Why stack ranking is a bigger problem for your employee engagement than you think

Imagine a workplace where colleagues see each other as allies, not rivals. Where collaboration thrives and innovation isn't stifled by internal competition. Sounds dreamy, right? Unfortunately, the harsh reality of stack ranking often paints a different picture.

While proponents hail it as a meritocratic force, the truth is far bleaker. This seemingly objective ranking system, with its forced distribution and fixed quotas for low performers, can wreak havoc on your employee engagement.

But hey, don't just take our word for it. This blog delves deep into the hidden dangers of stack ranking, exposing its impact on employee morale, collaboration, growth and overall engagement. We'll unveil how the constant pressure to stay ahead breeds anxiety, distrust, and even burnout.

So, buckle up and get ready to rethink your approach to performance management. Because it's time to unleash the full potential of your workforce, and stack ranking simply won't cut it.

Stay tuned for insights, data, and real-world examples that will challenge your perspective and empower you to create a truly thriving workplace!

What is a stack ranking management style?

Stack ranking, also known as forced ranking or rank-and-yank, is a performance management method where employees are evaluated and ranked against each other based on their performance, often resulting in a predetermined distribution of high, average, and low performers within a team or organization.

This approach gained popularity particularly in the 1980s and 1990s, notably implemented by companies like General Electric under former CEO Jack Welch.

In a stack ranking system, managers are typically required to categorize their team members into fixed number of percentages, such as the top 20% as high performers, the middle 70% as average, and the bottom 10% as low or poor performers. This distribution is sometimes referred to as the "vitality curve" or "bell curve."

What are stack ranking appraisals?

Stack ranking appraisals, also known as rank and yank, are a performance appraisal method where employees are evaluated and ranked against each other based on their performance, often using a numerical or categorical scale. Stack ranking employees is typically done relative to their peers within the organization, with some employees designated as top performers, some as average, and others as low performers.

The focus is on identifying and rewarding top performers while addressing performance issues with low performers. This appraisal system is characterized by a fixed distribution of ratings, often following a bell curve or similar distribution, where a certain percentage of employees are designated as high performers, a larger percentage as average, and a smaller percentage as low performers.

Origins of stack ranking

The origins of stack ranking are rooted in traditional Human Resources (HR) practices, contrasting sharply with modern Agile methodologies. Introduced in the 1980s by Jack Welch at General Electric, stack ranking, also known as forced ranking, quickly became a popular performance management tool in the corporate world. This system aimed to systematically evaluate employee performance by categorizing them into top, middle, and bottom tiers, often driving competition and accountability.

HR departments adopted stack ranking to identify high performers for rewards and promotions while managing underperformers through improvement plans or termination. This method was seen as a way to maintain high standards and drive overall organizational productivity. However, it also fostered a competitive environment that sometimes undermined teamwork and morale.

In contrast, Agile methodologies, emerging in the early 2000s, emphasize collaboration, continuous improvement, and flexibility. Agile practices focus on team performance rather than individual ranking, encouraging a supportive work environment where employees work together to achieve common goals. Agile's iterative approach and emphasis on feedback and adaptation starkly differ from the rigid, hierarchical structure of stack ranking.

Thus, while stack ranking originates from traditional HR practices aimed at enhancing individual performance, Agile methodologies represent a shift toward a more collaborative and team-oriented approach in modern workplaces.

Why some performance management strategies like stack ranking don't work?

These days, the talent market favors flexibility, encourages professional growth and professional development, and a supportive but challenging workplace. But stack ranking encourages traits seemingly antithetical to these: lack of innovation, increased turnover, and problematic workplace culture.

Here's a closer look at some of the main problems with stack ranking. Stack ranking has garnered criticism for several reasons, leading to its widespread rejection by many organizations:

Dip in employee morale

Stack ranking can demoralize employees who consistently find themselves ranked at the bottom, regardless of their actual performance. This can lead to decreased motivation, job dissatisfaction, and even resentment towards colleagues and management.

Limited growth opportunities

The rigid nature of stack ranking can limit opportunities for career advancement and professional development for low-performing employees, especially for employees who are consistently ranked lower.

