Stack Ranking: The good, the bad, and the ugly

By Scot Herrick | Job Performance

Nov 20

As I noted in my last post, stack ranking is back in the news. It talked through how stack ranking specifically fired me up to really define and advocate for being a Cubicle Warrior. But I didn’t really talk about the impact stack ranking has on you, the aspiring Cubicle Warrior.

So let’s take a look at stack ranking: the good, the bad, and the ugly.

A definition

Stack Ranking, unlike performance review ratings, require the manager to rank each employee from best to worst, one to whatever number of employees that manager has to manage. If you have fourteen employees, you rank them one to fourteen. Hopefully, you have reasons why when your a manager, but that’s a different issue.

Now, management uses stack ranking to do things with the work force, from rewarding top performers to laying off the bottom 20% of the ranked employees. Hence, the good, the bad, and the ugly…

The Good

If you are a top performer — especially in a group of people who are not top performers — you’ll tend to get the best raises, the best bonuses, and be the least likely to get laid off. Assuming you are not in the wrong place at the wrong time, of course. Then, all bets are off.

This, from an employee viewpoint, is really the only good thing about stack ranking.

The Bad

Let’s start with money

Each group (YOUR group) only gets so much money for raises and bonuses. And guess what? Those raises and bonuses are distributed by the stack ranking.

For ease of discussion, let’s say your company only allows bonuses to be handed out to the top rated people on their performance reviews — only people rated “1” for Outstanding and “2” for Exceeds Expectations, for example. And if your manager has 14 people in the group (I did…) and five people are rated as ones or twos, let’s see how the $10,000 budget for bonuses could get handed out by me, your manager:

  • Rated 1, Ranked 1: $4000
  • Rated 1, Ranked 2: $3000
  • Rated 2, Ranked 3: $1500
  • Rated 2, Ranked 4: $1000
  • Rated 2, Ranked 5: $500

Thus, even though your rating was “Exceeds Expectations,” because you were ranked fifth in the group, you received $1000 less than the same person rated as you, but ranked third. The same is true for the second person rated “Outstanding.”

Hey, it’s only money.

How about some more about money?

The larger corporations will even say that similar jobs between departments, but handled by different managers, should be pooled together and then the pooled departments are stack ranked.

Let’s say you have two groups of programmers with two different managers. Now instead of, say, ten people being stack ranked in each department, you now have a pool of twenty people being stack ranked.

Think this doesn’t happen? At my failed bank position, I had to work with two other managers and we stack ranked about fifty — fifty — people from top to bottom.

Now you take that same budget situation and apply it to the pool of fifty people. Yes, the budget is bigger (do you think it is really twice as big? Not usually!). Then you apply that budget with the other managers approving your bonus for your people that you’ve collectively ranked.

Do you think that the top performers get the same amount of bonus? Naw, it’s all about having the budget fit. Not about ensuring performers get the right compensation.

Managers are not created equal — and defend your work differently

Do you think your manager knows your work well enough to walk into a meeting room and defend what you did the past year? Most can’t. But let’s say your manager is one of the better ones and knows your work.

Do you think your manager knows the rest of the people in other departments well enough to know their work from the past year? Very few can.

What’s left? How well your manager can defend and promote your great accomplishments in the room with other managers trying to knock that work down so they can defend their people and preserve their ratings and rankings to get their portion — or more — of the salary and bonus budget.

How well can your manager do that? I thought so.

The Ugly

Most stack ranking work is hidden from the employees

In companies with stack ranking of employees, managers do the ranking with every review cycle — and sometimes more often in chaotic situations (read: when layoffs might happen). Quarterly is not out of the question in places where business is tough.

The employee is never really in a position to contribute to the discussion. There is usually no feedback given to the employee about their ranking — only their performance review rating. And since it is poor form to walk around asking other peoples ratings — much less their salary increase and bonus amounts — employees never know the dollar differences their team is getting.

In a perfect world, of course, managers would know all and precisely provide the right salary and bonus amounts to their employees. But we know this isn’t a perfect world.

Then, there are layoffs

There are three types of layoffs that happen. Two you can’t control, no matter how good your performance: Close of a site or elimination of a department.

One you can control: how good your performance is in the department. When companies do across-the-board cuts of personnel, the edict comes down to get rid of, say, 20% of the work force.

If they don’t eliminate the department or close a site, how do you think managers get rid of 20% of the work force? Yes, by taking the bottom 20% of the stack ranked employees and laying them off. I’ve done it. Not fun — because two of you can be rated as “successful,” but one of you gets laid off and the other doesn’t because of the ranking.

What about your performance?

Yes, performance counts, but that is a simplistic view of how it works. Managers make decisions based on imperfect information, your performance right now might be suffering because of the work load or current project, or your manager can be clueless and whatever you are doing really doesn’t matter.

Stack ranking is just a nice way of evaluating people and putting them into a list. It looks objective because there are numbers from one to whatever.

But it doesn’t make the evaluations right. And people suffer for it.

That’s why we need Employment Security. Job security doesn’t cut it.

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About the Author

Scot Herrick is the author of “I’ve Landed My Dream Job–Now What???” and owner of Cube Rules, LLC. Scot has a long history of management and individual contribution in multiple Fortune 100 corporations.