Stack Rankings: What They’re Good for and Where They Fail

Some have condemned it as a cutthroat, destructive, and outdated practice, while others promote it as the most effective tactic to ensure a high-performance workforce -- stack rankings are one of the most widely discussed (and highly contested) components of performance management strategies.

When it comes to the debate of stack rankings, it’s no secret that the majority lies with people who despise them. Companies such as GE, Microsoft, and Goldman Sachs abandoned them long ago due to employee backlash. But even after facing such harsh criticism, the controversial approach hasn’t been entirely dismissed -- prestigious companies like Amazon and IBM are still implementing stack rankings in their performance appraisals. So, what does this mean? Is the majority wrong about stack rankings? How do we know if (or when) we should (or shouldn’t) use them?

First things first, it’s helpful to understand the origins of stack rankings, and the context in which they were created.

What is stack ranking employees?

The practice of stack ranking, otherwise known as rank-and-yank or forced ranking, was conceptualized by GE’s CEO Jack Welch in the 1980s as a method of differentiating high-performing employees from low-performing employees. The stack ranking system Amazon uses was born from this approach. The process ranks individual employees relatively against their coworkers in order to reward top-tier performers, while identifying and weeding out low performers.

Stack rankings came out of a desire to enact performance appraisals in an effective and efficient way, with the ultimate goal of cultivating a high-performance workforce. But this is where it gets complicated:

In a stack ranking performance rating system, managers are forced to rate their employees on a bell curve. Only about 10-20% of employees can be designated as top performers, while a fixed number of employees must be labeled as low performers and are either placed in a probationary improvement period or let go. In the meantime, about 70% of the company’s workforce, labeled the “vital” employees, are depended upon for adequate and reliable performance. Stack ranking seeks to identify the most vital employees. That's why it's the systemis also known as the vitality curve.

Naturally, the implementation of stack rankings has produced a variety of both negative and positive effects, both in overall organizations and among employees. Here are a few of the positives.

Examples from companies that used stack rankings

Some of the biggest companies globally have used stacked ranking. Here are some examples of how they used this method.

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Amazon 

Amazon used stack ranking to keep a finger on the pulse of their employee performance for a few years. When someone was underperforming, they weren’t immediately fired but instead put on a 3-month “Performance Improvement Plan,” AKA a “PIP.” But, because of the negative connotations associated with stack ranking, Amazon has since moved onto a continuous feedback system. 

General Electric 

GE was one of the first companies to adopt forced ranking. Remember when we talked about Former CEO Jack Welch? He created the “Vitality Curve,” and claimed it was the reason GE’s revenues doubled back in the 80s. Welch believed the company had become too comfortable and that GE wasn’t effectively measuring employee performance, resulting in a lack of motivation. He demanded staff work harder or got fired. GE no longer uses the “rank and yank” philosophy but has a more modern system.

Microsoft

The tech giants were another company that used force ranking, asking managers to rank teams on a scale from top to poor performers. This system had a negative growth impact, and employees didn’t take to being ranked against one another, so Microsoft sunset the program back in 2012 (and replaced it with a new approach).

Google 

Google came up with a stacked ranking hybrid that highlighted candidates ready for promotion. Theirs didn’t negatively impact the bottom 10% of employees, but that stacked system was used for promotions only. Regarding performance, Google uses Objectives and Key Results, or OKRs, which monitor progress and accomplishments.

It’s also said that both Yahoo and Uber used stacked ranking within their companies. Both have since moved on from the method, especially Uber considering it had been the darling of the tech world but then was accused of sexual harassment, inappropriate use of private data, and dysfunctional workplace behavior; the company’s values and performance review process came into question, which was based on stack ranking.

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What stack rankings do well

One of the main goals of stack ranking was to achieve meritocracy across organizations and businesses -- and, some would say, that is exactly what they do best.

CEO David Calhoun, a former vice president of GE, defends stack rankings for this very reason, claiming that the system was effective because they had a clear objective to support it. The objective at GE, and for many organizations, was to clearly articulate the specific criteria required for employees to become high-performers in the organization. Stack ranking promotes, and even forces, honest discussions between employees and managers about where they stand in meeting that criteria.

In this regard, the stack ranking system can help to avoid uncomfortable or ambiguous circumstances that employees often face -- whether it’s a high-performing employee who isn’t getting promoted and doesn’t understand why, or a low-performing employee who finds himself suddenly and unexpectedly laid off.

Stack ranking can also be a positive force in employee morale. The process of identifying high-performers makes it easier for organizations to take the necessary steps to keep them. In the stack ranking process, managers are provided with useful data that can help them to more quickly spot and champion talent.

