What Marissa Mayer Got Wrong (and Right) About Stack Ranking Employees

Yahoo CEO Marissa Mayer has been criticized for implementing the practice of stack ranking, most notably in an excerpt from Nicholas Carlson’s upcoming book, Marissa Mayer and the Fight to Save Yahoo! that was published in the New York Times. Most of the criticisms of stack ranking center on the seeming arbitrary nature of the practice, which requires managers to grade their people on a bell curve, with a mandatory proportion of both 5s (excellent employees) and 1s (underperformers), regardless of the actual distribution of performance. According to critics, stack ranking produces excessive and unproductive internal competition, and discourages employees from helping their peers.

Yet stack ranking suffers even more fundamental problems. The fact is that the implicit assumptions required for stack ranking to make sense simply don’t apply in the real world.

Let’s consider a common situation in which stack ranking seems to make sense: education. College courses are often graded on a curve, a fact that draws little protest. I can recall one college physics final exam I took where the median score was 17 out of 100; “stack ranking” made a lot more sense to me than simply failing 90% of the students. Yet the context of a college course could not be more different from that of the workplace. Consider the differences:

College course:

• Every student completes the same assignments and takes the same exams
• The main purpose of the course is to teach and evaluate the students
• Receiving one or two failing grades has few consequences; students can re-take failed classes

Workplace:

• In most cases, each employee’s job is different, even if they have the same job title
• The main purpose of the company is to create value
• Receiving one or two “failing grades” has disastrous consequences and likely means the end of the employee’s tenure

Stack ranking employees who have very different roles, using largely subjective measures that have little to do with actual value, and making critical and irreversible decisions based on those rankings, tends to produce the negative effects cited by the critics.

Instead, managers should treat employees like allies:

1) Each key employee should be on a personalized tour of duty with a specific mission objective that improves both the company’s business and the employee’s career prospects.

2) Managers should evaluate each employee based on their progress towards and accomplishment of their mission objectives. This connects the evaluation to the actual work being done, and the actual value being created.

3) Managers should meet with each employee on a regular basis to discuss the progress of the tour, and to confirm that the mission objective is still relevant to the business and the employee’s career. Either party should have ample opportunity to surface any performance concerns, and to take steps to address those concerns, rather than waiting for an artificial quarterly or annual stack ranking process.

This personalized, organic approach actually helps employees reach their full potential, rather than simply attempting to weed out underperformers.

That being said, I can understand why Mayer tried stack ranking at Yahoo. The alliance framework both relies on and is designed to increase the trust between manager and employee. Companies that adopt the principles outlined in The Alliance typically follow a measured, incremental approach. As trust increases, they can broaden the scope of an alliance-based set of programs.

But Mayer was an outsider CEO, brought in to turn around a company in crisis. And one of the biggest issues afflicting Yahoo when she arrived was a broad complacency and tolerance for low performance. She needed to shrink the organization and get rid of underperformers. Stack ranking gave her a simple and scalable tool to accomplish those objectives, albeit at a cost in terms of employee satisfaction. In the case of Yahoo, the benefits of stack ranking may have outweighed its negatives, at least in the short term.

Now that Mayer has been Yahoo’s CEO for nearly two-and-a-half years and has had time to build relationships and trust with the rest of the organization, the time may be right to phase out stack ranking, and start adopting a more productive approach.

This blog first appeared on Harvard Business Review on 01/08/2015.

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