Dec 1st, 2008
Stack Ranking
Any reasonably large organization must manage employee performance — separating the wheats from the chaff — rewarding those who brought in value and aligning talents to tasks. This has been practiced widely. It comes down to a simple concept: bucketization. Putting talents in buckets of various labels, exceptional, very strong, strong, etc., and deploy different incentives, or disincentives, accordingly.
If this is not controversial, why not nano-bucketization: putting almost everyone in his/her own bucket? Somehow, we are comfortable with calling 20% of the population exceptional, but not two of them “the best two” and the next person “the 2nd best.”
Think about the objectives of the performance process. Wouldn’t it make sense to be more precise? The precision, it seems, actually hurts teamwork. The destructive competitiveness among individuals somehow diminishes when the classification is sufficiently coarse. We are the best team, but each team member contributed equally and should not be treated differently. This is understandable from the team’s point of view, but not managerially. The manager needs to know the relative strength of each member.
Hence the paradoxical conclusion: managers must stack rank his/her organization, but not communicate the result with precision. Every study that shows the negative outcome of stack ranking misses this point. Stack ranking is absolutely necessary. It is done implicitly by every manager anyway. The communication of the rank, however, should probably never happen.
Nice graph. I suggest another similar graph to keep in mind - rank all the people in the entire industry (high tech), as nano-bucketized as possible. Then ask the question - where does the bulk of the people in your organization lie in?
The people at the head of the industry (as a group) can engage in risky innovations and still come out immensely profitable (as a group). Sliding down the graph, you have existing products improvement, then product maintenance, and then services. You have to match the right capability with the business activity.
Everyone likes to think they are on the top end of the graph. As a manager, you can tell your people that too, but you got to have the honest answer in your head.