Microsoft CEO Steve Ballmer retires: A firsthand account of the company’s employee-ranking system.

A Firsthand Account of Microsoft’s Employee-Ranking System

Commentary about business and finance.
Aug. 26 2013 11:56 AM

Tales of an Ex–Microsoft Manager

Outgoing CEO Steve Ballmer’s beloved employee-ranking system made me secretive, cynical, and paranoid.

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This was my problem. I had three reports, A, B, and C, and they neatly fit into three categories: C was good, B was great, and A was fantastic. They were all nice and retiring sorts—they weren’t self-promoters, which put them at a disadvantage at Microsoft—and I did want to do well by them. Based on their position in the stack rank, I thought that this would have been a fair assessment of them relative to the company in general:

My Ideal Distribution

  • A: Above Average
  • B: Above Average
  • C: Average

Above Average would get A and B nice bonuses and raises, while C might get a small raise and a decent bonus with an Average. That didn’t happen. My manager told me baldly that this was how it would go:

The Actual Distribution

  • A: Above average
  • B: Average
  • C: Below average

My desired rankings were out of the question, since my manager would then have had to steal that extra Above Average from some other manager. I thought that B could live with Average (we were all well-compensated, after all), but rating C as Below Average hurt.


So I argued for C, and my manager said there was exactly one alternative:

The Alternative Distribution

  • A: Average
  • B: Average
  • C: Average

But A had been at the very top of the stack! How could A do worse than people we’d all agreed were weaker programmers? I gave up and let C take the Below Average. This is the zero-sum game at work.

I still feel bad about this.

Then I had to explain things to my reports. This illustrated another problem with the system: It destroyed trust between individual contributors and management, because the stack rank required that all lower-level managers systematically lie to their reports. Why? Because for years Microsoft did not admit the existence of the stack rank to nonmanagers. Knowledge of the process gradually leaked out, becoming a recurrent complaint on the much-loathed (by Microsoft) Mini-Microsoft blog, where a high-up Microsoft manager bitterly complained about organizational dysfunction and was joined in by a chorus of hundreds of employees. The stack rank finally made it into a Vanity Fair article in 2012, but for many years it was not common knowledge, inside or outside Microsoft. It was presented to the individual contributors as a system of objective assessment of “core competencies,” with each person being judged in isolation.

When review time came, and programmers would fill out a short self-assessment talking about their achievements, strengths, and weaknesses, only some of them knew that their ratings had been more or less already foreordained at the stack rank. The ones who knew could sometimes be recognized by their flip comments on their performance reviews, like the hot-tempered guy who wrote every year in “Areas to Improve,” “I will try to be less of an asshole.”

They were exceptions, though. If you did know about the stack rank, you weren’t supposed to admit it. So you went through the pageantry of the performance review anyway, arguing with your manager in the rhetoric of “core competencies.” The managers would respond in kind. Since the managers had little control over the actual score and attendant bonus and raise (if any), their job was to write a review to justify the stack rank in the language of absolute merit. (“Higher visibility” was always a good catch-all: Sure, you may be a great coder and work 80 hours a week, but not enough people have heard of you!)

Strangely, this charade would sometimes happen even between managers and their managers, both pretending that they didn’t know about the stack rank that they had recently participated in. This kind of bad faith is more common than you might think. I saw it most vividly in a certain number of party-liners who seemed wholly oblivious to the dissonance between the performance review and the stack rank, as though the two would always magically line up, even though they never did.

This sort of organizational dissembling skews your psyche. After I left Microsoft, I was left with lingering paranoia for months, always wondering about the agendas of those around me, skeptical that what I was being told was the real story. I didn’t realize until the nonstacked performance review time at my new job that I’d become so wary. At the time—inside Microsoft—it just seemed the only logical way to be.

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