could not do this piece justice – other than to say that the Microsoft of today has lots of ‘clean firetrucks’. The organisation has become a slave to a complex labyrinth of systems and processes. Quoting directly from Seth Godin’s blog… http://sethgodin.typepad.com/seths_blog/2005/12/clean_firetruck.html
    “Clean firetrucks

    We live in a neighborhood where all the firehouses are run by volunteers. I don’t know how we’d get by without them… they do brave work, with little credit.

    One thing you’ll notice is how clean the trucks are. “Why are the trucks so clean,” a friend asked? After all, a clean firetruck isn’t a lot better at putting out fires than a smudged one.

    The answer: Because when there isn’t a fire, the firemen wait for the siren to ring. And while they’re waiting, they clean the truck.

    Sounds a lot like where you work. Most organizations are staffed with people waiting for the alarm to ring. Instead of going out to the community and working to prevent new fires, the mindset is that firemen are working to put out the fires that have started. Hotel desk clerks don’t write letters or make calls to generate new business—they stand at the desk waiting for business to arrive. Software engineers are often overwhelmed with an endless list of programming fires—and rarely get a chance to think about what they ought to build next.

    The structure of most organizations (and every single school I’ve ever encountered!) supports this. It’s about cleaning your plate, finishing your assignments and following instructions. Initiative is hard to measure and direct and reward. Task completion, on the hand, is a factory orientation that is predictable and feels safe.

    In fast-changing markets, clean firetrucks show attention to detail but rarely lead to growth and success.

    What a great way to describe a stuck but busy organization. “They sure have clean firetrucks…”

  • SeattleMike5

    Why was stacked ranking bad for Microsoft but good for Google, Yahoo!, etc.?

  • LOYAL TO A FAULT

    Being a former softie this is definitely a HUGE deal. I spent 15 years at MSFT in marketing roles and was encouraged to take a sales job in 2005. When the VP encourages you to take the job you take the job. Back in the day Microsoft pushed employees to try roles outside of their comfort zone. So of course I took the sales job and was successful for 3 years. Then the economy tanked and Microsoft changed their review system and of course I was not making my number. Long story short I could not interview for other roles because of the bad review, even though I had a consistent history of great reviews and was forced out. I was DEVASTATED because I tried something outside of my comfort zone, and it cost me my career. I had given Microsoft 15 years of my blood, sweat and tears and I thought I was going to be a lifer. In the end it was the BEST thing that happened to me. I’ve started a successful company and have my life back. It’s bittersweet…I loved working at Microsoft and grateful for the opportunity but hate how they treat dedicated employees.

    • FormerSofty

      Actually, the story that you told here has been played out thousands of times at Microsoft and I believe it’s a great example of what’s wrong with the culture. There seems to be a disconnect between theory and reality when it comes to people management. For example, one of the corporate cultural tenants is that you are encouraged to be “courageous” and to “step out of your comfort zone.” The theory being that you grow and become a more valuable employee. Yet, if you do it and it comes time to be reviewed, your performance is compared to those who have done the role for years and you get penalized. This actually even happens with promotions. You take a promotion and then are almost immediately compared to others at that level. Once you get into this downward spiral at Microsoft, it seems that it’s impossible to climb out!

    • beevee

      they paid you, right? it wasn’t just a trade for the blood, sweat and tears, I assume. (although I’m interested in hearing how you bled for Microsoft) Your mistake was in thinking of a corporation as an entity with feelings or emotion or as something that owes you a debt beyond your contract and pay check. It’s not. None of them are. They exist to make money, and they will absolutely take advantage of human nature and your desire for community and social interaction that you mistake for some sort of reciprocal corporate ‘loyalty.’ It doesn’t exist. If a corporation could sell it’s own mother to make money, that’s what it would do, and its machinations to that end will chew you up and spit you out without a pause. I’ve found that it’s best to keep this frame of mind when you’re thinking about your 9-5 relationships and corporate employer. you’re there for the paycheck, the lifestyle, the resume, or a combination. If you’re working at a corporation for any other reason (such as loyalty) you’re destined for the devastation you mentioned, or just deluded.

  • not afraid of the big bad wolf

    This was in place long before her. The real question should be “When was the first time Lisa asked Steve to stop stack ranking” *NOT* when Steve finally approved it. I think we will see a directed effort and half-hearted attempt by Steve and his minions to improve his legacy & reputation by approving a lot of ignored & tabled requests being resubmitted as this lame duck executive clears off his desk. It would be very compelling to fire up some actual investigative journalism here to start tracking what was approved by Steve between his announcement and his final hours/days and when was it originally submitted by his staff. I think we will see a great number of death row pardons a la Clinton style that should keep GeekWire rolling in the page views. Jon – as an avid reader I nominate a bump up in budget here for at least an intern on this….

  • JoeAmerica

    Windows 8.1 is the direct result of this culture of backstabbing and blame deferment. Creativity is long gone never to return. The damage is irreversible at this point. It is self explanatory where this is heading. The bad news for there current employees is they may be thinking all is well. But they should be thinking of finding new employment before the layoffs start. (Its the only way Microsoft can be salvaged with the corporate culture it currently has) If management is overly assuring it is almost certain things are much worse than it appears.
    Here is a thought from Niccolo Machiavelli,
    “A prince must avoid being hated and despised at all costs”
    Who has by far the most malware and viruses aimed at it? No mater how insane its software copy protection is it seems to be cracked the day it is released. All those years of stack ranking have been paying hefty dividends.

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