This can result in talented individuals seeking opportunities elsewhere, leading to a loss of valuable talent for the organization.

Dysfunctional competition

The competitive nature fostered by stack ranking can create a cutthroat environment where employees are more focused on outperforming their colleagues rather than collaborating and working together towards common goals. This can lead to a toxic work culture marked by internal conflict and hostility.

Inaccurate assessments

Stack ranking process relies on subjective evaluations and comparisons among employees, which may not accurately reflect individual performance or contributions. Biases, favoritism, and politics can influence rankings, leading to unfair outcomes and undermining trust in the appraisal process.

Negative impact on morale and engagement

Constantly being pitted against coworkers and fearing being labeled as a low performer can significantly and negatively impact employee's performance, morale and engagement.

This can result in decreased productivity, higher turnover rates, and ultimately, diminished organizational performance.

Stifled innovation and creativity

The emphasis on individual performance and competition in stack ranking can discourage collaboration and innovation.

Employees may be reluctant to share ideas or work together on projects for fear of jeopardizing their own stack rankings or benefiting colleagues who could potentially outperform them.

Difficulty in differentiating performance

In some cases, stack ranking fails to adequately differentiate between employees, especially when a large number of individuals are in stacked ranking and performing at a similar level.

This can lead to arbitrary distinctions and unfair treatment, further exacerbating dissatisfaction and disillusionment among employees.

Lack of focus on development

Stack ranking promotes and tends to prioritize short-term performance over long-term growth and development. Employees may be more focused on meeting immediate targets and impressing superiors rather than investing in their own skills and capabilities for future success.

Damage to organizational culture

The implementation of stack ranking can damage the overall organizational culture by promoting individualism over teamwork, fostering distrust among employees, and undermining the values of fairness and collaboration.

This can erode employee loyalty and tarnish the organization's reputation in the long run.

Legal and ethical concerns

Stack ranking may raise legal and ethical concerns related to discrimination, as certain groups or individuals may be disproportionately affected by the ranking process.

Additionally, the practice of "rank and yank," where low performers are systematically terminated, can lead to legal challenges and damage the organization's reputation as an employer of choice.

Difficulty in fostering teamwork

The competitive atmosphere instilled by stack ranking often hampers efforts to foster teamwork and collaboration among employees. Instead of working together towards common goals, individuals may prioritize personal achievements to improve their employee stack ranking, hindering overall team effectiveness and cohesion.

High administrative burden

Implementing and managing stack ranking systems can be resource-intensive and time-consuming for organizations. The process of ranking employees, conducting evaluations, and managing the associated paperwork requires significant administrative effort, diverting valuable time and resources away from other strategic initiatives.

Resistance and discontent among employees

Stack ranking systems can breed resentment and discontent among employees, particularly those who consistently rank lower. This dissatisfaction can manifest in decreased morale, increased turnover, and even employee protests or legal challenges, ultimately undermining organizational stability and reputation.

Resistance to change

Stack ranking can create resistance to change within an organization. Employees who feel they are being unfairly evaluated may be less inclined to embrace new initiatives or changes in strategy. This reluctance can stifle the organization's ability to adapt and innovate in a rapidly changing market.

Undermined diversity and inclusion efforts

The competitive nature of stack ranking can undermine diversity and inclusion efforts. Employees from underrepresented groups may face additional challenges and biases in the ranking process, exacerbating existing disparities. This can lead to a less diverse and inclusive workplace, hindering the organization's ability to benefit from diverse perspectives and talents.

While stack ranking may have been a powerful performance management tool in the past as a means of performance evaluation, its disadvantages outweigh its benefits in many modern workplace environments, leading organizations to explore alternative performance management strategies.

Stack ranking vs forced ranking

Both systems aim to assess employee performance, identify top talent, and manage underperformance, but they differ in their application and impact.

