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Microsoft Scraps Curved Rating System for Worker Reviews

Nov. 13 (Bloomberg) -- Richard Williams, senior software analyst at Cross Research, discusses changes to Microsoft’s employee ranking system and how it can impact retaining and attracting talent. He speaks on Bloomberg Television’s “Bloomberg Surveillance.”

Microsoft Corp. (MSFT) is eliminating its long-standing practice of evaluating employees on a bell curve, seeking to foster more teamwork and collaboration as the company restructures to focus on devices and services.

Managers will no longer be required to rate workers on a fixed scale of performance rankings, Lisa Brummel, Microsoft’s executive vice president of human resources, said in a memo to the company’s 99,000 staff.

“GE and Jack Welch were leaders in this and Ford tried it, but it’s never really caught on and the nature of work is changing,” said Fred Foulkes, a professor of organizational behavior at the Boston University School of Management. “You can’t just keep cutting the bottom 10 percent.”

Microsoft’s previous stack-ranking system required a fixed number of workers on a team to be graded poorly, with only a few awarded top ratings. While the policy has been tweaked over the years, the rank and file have long complained that the rules discouraged teamwork and forced poor scores onto good employees to meet quotas. The new initiative follows the “One Microsoft” strategy unveiled by outgoing Chief Executive Officer Steve Ballmer in July, aimed at better cooperation among various products and initiatives at the world’s largest software maker.

Forced Rankings

General Electric Co. (GE), the world’s largest maker of jet engines and diesel locomotives, backed away from forced rankings when Welch was CEO, Foulkes said. Such gradings have always been difficult in industries where measuring performance is subjective, he said.

Ford Motor Co. (F)’s attempt to implement a program based on a fixed scale of performance grading forced managers to rank some employees as a “C” on a measure that started with “A,” and workers could face elimination if the grade didn’t improve. It was scuttled in 2001, after some workers who were fired filed lawsuits and the system proved to be generally unpopular.

“These types of systems can really demoralize and disengage employees,” said Lisa Gerhardt, a partner at recruitment firm Boyden Global Executive Search, who heads the human resources practice. “With companies having to do more with less people, if you don’t have employees engaged, productivity is going to suffer.”

‘Company Goals’

Managers will be free to allocate compensation as they see fit within their budgets, Microsoft’s Brummel wrote in the memo, which was obtained by Bloomberg and confirmed by Redmond, Washington-based Microsoft. The company is also doing away with performance ratings altogether and evaluating employees based on how well they work with others.

“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,” Brummel wrote. “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.”

Microsoft will still need to maintain a system to allow managers to rank good and bad employees, said Marc Effron, president of the Talent Strategy Group, a consulting firm. Companies generally are still more likely to require managers to identify the lower-performing employees, he said.

“Companies will always grade on a curve, but forced ranking was on the extreme end of the scale,” he said. “There is a natural distribution of talent in the company and you need to be able to identify the top performers and identify the people at the bottom to find ways to make them better.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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