We are living in a competitive world nowadays. The companies try harder to achieve higher goals to ensure a better place in the market. As a result, employees are expected to perform adequately to keep revenues increasing. There are many ways to evaluate worker performance. However, one way that we will mainly talk about now is a method called “stack ranking”. Here is briefly what we will talk about from now on.
- What is stack ranking?
- Stack ranking examples
- Advantages and Disadvantages
- One great alternative to stack ranking – “OKR”
- To sum up
We will start with the definition of the stack ranking, and then move on to some examples of companies that used stack ranking before. Afterwards, we will briefly explain what are the pros and cons of stack ranking and provide you an alternative to it. We will finish our article with a quick review. Now that you know the roadmap let’s get on with it.
What is stack ranking?
Stack ranking is a system in which the employees’ are evaluated according to their performances. They are mainly sorted in ascending performance order. The main reason behind this sorting is to be able to see which employees are high achievers, who are the mid performers and who is simply laying off.
Let’s say that our employees’ performances follow a normal distribution which you can see on the graph above. The x axis of the graph simply reveals the names of the team members sorted according to the ascending performance values. We may see the high achievers on the right side of the graph while the ones who lay off will be on the left side. One company may say that the proportion of the high achievers is the 10% on the right. The low performers may create the 10% area on the left. All the area that is left belongs to the mid-performers.
Although the percentages might change according to the company, the main logic is to see the value that the employees add to the corporation. In these terms, the managers might see which employee is more valuable to them and who are not.
Alright, now we have a basic understanding of what stack ranking is I suppose. Let’s see some examples of companies who have used stack ranking before and who are using it now.
Stack ranking examples
A lot of companies have used or have been using stack ranking to simply award the ones that are boosting the company and to let the freeriders go. Thirty percent of the Fortune 500 companies are said to be using this system for performance evaluation. Some examples of the companies that have used stacked ranking before are Microsoft, Amazon, Uber and Facebook.
Amazon Stack Ranking
Amazon, the world’s most valuable company in 2019, is one of the companies that used stack ranking before. The employees were ranked against each other to evaluate their performances and the underperformers were taken on a 3-month “Performance Improvement Plan,” to help the employee get back on track.
However, this was not the only programme that Amazon was conducting. In addition to stack ranking, Amazon also introduced a continuous feedback mechanism through “Anytime Feedback Tool” which is a platform that provides the employees the opportunity to critique their co-workers.
Amazon gave up using the stack ranking system in 2016. Teal Pennebaker, Amazon spoke-woman stated that “We’re launching a new annual review process next year that is radically simplified and focuses on our employees’ strengths, not the absence of weaknesses,”
Facebook Stack Ranking
The biggest social media network Facebook is one of the companies that still uses the stack ranking for employee evaluation. However, the company states that it does not use stack ranking in the traditional sense. The main aim is to see the high performers within the company.
Molly Graham, a software engineer at the company describes the process as follows: “They call it the Performance Summary Cycle. There is a two week period where employees solicit peer feedback (usually 3-5 peer reviews), write a self assessment, and write a manager assessment. Managers then read all the peer feedback and the self assessment and determine a “Performance Assessment” or rating of the employee’s performance over the last six months as well as whether or not it is the right time to promote the employee.”
Microsoft Stack Ranking
Microsoft, founded by the world’s former richest person Bill Gates and Paul Allen is another company that used to utilize the system. The former CEO Steve Ballmer introduced the stack ranking system to Microsoft. However, the bell curve and the rankings were really increasing competition among the team members. The company, then decided to follow a programme that would put more emphasis on the collaboration within the members and on employee growth and development. So, like the example of Amazon, the company gave up using stack ranking in 2013 and since then the workers are evaluated according to their own goals rather than other employers’ performances.
Uber Stack Ranking
Uber, the company that was founded in 2009 and reached an increasing fame among the world since the foundation, is also ranking the employees according to their performance. The company is said to be the most valuable startup. Uber managers rank their employees twice a year on a scale from one to five. While grade one is showing the employers with the lowest performance, five is for the highest performers. Employees who are considered underperformers with the grades 1 or 2 are placed on performance improvement plans (“PIPs”) to get back on track just like the former Amazon model.