Stack ranking:

• Definition: Stack ranking, also known as rank-and-yank, involves ranking employees relative to each other based on performance. Typically, employees are categorized into top, middle, and bottom tiers.
• Distribution: It often follows a bell curve distribution where a fixed percentage of employees are placed in each performance category, creating an employee evaluation method.
• Purpose: The primary goal is to identify top performers for rewards and promotions, average performers for development, and underperformers for potential exit or improvement plans.
• Impact on culture: Stack ranking can foster a competitive environment, which may boost productivity for some but can also lead to internal conflicts, reduced morale, and a lack of teamwork.
• Bias risks: This method can perpetuate biases, as subjective judgments often influence rankings, potentially leading to unfair assessments and resentment among employees.

Forced ranking:

• Definition: Forced ranking mandates that managers distribute employees across predefined performance categories, often using a strict quota system.
• Evaluation process: It requires managers to fit a certain percentage of employees into each category, ensuring that some employees are always rated as low performers regardless of the overall team performance.
• Accountability: The system aims to hold employees accountable, encouraging consistent high performance and providing a clear differentiation between high and low performers.
• Employee development: While it can drive high performers to excel, forced ranking may demotivate average and low performers, leading to high turnover and a potential loss of valuable talent.
• Legal and ethical concerns: Forced ranking can lead to legal and ethical issues, especially if it results in discrimination or if terminations appear arbitrary and not based on objective performance metrics.

How common is stack ranking?

Stack ranking, while historically popular, has seen a decline in usage over recent years. Initially championed by companies like General Electric in the 1980s and 1990s, this performance management system was widely adopted by many large organizations. Its appeal lay in its promise to boost productivity by rewarding top performers and weeding out underperformers.

However, the drawbacks of stack ranking, such as fostering a competitive rather than collaborative work environment and perpetuating biases, have led to its reduced prevalence. Despite this trend, stack ranking remains in use in certain industries and organizations that prioritize aggressive performance management.

Companies in highly competitive sectors or those undergoing significant restructuring might still employ stack rank to drive short-term results. While less common than before, stack ranking persists in some corporate cultures, albeit with growing scrutiny and adaptation to mitigate its adverse effects.

How can stack ranking even lead to employee attrition?

Stack ranking can contribute to employee attrition through various mechanisms:

• Demotivation and disengagement: Employees receiving consistently low rankings may become demoralized and disengaged, leading to a decline in motivation and commitment to the organization.
• Loss of trust and morale: The perception of arbitrary or biased rankings can erode trust in the fairness of the performance evaluation system and process, negatively impacting morale and increasing turnover as employees seek environments where their contributions are valued.
• Limited career growth: Barriers to advancement for employees with lower rankings can prompt talented individuals to seek opportunities elsewhere, where their potential for growth is not constrained by the ranking system.
• Negative peer comparisons: Constant evaluation and comparison to peers can create feelings of inadequacy or inferiority, fostering a competitive and hostile work environment that drives employees to seek more supportive workplaces.
• Impact on work-life balance: Pressure to perform well to avoid low rankings can lead to increased stress and burnout, affecting overall well-being and prompting employees to seek environments that prioritize a healthier work-life balance.
• Attrition of high performers: High-performing employees may leave if they perceive stack ranking as hindering their career progression or witness its negative impact on colleagues, seeking environments where their contributions are recognized and rewarded more equitably.

These factors collectively contribute to increased employee attrition in organizations that rely on stack ranking as a performance evaluation method. As we'll find out below, stack ranking also has an element of bias involved that might influence decisions.

What is the biggest problem with using ranking as a performance measure?

The biggest problem with using ranking as a performance measure is its tendency to foster a toxic work environment. By pitting employees against each other, ranking systems inherently promote competition over collaboration, which can erode teamwork and stifle innovation. This competitive atmosphere can lead to increased stress, decreased morale, and heightened anxiety among employees, as they constantly fear being ranked poorly.

Ranking systems often rely on subjective assessments, which can introduce biases and unfairness into the evaluation process. Leaders may unintentionally favor certain employees based on personal affinities, leading to inflated rankings for some and unfairly low rankings for others. This not only undermines the accuracy of performance evaluations but also damages trust between employees and management.

The pressure to achieve high rankings can incentivize unethical behavior, such as sabotaging colleagues or manipulating results, further deteriorating the organizational culture. Over time, these negative impacts can result in higher turnover rates, as employees seek healthier and more supportive work environments, ultimately diminishing the organization’s overall performance and reputation.

