I once worked for a company that used the stack rank system. It’s a method that Jack Welch pioneered at General Electric decades ago and it caught on elsewhere, but many companies, including famously Microsoft, moved away from it.
I’ve experienced firsthand what it does to people and what it does to teams. I’ll share my experience in hopes it drives progressive-thinking companies to seek alternatives.
What is the stack rank system?
First, let me explain what it is. Basically, entire departments or pay grades get strictly slotted into spots on a bell curve. The breakdown can vary depending on the slotting, but basically you end up telling half your people that they’re below average, and you can easily end up telling 80% of your people that they aren’t as good as they think they are.
You can get good results from it, for a time. It encourages your best workers to work harder and to find ways to save money. In return, they get fat bonuses. But the long-term effects are detrimental. Eventually people figure out how to play the system. Once all that hard work and savings turns into just the appearance of hard work and savings, you lose the benefits while the toxicity remains.
Companies that use stack rank are prone to what I call a blowfish effect. The system encourages employees to play the game rather than building actual accomplishments. If too many people just play the game, the company can fall hard, even faster than it rose.
What happened to me under the Stack Rank system
I came to this particular company as a right-to-hire contractor, which shielded me from the Stack Rank system for my first year there, because I hadn’t been an employee a full year during the first go-round.
But in my first year where I was eligible under the Stack Rank system, I hit it out of the park. I had a year that was so good it was mathematically impossible for me to repeat it. Every other time I’ve done that before or sense, I’ve gotten a raise and a promotion.
Not this time. My inexperienced manager sat by hopelessly while another manager claimed the credit for our work belonged to his people. Then, when he called me into his office to finish my annual review, he looked at me and he said, “Dave, you’re good. But you’re not as good as you think you are. You’re average.” I didn’t like hearing it. And I didn’t like that he’d let others talk him into believing it himself.
And that was the beginning of the end. Within a year of that conversation, I was working for someone else who didn’t share that opinion, and who was paying me 25% more and with better benefits to be a high performer for them. I hope I don’t come off as bitter because it worked out for me. But I also think it suggests stack rank weeds out people who don’t need weeding out.
But let’s break this conversation and this process down, then we’ll come back to the results.
You aren’t as good as you think you are
Think about that for a minute. When people put in extra effort, working extra hours, getting training, and/or learning off the clock and spend a year trying to better themselves, can a reasonable person expect them to react well when they’re told on their review that a committee didn’t agree with their self-assessment and the committee decided this person isn’t as good as he or she thinks?
Do that to 80% of your staff, and productivity falls out of the sky for a week or two after reviews finish. Perhaps longer. It’s toxic.
Managers may like to tell themselves that only the top 20% are going to be putting in all that extra effort. That may be true in some departments but I can think of departments where only the bottom 20% won’t be.
In this particular company, there was an annual ritual after reviews. People would stick around to see what kind of bonus they got, and then the exodus started. Once people knew their bonus gravy train was over, or that the bonus gravy train wasn’t worth the toxicity anymore, they headed for the door.
Stack Rank encourages dirty politics
Over the course of a year, I received a number of odd taskings from someone who wasn’t my manager. Generally they weren’t things I would be able to comply with. I brushed them off because I had more than enough work to keep me busy 45 hours a week without worrying about catering to his whims.
Then review time came. 80% of the people who worked for him got a promotion, while there were capable teams sitting next to his where nobody received any promotion at all. Rumors of gaming the system ran rampant.
I found a manager in another department whom I trusted, and he confirmed it happened every year. He said he’d seen people go from the top 20% to the bottom 20% just because that person’s manager didn’t speak up for them. He said it wasn’t a merit system and he expressed disappointment that my manager had made that same mistake and hadn’t spoken up for his people.
The environment goes toxic
They say there’s no “i” in team, but a stack rank system doesn’t encourage teamwork or collaboration. Once people realize that doing what’s good for the team means someone else will probably get the credit, everyone starts looking out for Number One. That means one of two things, neither of them very good. Either they start playing games to snarf up as much credit as possible, or their main priority goes from doing good work for you to finding another job.
Knowing I could never have another year like my “average” year at my pay grade, because I’d literally done more than half of what I could ever accomplish in a single year, I started looking. I showed them something a lot closer to what average really was, because my motivation was finding another job, and there was no shortage of people eager to help me with that.
Companies lose good talent
In an in-demand field like information security, recruiters are always sending out feelers. When your people are having a good week, they won’t take that phone call, and they’ll just delete that e-mail. When they feel unappreciated, that stranger expressing interest in them changes from an annoyance to the best part of the day. It creates an opening. Only a small percentage of those initial conversations are a good fit, but if the recruiter is impressed, he or she will be back with a good fit. Their job is finding jobs.
The recruiter who pulled me from this particular stack-ranked company and placed me elsewhere told me afterward that he targeted that specific company because it was so easy to pull people from there after their reviews finished. He told me that I was just one of several people he successfully recruited from my very department that year. “If management knew who I was, they’d hate me,” he laughed.
In my case, my then-employer’s opinion that I was average was a minority opinion. Within a year of my disastrous review, I was working someplace else, with responsibility for a 4-state region and a fat 25% pay increase. My new manager thought so much of me he made a case study out of my work.
A funny thing happened too. The rest of my former team walked out on that manager over the course of the year. Within 18 months, his management forced him out in favor of someone more politically astute.
What to do if you end up in a stack rank company
If you haven’t figured it out by now, I don’t recommend working for a stack rank company if you have a choice. Unfortunately you may not have a choice. So here’s how to survive in a stack rank company, and how to prepare yourself for your next move if you don’t thrive.
First, get with your manager and ask for help as far as defining the standards they’ll judge you against. If your manager doesn’t know, ask who can help to clarify those standards. You don’t want to be reaching for vague goals. The more concrete and measurable your goals are, the easier they are to defend. For example, I oversaw a decrease in the number of vulnerabilities in my company’s computer systems of more than 75%. If we’d defined a goal of 25%, no one could have argued I was average. Since none of my goals were specific, I became an easy target.
Second, keep documentation of your accomplishments. When I filled out my self evaluation, I just wrote a couple of paragraphs to answer each question. I figured I’d elaborate if anyone asked. No one asked. Maybe my self evaluation only needed a couple of paragraphs’ answer per question. But it would have been a lot stronger if I’d stapled documentation of each accomplishment to the form and handed it back. And if those accomplishments weren’t tied to any specific goal? That’s called going above and beyond. Include that too, because above and beyond isn’t average.
Those two things should help you do better than average in a stack rank environment. But if they don’t, you can do what I did. When I found other companies that were hiring, they were certainly interested in those accomplishments. I sold the accomplishments to them better than I did to the stack rank company, and ended up in a multi-offer situation. That’s a good problem to have.
Why the stack rank system fails
When I look at the companies that have used the stack rank system in the past, they’ve fallen on hard times. GE has gone from being the stock to have to being worth $10 per share. That’s respectable, but it looks more like a former blue chip stock than a future one. Microsoft, too, looks like it may be past its prime. It’s reformed, but until it learns to play the infinite game, it’s going to continue to look like a past-its-prime band reliving its glory days on retro night.
As for my former employer, a high ranking executive once told us that when he worked at a competitor, they called them a blowfish. They always looked bigger than they were. Then we hired him. He found out that’s exactly what we were. The stack rank system taught us how to lie to ourselves, and lie to the rest of the world.
The blowfish popped and now it’s just a division of a much larger company.