Stack ranking — forcing managers to assign a score to their people and firing the bottom 10% — is a terrible idea.
It didn’t work for Microsoft or Yahoo. And it’s sending talent out the door at Facebook.
Facebook is paying a price for its version of stack ranking. After all, its stock has lost 34% of its value — wiping out $210 billion of shareholder value since its July 2018 high. And according to Glassdoor, which lets employees anonymously review their workplaces, “Facebook fell from being the best place to work in the U.S. to No. 7 in the last year,” wrote CNBC.
Leaders have the power to shape the way people conduct themselves in the workplace. They can do that by creating culture — telling stories to illustrate the values that should guide the behavior of their people. They also operate performance measurement systems — observing how people conduct themselves and rewarding those who act according to those values.
A leader’s power to create culture and performance measurement systems can go haywire in many ways. For example, the leader can articulate wonderful values and then reward behavior that contradicts those values.
As I described in my book, Value Leadership, this is what happened at Enron — which touted the value of respect while acting with the very ruthlessness and callousness which it denounced. That hypocrisy contributed to Enron’s December 2001 bankruptcy which cost tens of thousands of people their jobs and wiped out $74 billion of value.
Facebook — of which I am not a user and in which I have no financial interest — also has a mismatch between its culture and the way it measures performance.
How so? Facebook rewards employees for churning out new features that increase the amount of time people spend on the platform — a reflection of what CEO Mark Zuckerberg values, according to CNBC. Zuckerberg’s people skills were so weak that he hired Sheryl Sandberg as chief operating officer.
There is no hypocrisy there — just Zuckerberg’s warped sense of values. After all, the Russian propaganda and hate speech that allegedly helped turn the 2016 presidential election Donald Trump’s way engaged more users. But as I wrote in November 2016, Zuckerberg denied its significance.
At the same time, Sandberg — whose mantra includes the phrase “authentic self” — oversees a performance evaluation system that employees describe as forcing them to act as though everything is great at Facebook — even though they are miserable working there, noted CNBC.
Facebook’s culture and performance evaluation system are forcing talented people to leave in order to preserve their sense of well-being. CNBC found that employees see its culture as “cult-like” — discouraging dissent and leading employees to pretend to be happy all the time.
At the core of Facebook is a bi-annual stack ranking performance review system which culls the bottom 15 percent of its people — these are the employees ranked as “Meets most” deemed a “low grade that puts future employment at risk.”
CNBC wrote that Facebook’s stack ranking rewards employees who “push out products and features that drive user engagement without fully considering potential long-term negative impacts on user experience or privacy.”
What’s more, Facebook relies on peer reviews — which require employees to get performance feedback from five of their peers every six months. Peer reviews “create an underlying pressure for Facebook employees to forge friendships with colleagues for the sake of career advancement,” according to CNBC
Stack ranking is a bad way for Silicon Valley companies to operate. As I wrote in July 2012, under Steve Ballmer, stack ranking rewarded employees who spent their time telling managers what great work they were doing and punished those who let their work speak for themselves.
In November 2013, under new CEO Satya Nadella, Microsoft replaced stack ranking with a system that Microsoft HR chief Lisa Brummel’s said would focus on teamwork and collaboration and employee growth and development. Brummel said there will be “no more curve” at Microsoft and managers will have the power to allocate rewards to teams and individuals at their own discretion.
That was the same month that Yahoo — under Marissa Mayer, its last CEO as an independent company– decided to introduce stack ranking there.
As AllThingsD reported back then, Mayer pushed a “Quarterly Performance Review” system — that “forces managers to rank some of their staff with designations of Occasionally Misses and Misses, even if it is not the case.”
AllThingsD noted “more than 600” people had recently been fired because they had “recently gotten lower scores at least two times in recent quarters.” Forcing managers to make up bad performance ratings and use them to fire people is not the way to motivate talented people.
Some might view Facebook’s employee dissatisfaction as perfectly normal turnover. But Silicon Valley has a history of attracting the world’s best talent. And the best talent goes to the companies with the most potential.
That company is no longer Facebook.
Facebook Inc. shares were trading at $143.96 per share on Friday afternoon, down $0.24 (-0.17%). Year-to-date, FB has gained 9.82%, versus a 3.35% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Forbes.