Addressing low performance can also have a beneficial effect on productivity, especially if low-performing employees are given specific objectives to improve and develop. This also serves to motivate regular and high-performers when they see that low performance issues are being taken care of. Overall, the process can help to inspire and spur on employees of all performance levels.

Now, it’s time to discuss some of the less-than-positive outlooks and opinions about stack rankings -- and while the above-mentioned “positive effects of stack ranking” can ring true in some organizations, other companies and employees would fervently argue that stack rankings had the complete opposite effect. Here’s what they might say:

The arguments against stack rankings

While creating a meritocratic workplace based on employee performance seems like a fair way to promote and fire employees, many companies have discovered that the use of stack rankings has resulted in more harm than good.

Ex-employees of Amazon, where stack ranking is still in use, have spoken out about the tech giant’s cutthroat, survival-of-the-fittest work environment. The company’s work culture, which has been described as “purposeful Darwinism,” evidently pits employees against one another to compete for the top-performing percentile. Naturally, this hardly boosts employee morale.

Others have criticized the flawed nature of forced ranking, claiming that the process was crippling for its employees and overall growth. When Microsoft got rid of stack rankings in 2012, an article was written describing the lack of innovation that the company experienced due to the harmful practice. When every manager was forced to rank their employees on a scale from top to poor performers, two out of 10 employees would receive a great review, seven out of 10 would receive an adequate review, and one employee would receive a terrible review. Author of the article Kurt Eichenwald determined that the practice had caused employees to compete against one another rather than with other companies, stifling the organization’s overall growth and innovation.

Alternatives to stack ranking employees

Management by Objectives 

Management by objectives (MBO) defines specific universal organizational goals that managers set for employees to work toward. MBO has become one of the bigger performance management methods in recent years because its defenders say setting universal goals improves motivation, while its detractors say it impedes focus with workers specifically focusing on goal-hitting and not other parts of the job.

MBO typically works best when employees are involved with goal setting and choosing a course of action. This way, there’s a buy-in because the standard was set with the workers feeling like they’re a part of the process.

Continuous feedback 

Instead of doing an annual performance session once a year, continuous feedback is when managers check in with their employees regularly. This method helps employees understand their strengths and weaknesses while helping create a feedback culture within the organization. Meaningful feedback helps employees work better because they know what they excel at and what they need to focus on for improvement. Meaningful feedback establishes value and ensures work aligns with the organization’s goals and objectives.

Psychological Appraisals

This method works best to discover your employee’s hidden potential. Psychological appraisals assess an employee effectively by focusing on future performance rather than past work in seven components like interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits, and emotional quotient. But one thing to note is that it’s a slow process and requires a psychologist to oversee the program.‍

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360-Degree Feedback

360-degree feedback is a multidimensional method using feedback from managers, peers, customers, and direct reports. This method allows employees to look back on their performance clearly while getting feedback from managers and hearing what their peers think of their work via their unique perspectives as colleagues. There is also the point of view of internal and external customers, such as product users or stakeholders on different teams.

So, you might be wondering -- what’s the verdict? Are stack rankings a good or bad tool to use in performance management? It all depends.

When stack rankings should/shouldn’t be used

Stack ranking is obviously a powerful performance management tool, but should be used with caution and close examination of your organization’s overall goals. Author Dick Grote makes a case for using the controversial evaluation system on an interim basis, saying: “The procedure is not right for all companies, nor something that should be done every year. But in the right company at the right time, forced ranking creates a more productive workforce where top talent is appreciated, rewarded, and retained."

Implementing a stack ranking procedure essentially guarantees that managers will be able to differentiate talent within your organization, which can lead to several positive business outcomes. Rewarding and retaining top talent can simultaneously inspire and stimulate middle-to-low performers toward higher performance. When used in combination with continuous, candid feedback, stack rankings can be a powerful tool to create a more productive workforce overall.

However, be cautious of the pitfalls -- namely, a competitive work environment, and an emphasis on rating rather than cultivating employee improvement.

Taking Microsoft as a prime example, a competitive work culture can be detrimental to both team dynamics and overall company success. The moment that your employees start spending more time thinking about their ranking and where they stand in relation to their coworkers, they become distracted and unable to produce their best work. This can lead to talented employees underperforming, and focusing more on their rating than on the feedback they need to improve and succeed.

Similarly, if your company is reliant on innovation and creativity, you may want to consider leaving stack rankings out of it -- especially if you desire for your performance appraisal process to focus on employee growth and development.

Stack rankings are riddled with issues and complexities, yes, but they could still have a positive impact on your organization. While they shouldn’t be the only facet of your performance management process, maybe there is still room for them as part of your process.