By Jim Hessler

In its upcoming August edition, Vanity Fair will pound away at Steve Ballmer’s leadership of Microsoft during what the author calls the company’s “ten lost years.”

In the author’s opinion, much of the blame for Microsoft’s problems is sourced in the practice of “stack-ranking” employees.  This practice, the article implies, inhibits the innovation and passionate collaboration that brings out the best in teams.

Stack-ranking amounts to evaluating each employee’s performance relative to the performance of every other employee in their team or department.   If you work in a team of 10, Microsoft management is required to rank you and your nine teammates as either top performers (20% of workers), average (70%), or underperforming (10%).   These rankings impact your pay, bonuses, and upward mobility.

There are probably three reasons Microsoft does this. One is succession planning – identifying the stars (the top 20%) who are likely to elevate in the hierarchy. The second is management discipline. Forcing managers to stack-rank employees makes them acutely aware of performance overall and requires them to take action on laggards. The third reason, presumably, is motivation – the assumption that stack ranking will “encourage” employees to do great work in order to earn the more favorable ranking.

And this is where the stack ranking theory falls apart. A flood of recent psychological research tells us that a highly motivated employee is one who finds purpose, meaning, autonomy, personal growth and belonging in their work.  If having to be perceived as better than your peers motivates you, it does so from fear.  And fear cannot sustainably drive you toward your best work.  Fear erodes creativity and innovation – two qualities you’d think Microsoft would want to foster.  In these respects, the stack ranking management approach reflects an old and discredited model.

It took hold in corporate America largely because Jack Welch of G.E. – one of America’s most popular (and possibly most overrated) executives – pitched it hard in his books and speeches. I think it’s the classic case of misapplying a well-intended practice (weed out the low performers, reward the high performers) – with nasty, unintended consequences.

Competing with your co-workers for a winning evaluation can create an entire suite of dysfunctions within the team. I understand Microsoft’s desire to create a high-performance workforce in a highly competitive industry. But the greater leverage for productivity is in finding ways to make the team perform at a higher level.  Tandeamwork can’t be fostered with stack rankings.

In a healthy organization, employees help each other succeed.  They see everything they do in the context of the greater whole.  They’re expected to think globally about what breeds organizational success.  Stack ranking, on the other hand, builds an unhealthy culture around individual contribution as opposed to team success.   It might have worked in the 1950’s.  It doesn’t work anymore.

Jim Hessler can be reached at Jim@TheBossShow.com.