Can stack ranking impact diversity and inclusion efforts within organizations?

Stack ranking may introduce biases, disproportionately affecting underrepresented groups and exacerbating existing inequalities. The competitive environment it fosters can undermine collaboration and psychological safety, which are vital for inclusion.

However, if implemented with fairness and transparency, stack ranking can highlight disparities and prompt corrective actions. Thus, its impact on diversity and inclusion is complex and requires careful consideration.

• Exacerbation of bias: Stack ranking can exacerbate biases already present within the organization. Biases related to gender, race, age, and other demographic factors can influence how employees are ranked, leading to disparities in performance evaluations. This exacerbation of bias undermines diversity and inclusion efforts by perpetuating unequal treatment and hindering the advancement of underrepresented groups.
• Underrepresentation of minorities: Stack ranking may contribute to the underrepresentation of minorities in leadership positions. Biases in the ranking process can result in fewer opportunities for minority employees to advance within the organization. This lack of representation not only limits diversity at the leadership level but also sends a message that certain demographics are not valued or given equal opportunities for career progression.
• Impact on employee engagement: Stack ranking can negatively impact employee engagement, particularly among minority groups. Employees who perceive bias in the ranking process may feel disengaged and undervalued, leading to decreased morale and productivity. This lack of engagement can further perpetuate disparities in performance evaluations, creating a cycle that disproportionately affects underrepresented groups.
• Retention challenges: Stack ranking may pose challenges to retaining diverse talent. When employees perceive bias in the ranking process or experience unfair treatment, they may become disenchanted with the organization and seek employment elsewhere. This loss of diverse talent not only undermines diversity and inclusion efforts but also incurs costs associated with recruitment, training, and lost productivity.
• Stifling of diverse perspectives: The competitive nature of stack ranking can stifle the contributions of employees from diverse backgrounds. Instead of fostering collaboration and inclusive decision-making, employees may prioritize individual performance to improve their ranking. This emphasis on individual achievement can marginalize diverse perspectives and hinder innovation and creativity within the organization.

How can unconscious bias play a major role in stack ranking amongst leaders?

Unconscious bias can significantly influence the outcomes of a stack ranking system, particularly when it comes to leaders evaluating their team members. Here's how:

Employee performance evaluation

Unconscious biases can affect how leaders perceive and evaluate the performance of their employees.

For example, leaders may unknowingly favor employees who share similar backgrounds, personalities, or communication styles, leading to inflated ratings for those individuals and lower ratings for others who don't fit these preconceived notions of success.

Subjectivity in ranking employees

Stack ranking often involves subjective assessments of employees' performance, which leaves room for unconscious biases to creep in.

Leaders may inadvertently rank employees higher or lower based on factors such as gender, race, age, or personal relationships, rather than solely on objective performance metrics.

Halo and horns effects

When stack ranking, unconscious biases such as the halo effect (attributing positive qualities to individuals based on one outstanding trait) or the horns effect (allowing one negative trait to overshadow all other qualities) can distort leaders' perceptions of their employees' overall performance.

This can result in unfairly high or low rankings, skewing the distribution curve and impacting the entire team's outcomes.

Similarity bias

Leaders may unconsciously favor employees who resemble them in terms of background, experiences, or interests.

This similarity bias can lead to higher rankings for individuals who share commonalities with the leader, while those who are perceived as different may receive lower rankings, even if their performance objectively warrants a higher assessment.

Attribution bias

Unconscious biases can influence how leaders attribute success or failure to individual employees. For example, leaders may attribute success to internal factors such as skill and effort for employees they favor, while attributing failure to external factors beyond the employee's control.

Affinity bias

Leaders may unconsciously gravitate towards employees with whom they share a personal connection or rapport. This affinity bias can lead to higher rankings for favored employees, regardless of their actual performance, while others may be unfairly overlooked or underrated due to the lack of a similar connection with the leader.

