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Forced or stacked ranking is a performance evaluation  method where managers grade on a curve. Remember that from your school days? Even if you did “B” work, you may be at the bottom of the ranking if most everyone else did “A” work. In the August issue of Vanity Fair, the author identifies Microsoft’s forced ranking evaluation process as one HR policy that  contributed to it’s decline. See: “How Microsoft Lost Its Mojo: Steve Ballmer and Corporate America’s Most Spectacular Decline”.

This is a prime example of how HR policy can affect the company bottom-line.

Under Jack Welch’s tenure, GE made stacked ranking popular. But in 2004 GE stopped using it. According to one source, the use of forced ranking in the US has declined from 49% to 14%. In sales, where individual producers are evaluated by their ability to make their quotes, forced ranking can be useful.But even then it can become demoralizing and counter productive when numbers are made public. Recently a sales executive told me that his organization does not conduct performance evaluations because his boss thinks that  numbers “are all that counts.”  But what if a  behavior  from an employee interferes with how others do their jobs, or lowers  the morale of the work group?  Everyone can benefit from timely feedback to help them improve their performance and grow their careers.  And this can help to improve the performance of the entire work group.

According to the Vanity Fair article, today the iPhone brings in more revenue than all of Microsoft’s products. Baller, a deal-making, finance, and product marketing executive replaced the software-and-technological genius, Bill Gates, in January 2000, at the  time of dot.com bust. A dinosaur, Microsoft, like IBM before them, began to shut  down innovative ideas  that appealed to the tech savvy younger generation in favor of  products that favored their Windows and Office products.  From music to search engines to phones to PC’s, they repeatedly found themselves far behind innovative companies such as Apple.

All those years of increasing stock prices evaporated, never to return.  Those who made millions on Microsoft stock options now worked along side the newer employees whose stock options were underwater.

Included  in cost cutting was their stellar comprehensive medical insurance, a benefit that attracted many to the company.   Since employees could no longer make money from stock options, the only way to make more money was through promotions. That led to more managers, and  more meetings, and more red tape before new technology could be brought to the marketplace. Policies and culture relied less on innovation and more on  cutting costs and increasing revenue of Office and Windows products.

With their stacked ranking system,  even good performers could be at the bottom of the curve.  The culture became cut-throat, with employees doing what they could to make it to the top of the curve.  Great performers did not want to work next to other great performers.

In  Microsoft, we see  how HR benefits and policies can affect company culture  and contribute to the  decline of the company.   As an HR manager,  how can you  influence management to implement policies that that are “life enhancing “for the organization and the employee?