Although, the ones that defend stack ranking model usually say that it builds strong teams by letting every member know where they stand, the opposition argues that it increases the competition within the team. Alright, now that we talked about what stack ranking is and reviewed examples, we may go on with the pros and cons of this system.
Advantages and Disadvantages
First of all, the system helps you to see the performances of your employees. This may lead to some positive outcomes for the company. To better illustrate, you may observe the team members that are performing really high and this may result in some incentives to keep up the good work. This also may help the regular performers to add more value to the company. Another good outcome of this system is you may see the ones who are underperforming in a short time frame and this may help the company to figure out an action plan.
So far, the system sounds like a dream right? Well it is not actually, it also has some down sides. To begin with, it increases the competition in a company. Now, the team members are working harder either for not getting laid off or in order to achieve the incentives. But, well just a small percentage gets the privileges right? Then who would it be?
The second down side of the system is that it decreases the collaboration of the team members. It does not come as a shock that the teamwork is depleted since the competition increased. As a result, the performance of the workers are actually decreasing overall because of the disruptive competition.
Now, stack ranking doesn’t sound that cool, right? However, there are some other ways to see the performance of the company while not giving any place to the decreasing performance because of the competition. One great method for that is called “OKR”.
One great alternative to stack ranking – “OKR”
OKR stands for Objectives and Key Results, which is a goal setting framework widely used by many companies. The goal of OKR is to define how to achieve objectives through tangible, specific and measurable actions.
Each member of the team will know what is expected of them. Also, they will know which objectives they need to accomplish towards reaching the company goals.Not only many digital giants like Google, Twitter, LinkedIn, and Airbnb use OKR, other companies such as Walmart, Target, The Guardian and ING Bank use this goal setting framework.
Objectives should be Specific, Measurable, Achievable and Time-bound. You should define 2-5 objectives. Otherwise, it will not be possible for people to keep all the objectives in mind. An example for objectives might be increasing profits in the first quarter.
Under each objective there should be 2-5 key result metrics. A key result is a sign of how much progress you have made to achieve the objective.It is often measured with a percentage 0 – 100%, however, it can also be measured with binary system 0 – 1.
Key results should be challenging and inspiring to the team. But they should also be measurable and qualitative. Remember, that “if it does not have a number, it is not a key result”, as Google’s Vice President Marissa Mayer said.
Some good examples for key results might be as follows:
- Increase sales by 10%
- Reduce churn rate by 3%
- Increase online subscription 8% monthly
Benefits of OKR
OKR system brings different benefits with it for obtaining teams that are high-achievers. The main benefits of OKR is the transparency within the team members, the alignment of the team members, the increased focus of the members to achieve certain goals and the overall engagement of the employees.
Transparency – OKRs should be visible to everyone so that the people are aware of what others are working on.
Alignment – Similarly, OKR makes sure that all employees in the company align their work, move in the same direction and reach a common goal.
Focus – OKR helps the employees focus on the tasks that have the most impact on the business. There needs to be a high impact on company goals after you get the objectives done. Otherwise, the objectives are too easy to achieve.
OKR helps the employees to focus their attention on the most important tasks for the time, letting them prioritiz
e the tasks to bring the highest positive impact on the company.
Engagement – People strive to achieve outstanding results when they engage in the process with a purpose. Use a wording that everyone will understand. As a result, you can communicate your goals to everyone in the company and receive deeper engagement.
Alright, now you have an alternative to stack ranking which is OKRs. As one can see, with the help of the OKRs the disruptive sides of stack ranking such as competition and decrease in collaboration might be eliminated. We will end this definitive guide with a quick review of what we have seen so far.
To sum up
The stack ranking is a system that evaluates the employees according to their performances. They are mainly sorted in ascending performance order to see the low, mid and high performers. There are many companies that have used or still using the system such as Microsoft, Amazon, Uber and Facebook.
Stack ranking brings some advantages and disadvantages with it. It helps you observe the team members that are performing well and badly. This may result in some incentives for high performance and an action plan for keeping the low performance on track. On the other hand, The system increases the competition within the team members which causes a decrease in the collaboration level of the team members.
A great alternative for stack ranking would be OKRs which give no place to competition among the team members. Each individual is evaluated according to their objectives and how well they performed achieving those. So, with the OKRs you still have the good sides of keeping track of your employees while the team work is not damaged at all.