[This post has been updated with more details of the new review system.]
Microsoft is getting rid of its stack-ranking review system — its much-criticized practice of ranking employees against each other during performance reviews.
In an email sent to company employees today, Lisa Brummel, Microsoft’s head of human resources, wrote, in part, that the review process will now have:
No more curve. We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. 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.
No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.
In the stack-ranking system, Microsoft managers had to place a set percentage of their direct reports into each of five silos, ranging from a “1″ silo for top performers to “5″ for the bottom performers. The bottom-ranked employees typically ended up seeking opportunities in other parts of the company or elsewhere.
Stack ranking has drawn continual fire from employees, many of whom felt the system rewarded internal politicking, withholding of information, and backstabbing, rather than innovation or cooperation.
A Vanity Fair article last year blamed Microsoft’s “lost decade” in large part on stack ranking.
Microsoft CEO Steve Ballmer had, in the past, defended stack ranking, saying: “I think everybody wants to work in a high-performance culture where we reward people who are doing fantastic work, and we help people who are having a hard time find something else to do.”
But Ballmer had also announced a massive company reorganization in July, designed, in part, to foster better cooperation across the company. He said then that “whether our existing performance-management system needs to change to meet the goal of fostering collaboration is something that Lisa Brummel would take up.”
In an interview today, when asked why the company kept its stack-ranking review system for so long, Brummel said the company has used several different review systems over the past several decades. Brummel said each of those systems “seemed to be right for the time in which they were implemented.”
“This big move [starting today] to something very different from what we’ve had is just that,” Brummel continued. “It’s not saying one system is better than another. It’s what system aligns best with what the company needs to get done and what we need to do to go forward.”
Brummel said that the companywide reorganization, begun in July, provided “the perfect opportunity to implement these changes. You always want the people plan to align with the business strategy of the company. Now is a beautiful confluence of those things.”
The new review system no longer puts people into silos, nor does it have rankings or ratings. Rather, it relies on more direct meetings between managers and their direct reports — now labeled “Connect” meetings, in which employees set down their core priorities, what they plan to do until their next Connect meeting, and what they’ve done to meet those commitments since the last Connect meeting.
Each division decides how many such Connect meetings its employees will have, with a minimum of two each year.
“What you end up with is a collection of feedback that’s closer to the time it happened,” Brummel said. “It’s an opportunity to collect more feedback, more frequently, rather than trying to recollect once a year.”
That’s necessary, she said, because Microsoft is moving to a more rapid delivery cadence, where it’s delivering updates to its programs and services far more frequently than it has in the past.
“The idea that you try to accrue everything in one year, and label someone’s performance, doesn’t make sense for rapid-delivery cadence,” she said.
The company’s compensation budget remains the same, and employees and managers will still meet around August and September to discuss compensation. The difference is now “there’s no review write-up attached to it,” Brummel said. “The compensation is then based on the sequence of Connects over the year.”
In response to a question about whether changing the review system is jumping the gun, given that Microsoft is searching for a new CEO who might want to implement a different review system, Brummel said she was confident this was the right move.
The company “has a new strategy,” she said. “We’re moving forward with it. All the divisions are lining up behind what we need to get accomplished. There’s no reason people programs shouldn’t be doing the same thing.
“I’m betting [the new CEO] will say it’s a good thing,” she continued. “If they don’t say it’s a good thing, we’ll be back at some point in time trying to do something different. But I think it’s our responsibility from our human resources perspective to help the company move forward.”
Here’s the full text of Brummel’s email:
To Global Employees,
I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company.
This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives. This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world-changing work.
To learn more about the new approach to performance and development, please join me for a Town Hall today at 2:00pm PT, either in person in building 92 or via webcast (see details below).
Here are the key elements:
· More emphasis on teamwork and collaboration. We’re getting more specific about how we think about successful performance and are focusing on three elements – not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others’ success – and how they add up to greater business impact.
· More emphasis on employee growth and development. Through a process called “Connects” we are optimizing for more timely feedback and meaningful discussions to help employees learn in the moment, grow and drive great results. These will be timed based on the rhythm of each part of our business, introducing more flexibility in how and when we discuss performance and development rather than following one timeline for the whole company. Our business cycles have accelerated and our teams operate on different schedules, and the new approach will accommodate that
· No more curve. We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. 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.
· No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.
We will continue to align our rewards to the fiscal year, so there will be no change in timing for your rewards conversation with your manager, or when rewards are paid. And we will continue to ensure that our employees who make the most impact to the business will receive truly great compensation.
Just like any other company with a defined budget for compensation, we will continue to need to make decisions about how to allocate annual rewards. Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams.
I look forward to sharing more detail with you at the Town Hall, and to bringing the new approach to life with leaders across the company. We will transition starting today, and you will hear from your leadership in the coming days about next steps for how the transition will look in your business. We are also briefing managers and will continue to provide them with resources to answer questions and support you as we transition to this approach.
I’m excited about this new approach that’s supported by the Senior Leadership Team and my HR Leadership Team, and I hope you are too. Coming together in this way will reaffirm Microsoft as one of the greatest places to work in the world.
There is nothing we cannot accomplish when we work together as One Microsoft.