Why some Microsoft employees still fear 'stack ranking' review system?

By Julie Bort

August and September are employee-review months at Microsoft and because the company is in the midst of a massive 18,000-person layoff - with the final 5,000 cuts occuring over the next few months - there's a lot at stake.
This is the first time in years that employee reviews will not be based on a curved scale that ranks employees against each other.

Microsoft officially killed that old system, known as "stack ranking" in November. With stack ranking, no matter how well an individual performed, that person might still get a bad review because a certain percentage of folks had to be ranked as a bottom performers compared to their co-workers.

However we've been hearing for months from various Microsoft insiders that the old review system wasn't wholly gone.

We've finally gotten to the bottom of where this sentiment was coming from.

Until July 1, the Sales, Marketing & Services Group ( SMSG) team, reporting to COO Kevin Turner, was still using a part of the old review system, a source close to the company confirmed for us.

We heard a rumor that some groups within SMSG unit were still planning on labeling the bottom 5% -10% of performers, and that these employees would not be eligible for financial rewards, and they could be targeted to be dismissed.

That rumor isn't true, a source close to the company tells us. No employees will be disqualified from financial rewards based on how they compare against each other.

However, the part of the old review system known as "commitments" were kept in place for SMSG through the end of Microsoft's last fiscal year.

In the new review system "commitments" are replaced with something called "core priorities." Commitments were personal goals, like sales quotas or ensuring a certain percentage of customer retention. Employees would often get a lot of them and they could be complicated, our source says.

Core priorities include personal goals but also include goals involving how well an employee works as a team player.

Microsoft didn't swap out "committments" for "core priorities' mid-year for anyone that worked sales organization. That's would have meant re-negotiating everyone's annual goals, a long involved process. Execs didn't want the sales team distracted from the job of selling mid-year, we're told. Non-sales folks that worked for SMSG, like HR or PR, were kept on the old "committments" system, not just sales people. However, as of fiscal 2015, which began July 1, SMSG is now using "core priorities' the same as the rest of the company. Microsoft confirmed for us that as of July 1, Turner's team absolutely does not use the old stack ranking system:

The concept that 'stack ranking' is being used in the Sales, Marketing & Services Group is false. The Sales, Marketing & Services Group uses the same system that is used across Microsoft. Last year, Microsoft announced changes to the performance and development approach in order to encourage greater speed, creativity and teamwork to help us bring innovation to market faster and better serve our customers.

Another big change in the new system, across Microsoft including SMSG, is that employees will be getting regular feedback from their managers on how they are doing on their core priorities, with adjustments to their annual goals made throughout the year. They will no longer be reliant on an annual review, our source said.

Microsoft's stack-ranking was former CEO Steve Ballmer's preferred employee review system, and was blamed for everything from poor employee morale to a system that "crippled Microsoft's ability to innovate," according to a 2012 expose on Microsoft's culture published by Vanity Fair.

Ballmer didn't invented it, nor is Microsoft the only tech company that used it. GE's CEO Jack Welch is credited with making it popular in the 1980's. He called it Rank and Yank meaning the bottom 10% would get fired, reports Forbes. We've heard from employees at other large tech companies who tell us they've experienced the same sort of thing.

We also know that Cisco has just implemented some sort of employee ranking, too. It recently used it to determine "the bottom 15%" and the top 2%, according to a recording of an internal employee meeting that Business Insider listened to. Cisco is also involved in another layoff, its fourth annual layoff in four years. However, the bottom won't be automatically cut, Cisco said in that meeting, but will get extra help and training.