396 SECTION 3 Talent Development CASE Microsoft Jettisons Stack Rankings Microsoft has always been on the cutting edge of do much to create a sense of teamwork among em- performance management and compensation. The ployees. Despite these limitations, some managers, firm has a reputation for hiring good employees and including the previous CEO of General Electric taking care of them by providing generous rewards Jack Welch, defend the practice. They claim that it and opportunities. In particular, paying workers allows leaders to effectively differentiate varying based on their performance is an approach that levels of job performance among employees more the company has utilized for some time. Over the effectively, last several decades, Microsoft has given employees Given these concerns, Microsoft elected to stock options, generous increases to base pay, and drop its stack ranking system a few years after it restricted stock units. A number of years ago, the was adopted. This means that managers do not flexible rewards program My Microsoft was offered, have to use the scaling and ranking methods that and it enabled workers to earn merit pay, bonuses, were introduced several years earlier. In addition, and restricted stock units. managers do not have to indicate through the em- In an effort to support this HR management ployee appraisals that a percentage of workers are philosophy, Microsoft introduced a stack rank not meeting standards. It will be interesting to see ings process more recently, which required manag how managers continue to tweak the company's ers to rate employees (on a scale of 1 to 5, with 1 performance management system so that employ being the highest) so that they could be ultimately ees are rewarded fairly and accurately for their job ranked against each other. These rankings affected performance. M the amount of compensation i.e., merit, bonuses, restricted stock units) employees would receive. The QUESTIONS ranking process also forced managers to designate a certain percentage of their employees as poor 1. What is your overall opinion of the stack rank- performers. ing system? Do you think this approach serves a This requirement makes stack ranking a con- purpose in modern organizations? troversial performance management approach be 2. If you were to implement stack ranking in a cause there are always losers, despite the fact that a company, how would you do it? What are the company may be hiring and developing well. Crit. potential challenges associated with implement- ics also point out that the stack ranking process, or ing this system? Would you use it, or would you rank and yank" as it is sometimes called, doesn't elect to use an alternative approach? 57% Page 396 of 706 Location 11647 of 20694 a DII DD