Stack Ranking
What is stack ranking?
Stack ranking, also referred to as forced ranking, is a performance appraisal system that rates employees against each other, often within a team or department. This system assigns ratings based on a bell curve distribution, categorizing employees into groups such as the top 20%, the middle 70%, and the bottom 10%, rather than assessing them against predetermined individual performance standards.
The stack ranking system was pioneered in the 1980s by Jack Welch, former CEO of General Electric (GE). Under Welch’s tenure, this system was used to reward top performers with raises or bonuses, assign performance improvement plans (PIP) to satisfactory performers, and let go of low performers.
Some consider stack ranking controversial because it can demotivate employees and discourage teamwork, and even GE has stopped using this appraisal system. However, some companies still see benefits in using stack ranking.
How stack ranking works
Stack ranking employees typically involves these key steps:
- Setting performance expectations: Before the evaluation period begins, managers clearly outline all employees’ performance criteria and expectations. These criteria are job-specific and include both qualitative and quantitative measures that employees are expected to meet or exceed.
- Assessment of performance: Throughout the review period (e.g., quarterly, semi-annually, or annually), employees are evaluated based on the established criteria. During this set period, managers are responsible for monitoring performance and providing ongoing feedback.
- Ranking session: Managers rank employees’ performance against their colleagues or peers within a team or department. These discussions aim to standardize the evaluation criteria across different managers or departments to ensure fairness and consistency.
- Forced distribution: Employees are categorized according to a bell curve or another predetermined distribution model. For example, a common model might require:
- Top 20% as high performers
- Middle 70% as satisfactory performers
- Bottom 10% as underperformers.
- Sharing results and feedback: The final step involves communicating the ranking results to each employee. During these feedback sessions, employees learn about their performance standings, receive constructive feedback, and discuss areas for improvement or commendation.
- Reassessment: The process is typically repeated quarterly, annually, or semi-annually. Employees’ previous rankings can influence their future development opportunities and career trajectory within the company.
Advantages and disadvantages of stack ranking
Benefits
- Identifies high performers: Stack ranking helps identify the highest performing employees, making it easier to reward top talent, which can drive productivity and encourage a competitive work environment.
- Simplifies decision-making: For managers, it can simplify the often complex process of performance reviews by providing a structured framework to assess employee contributions. This can make it easier to make informed decisions about promotions, layoffs, and developmental needs.
- Provides clear performance standards: This system sets clear and measurable performance standards that help employees understand the expectations and what they need to achieve to be considered successful within the company.
- Recognizes development needs: By ranking employees, organizations can more easily identify who needs further development, allowing for targeted training and support to improve their skills and performance.
Limitations
- Demotivates average performers: Employees who consistently rank in the middle might, over time, become disengaged, leading them to feel undervalued and demotivated.
- Discourages team collaboration: Stack ranking can foster a competitive environment where employees feel pitted against each other. This may lead to a decrease in collaboration and teamwork, as individuals focus on outperforming their colleagues rather than working together towards common goals.
- Increases subjectivity and bias: The subjective nature of many performance evaluations can introduce personal biases into the ranking process. This might unfairly disadvantage certain employees, and inaccuracies in rankings can lead to wrongful terminations or promotions.
- Focuses on short–term goals: Employees might prioritize immediate results over long-term sustainability and innovation, potentially compromising the quality of their work and the company’s future prospects. This focus on short-term performance can also discourage risk-taking and creativity.
Stack ranking examples
Here are some examples of companies that have used stack ranking:
Microsoft
Microsoft used stack ranking until 2013. Employees were rated on a curve within each team, meaning that a fixed percentage had to fit into each performance category:
- Top performers: A small percentage received high ratings and rewards.
- Average performers: The majority received standard evaluations and moderate rewards.
- Low performers: A fixed percentage received low ratings, which could lead to consequences like no raises or potential dismissal.
The system led to internal competition and collaboration issues as employees competed against each other rather than working together.
Amazon
Amazon employed a stack ranking system, commonly referred to as “rank and yank,” to evaluate its employees. This method was criticized for creating a high-pressure work environment in the organization. In contrast to other companies that used similar systems, Amazon did not share the ranking results with its employees, which intensified the criticism.
In its early years, Google used a stack ranking system but has recently adopted a new one called GRAD (Google Reviews and Development), which has some elements of ranking employees. For instance, employees are now evaluated using a five-point rating system:
- Transformative impact: Highest rating, exceptional contributions
- Outstanding impact: Exceptional performance, exceeding expectations
- Significant impact: Average rating, but still indicates strong performance of meeting expectations
- Moderate impact: Some performance expectations met, but needs improvement
- Not enough impact: Lowest rating, falls below expectations.
Under this new system, it is reported that Google managers are now required to categorize 6% of its workforce as “low performers,” higher than the usual 2% in the past.
General Electric (GE)
Under the leadership of CEO Jack Welch, GE used the stack ranking system to evaluate employees based on criteria like sales figures and project completion rates. This approach categorized stuff in a 20/70/10 distribution (top 20%, middle 70%, and the bottom 10%), with low performers facing potential termination or disciplinary action.
GE began phasing out this system in the mid-2010s, recognizing issues such as demotivation and low morale. The company transitioned towards a more development-oriented approach to performance management.
What are good alternatives to stack ranking?
Many organizations have moved away from stack-ranking employees. Here are some alternative performance appraisal systems that focus on continuous development:
This method involves gathering feedback from key stakeholders, such as colleagues, managers, direct reports, and clients or customers (depending on the role). Employees receive a comprehensive review of their performance, allowing them to identify their strengths and weaknesses and areas for further development.
Team-based reviews
Instead of individual evaluations, team-based reviews assess the performance of a group as a whole. This promotes a collaborative environment where the focus shifts from competing against one another to working together towards common objectives.
Results-Oriented Appraisal (ROA)
This method focuses on assessing employees based on the outcomes they produce rather than the process they follow to achieve these outcomes. ROA is best suited for roles that require meeting clear performance targets and measurable contributions (e.g., sales figures, project completion times, customer satisfaction ratings).
Individual Development Plans (IDPs)
IDPs are personalized documents created by employees in collaboration with their managers. They outline the employees’ career goals and the skills and competencies they need to develop to achieve these goals. IDPs are typically reviewed and updated periodically.
HR tip
Any performance appraisal system you choose will greatly benefit from a culture that values continuous feedback and regular check-ins. In fact, 80% of employees prefer receiving feedback immediately rather than just during bi-annual or annual reviews. Plus, frequent check-ins can help employees stay on track with their goals and address any areas for improvement.
FAQ
A stack ranking system is a performance evaluation method in which employees are compared against each other and ranked according to pre-defined categories (e.g., top 20%, middle 70%, bottom 10%).
No, stack ranking is a legal performance evaluation practice. However, employees must be evaluated using objective criteria to avoid discrimination and bias.
GE no longer uses the stack ranking system. This system was initially popularized by GE’s former CEO, Jack Welch, in the 1980s but has been phased out in favor of a more modern approach to performance management.
