Microsoft’s recent decision to abandon employee stack ranking is just the latest example of the growing skepticism around stack ranking performance management schemes, especially ones that force bottom 5-10% distributions.  Sadly, some pharmaceutical firms still use the method.

The major arguments against stack ranking and forced bottom distributions (especially bad for industrial scientific research) are the following:

• Intrinsic motivation is a much more powerful force than monetary rewards based on stack ranking.  As popularized by Dan Pink, what really motivates people is Autonomy, Mastery, and Purpose. “Challenge and mastery, along with making a contribution are what drive people —  how else do you explain Wikipedia, Linux and other open source software?”
• People are exquisitely tuned to perceived fairness in compensation, but above that money isn’t as motivating.
• Large monetary rewards can actually undermine performance in tasks requiring cognitive skills.
• In scientific research, performance quality can be very hard to measure objectively, and outcomes are not necessarily dependent on worker skill and motivation.
• Research has shown employee skills & performance can be Pareto-distributed, not Gaussian.
• While forcing 5-10% of employees in to a bottom rank may work better for engineering or other fields where performance is more easily quantified, it still creates a culture that undermines the teamwork required for highly collaborative work.
• In companies undergoing layoffs, stack ranking sets off a cycle of demotivation as even very talented employees are given poor rankings.
• Punishment does not work as a motivating force for knowledge workers.

Here is Daniel Pink’s 2010 presentation to the Royal Society for the Advancement of Arts, Manufactures and Commerce, Drive:  The Surprising Truth about What Motivates Us

Of course, in the real world, it’s too easy for researchers — even highly motivated ones — to pursue projects that don’t align well with corporate needs.  Pharma research scientists should be paid fairly, held accountable for meaningful objectives, and their professional development should be supported by managers.  Stack ranking at the end of the year could be used to keep people honest, but it should be a relatively modest determinant of compensation.  To keep alignment with corporate goals, it’s preferable to link bonus amounts more closely to company or group performance.  And there should never be a forced 5-10% at the bottom.

More Reading

Yahoo’s Latest HR Disaster: Ranking Workers on a Curve – Business Week

“Basically, many people have lost faith that ranking employees works, and some research suggests that employee performance doesn’t follow a bell curve at all. Instead, most people are slightly worse than average (PDF), with a few superstars. And while a bit of pressure can motivate people, constantly pitting employees against one another is terrible for morale. In a company that is going through layoffs, this gets worse over time (PDF), wrote several MIT professors in a study of forced rankings in 2006. “As the company shrinks, the rigid distribution of the bell-curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.”

Papers cited: The Best and the Rest: Revisiting the Norm of Normality of Individual Performance and Punishing by Rewards: When the Performance Bell-curve Stops Working For You

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Microsoft kills its hated stack rankings.  Does anyone do Employee Reviews Right?

 Three Myths of Management – HBS Working Knowledge

Forced Ranking is as bad for Yahoo as it was for Microsoft – Forbes

Should I rank my employees? – Management – WSJ.com