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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

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