Microsoft is killing off its controversial stack-ranking system today.1 While it could be viewed as an internal change that won’t affect consumers directly, it will have a broad effect on current and future Microsoft employees that may just shape the future of the company. For years Microsoft has used a technique, stack ranking, that effectively encourages workers to compete against each other rather than a collaborative Microsoft that CEO Steve Ballmer is trying to push ahead of his retirement.
Let’s be clear: I, like the vast majority of Microsoft employees, loathed stack-ranking. But this move doesn’t sit very well with me, for a few reasons:
Why does Steve Ballmer keep making critical executive decisions that effectively tie the hands of his successor? First the reorg, then Nokia, then Microsoft’s financial reporting structure, and now employee compensation. These are not small decisions! Each of them goes to the core of how a CEO can truly impact and shape a company, and I find it borderline scandalous that Ballmer is making said decisions as a lame duck. It certainly gives credence to the idea that leaving was not his idea, and he’s hoping to get his last licks in before he goes.
That said, Ballmer has long been the primary proponent of stack ranking, so why end it now? If he’s trying to simply curry favor with the troops, well, it’s awfully inconsiderate to steal that opportunity from his successor.
It’s not at all clear that the new system is much different from the old system. After all, to quote Lisa Brummel’s email (emphasis mine):
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.
Fine, so this doesn’t ensure someone is at the bottom, but it’s not clear it makes it easier to compensate a great team, or to penalize a poor one. After all, each team has the same budget as before.
Moreover, the larger problem with stack ranking was not the employee forced into the bottom; it’s rare they were an A player, or even B+. Rather, the problem came when you had too many A players, and one got compensated as a B. That is incredibly demoralizing.
However, the squishiness of the new system may magnify that problem. Many managers may take the easy way out and give everyone about the same amount of compensation, which sure, prevents said manager from delivering really crappy news to the bottom of the curve, but unintentionally demoralizes the folks that are actually making a difference.
- One of the weaknesses of a functional organization is the lack of accountability. In a divisional organization, when a product succeeds or fails, it is clear who is at fault – it’s the division leader and his lieutenants. In a functional organization, it’s much less clear cut, and much easier to pass the blame. Moving to a less accountable organizational structure while simultaneously blurring the individual compensation system may not be the best idea, particularly in an organization that is already highly political.
What makes a decision – or a product, for that matter – a good one, is not the surface level question of whether or not it’s a good idea. Stack ranking2 stinks, and it was hurting Microsoft for years. But simply tossing it out the door without carefully considering every aspect of the decision, including who is making it, what is replacing it, and how it interacts with the other seismic changes at the company, threatens to convert a good idea into a bad decision, and another example of the lack of deep consideration that undermines so many of Microsoft’s initiatives.