Confirmation bias

Once leaders have formed initial impressions or opinions about their employees, they may unconsciously seek out information that confirms these preconceived notions while ignoring or discounting evidence that contradicts them. This confirmation bias can reinforce existing biases and lead to inaccurate or unfair rankings within the stack ranking system.

Recency bias

Leaders may unconsciously give more weight to recent performance rather than considering the employee's overall contributions throughout the evaluation period. This recency bias can result in unfair rankings, where short-term performance spikes or dips overshadow long-term consistency and achievements.

Anchoring bias

Leaders might base their evaluations on a specific piece of information or initial impression, which can heavily influence subsequent assessments. This anchoring bias can skew the ranking process, making it difficult for employees to improve their standings regardless of their actual performance.

Overconfidence bias

Leaders who are overly confident in their ability to assess performance may overlook their own biases. This overconfidence bias can prevent leaders from seeking diverse perspectives or questioning their evaluations, leading to biased and potentially inaccurate stack rankings.

Unconscious bias can truly play a significant role in how leaders assess and rank their employees within a stack ranking system.

Recognizing and addressing unconscious biases is essential for creating a more equitable and objective performance evaluation and performance management process throughout.

When to use stack ranking?

Understanding when to use stack ranking is crucial for maximizing its benefits while mitigating potential downsides.

During organizational restructuring

Stack ranking can be particularly useful during periods of organizational change or restructuring. When a company needs to downsize or reallocate resources, stack ranking can help identify top performers who are essential to retain and underperformers who may be candidates for layoffs. This ensures that the most capable employees remain, facilitating a smoother transition and maintaining operational efficiency.

In highly competitive environments

In industries where competition is intense and performance differentiation is critical, stack ranking can drive high levels of productivity. For instance, sales-driven organizations can benefit from stack ranking by clearly distinguishing top salespeople, who are then rewarded, thereby motivating others to improve their performance.

For talent development

Stack ranking can aid in talent development by clearly identifying high performers who may be suitable for leadership roles. This method can provide a structured approach to succession planning, ensuring that the organization recognizes and nurtures its future leaders systematically.

When implementing performance improvement plans

In scenarios where performance issues are prevalent, stack ranking can be used to identify employees who need targeted development programs or interventions. By pinpointing underperformers, organizations can create personalized improvement plans to address specific weaknesses, thereby enhancing overall performance and productivity.

Stack ranking examples: Companies that use forced ranking

Despite its controversial nature, several high-profile companies have utilized this method to manage their workforce. Here are some notable examples:

General Electric (GE)

General Electric is often credited with popularizing stack ranking under the leadership of Jack Welch in the 1980s and 1990s. Welch's "rank and yank" system mandated that the bottom 10% of employees be fired each year.

In 2016, GE announced that it was phasing out its long-standing "rank and yank" performance management system, which had been a hallmark of the company under former CEO Jack Welch. The company shifted to a more continuous feedback and performance development approach, known as the "PD@GE" system.

Microsoft

For many years, Microsoft employed a stack ranking system where employees were divided into categories based on their performance relative to their peers. This practice aimed to identify top talent and reward them accordingly. However, it also led to internal competition and discouraged collaboration, prompting Microsoft to abandon the system in 2013 in favor of a more holistic performance review cycle.

Amazon

Amazon has been known for its rigorous performance management practices, including elements of stack ranking. Employees are evaluated and ranked, with underperformers being subject to potential termination. This system aligns with Amazon's high-performance culture but has also drawn criticism for creating a high-pressure work environment.

Yahoo

Under CEO Marissa Mayer, Yahoo implemented a quarterly performance review system that included stack ranking. This was part of an effort to revitalize the company and improve efficiency. However, the approach faced backlash for contributing to low morale and high employee turnover.

Accenture

Although Accenture no longer uses traditional stack rank, it previously relied on this method to manage its vast workforce. Employees were ranked against each other, and performance ratings influenced compensation and career progression. The company eventually moved away from stack ranking in favor of continuous performance management and development.

What are some better alternatives to stack ranking your employees?

• Continuous feedback: Implementing a system of continuous feedback allows for regular, ongoing communication between managers and employees. This approach promotes transparency, as continuous performance management fosters development, and enables timely recognition of achievements or areas for improvement.
• Performance goal setting: Establishing clear, measurable performance goals aligned with organizational objectives helps employees understand expectations and focus their efforts on achieving meaningful outcomes. a performance improvement plan Regularly reviewing progress towards these goals allows for constructive discussions and adjustments as needed.
• Development plans: Creating individualized development plans based on employees' strengths, areas for improvement, and career aspirations can support their professional growth and skill development. Providing resources, training opportunities, and mentorship helps employees enhance their performance and advance their careers.
• Strengths-based approach: Emphasizing employees' strengths and leveraging them in their roles can maximize engagement and productivity. Encouraging managers to identify and capitalize on each employee's unique talents fosters a positive work environment and enhances overall team performance.
• Peer recognition programs: Implementing peer recognition programs allows employees to acknowledge and celebrate each other's contributions. This fosters a culture of appreciation and camaraderie, boosting morale and motivation throughout the organization.
• Flexible performance reviews: Moving away from rigid, annual, performance standards and reviews to more flexible and frequent check-ins enables managers to provide timely feedback and support to their team members. This approach facilitates dialogue, promotes accountability, and allows for adjustments in real-time.
• Competency-based assessments: Conducting competency-based assessments focuses on evaluating and ranking employees' skills, knowledge, and behaviors relevant to their roles. This approach ensures that performance evaluations are objective, relevant, and aligned with organizational needs.
• Employee development conversations: Encouraging open and honest conversations about career aspirations, growth opportunities, and development needs empowers employees to take ownership of their professional development. Providing guidance and support helps employees navigate their career paths within the organization.
• Team-based recognition: Recognizing and rewarding team accomplishments fosters a collaborative and supportive work environment. Acknowledging collective efforts and contributions encourages teamwork, collaboration, and a shared sense of purpose among employees.

By adopting these alternative approaches, organizations can cultivate a culture of continuous improvement, collaboration, and employee development, leading to enhanced performance and satisfaction across the workforce.

Conclusion

Forced ranking, or rank and yank, has been a topic of considerable debate. While it aims to differentiate employee performance and foster a competitive culture, its drawbacks include demoralization, biased evaluations, and a negative impact on morale.

Alternative approaches such as continuous feedback, individualized development plans, and a focus on strengths-based assessments offer more effective and equitable methods for managing employee performance.

Looking to transform your performance management approach? Explore CultureMonkey's innovative solutions for fostering a positive work culture, effectively measuring employee performance, providing ongoing feedback, and empowering employee development.

Let's cultivate a workplace where every individual can thrive and contribute to organizational success. Join us on the journey to building a more engaged and high-performing team.

FAQs

What is stack ranking?

Stack ranking, also known as forced ranking or rank-and-yank, is a performance management strategy where employees are ranked relative to one another based on their performance. This ranking typically results in a distribution where a certain percentage of employees are designated as top performers, middle performers, and low performers, thereby creating a competitive atmosphere that may undermine collaboration and teamwork.

Is stack ranking still commonly used in organizations?

While stack ranking was popular in the past, many organizations have moved away from this approach in recent years. Concerns about its impact on employee morale, engagement, and fairness have led organizations to explore alternative performance management strategies that focus on continuous feedback, coaching, and development, aiming to foster a more supportive and collaborative work environment conducive to employee growth and organizational success.

Does stack ranking lead to employee turnover?

Stack ranking has been associated with increased employee turnover, particularly among low-performing employees. The practice of identifying and removing the bottom-ranked employees, known as "rank and yank," can create a culture of fear and insecurity, prompting talented individuals to seek opportunities elsewhere rather than risk being labeled as low performers, perpetuating a cycle of turnover and talent loss.

Can stack ranking contribute to a toxic work culture?

Yes, stack ranking can contribute to a toxic work culture characterized by intense competition, distrust, and fear. The pressure to outperform peers and avoid being ranked as a low performer can lead to cutthroat behavior and undermine collaboration and teamwork. This competitive environment can foster resentment among employees and create a divisive atmosphere detrimental to organizational success and employee well-being.