In a story reported in the Irish Independent, a recent 'Vanity Fair' article on Microsoft has caused ructions across the US business community and beyond since its publication in August and could have widespread consequences for larger Irish companies.
The article on Microsoft was highly critical of the multinational stating that it had failed to launch significant new products for almost a decade during which it has been repeatedly beaten in the market by its competitors. The article was highly critical of current CEO Steve Ballmer, however a deeper root cause of the poor company culture was unearth every former Microsoft employee interviewed for the article had blamed the company's problems not so much on the CEO, but on a HRM practice known as "stack ranking."
The article has garnered much publicity and the Irish Independent hailed it as an "emperor's new clothes" moment in the US and elsewhere, not for what it says about Microsoft but rather what it reveals about a commonly used and previously unquestioned HR tool.
Stack Ranking
Stack ranking calls for a Company to rate its employees on a merit scale of 1 to 3 (can also be on a 1 to 5 basis) once every six months or else once a year. The best 15% get a 1 or "excellent" ranking and the middle 75% get a 2 ranking and the worst 10% get a 3 or "poor" ranking. In some cases these 10% are let go.
The catch is that a fixed percentage quota of employees must always be achieved for each ranking. Therefore 10% of the employees must always be ranked "poor" no matter how good or bad they actually are. Pay increases tend to be given to the "excellent" range while those in the "poor" bracket are shunted towards the door, which has led to its US nickname "rank and yank."
One former employee was quoted as saying “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review. It leads to employees focusing on competing with each other rather than competing with other companies.”
Critics of stack ranking say it keeps employees focused on short-term rather than long-term project goals, that it kills team performance and actively causes employees to stick the knife into each other.
Wider Use
Stack ranking was devised by Jack Welch at GE in the 1980s. Today it is used by 60% of the 'Fortune 500' companies, many of whom are located in Ireland. According to the Chartered Institute of Personnel and Development (CIPD), the practice was imported here by many FDI (Foreign Direct Investment) companies since the Eighties and has since become widespread.
An increasingly difficult legislative environment means that some HR departments have become more likely to resort to obvious and ill-fated methods of dealing with staff. One example is the "special project" method of managing people out, where managers create a "special project" into which they channel employees earmarked for disposal. In this way the employees are removed from their existing teams without a fuss. The "project" is designed to fail and therefore give the company a cover to lay them off. The end result is that employees in some companies now run a mile from a "special project" even when a genuine ground breaking task is actually required.
The Independent article cited a senior office manager with an international software company based in Dublin as stating "It's getting ridiculous. They channel the people they don't want into the marketing department before letting them go, but people services (HR) don't seem to care that everyone knows this -- we call marketing "the departure lounge".
The Irish Perspective
These poor and ill-advised methods of terminating contracts can lead to potential issues for a Company, with a wide range of employment rights legislation available to employees by which to claim.
If ranked last and subsequently passed over for bonuses or promotion there is the potential of an Equality claim if they can successfully argue they were discriminated against on any of the 9 grounds for discrimination. Alternatively if they have exhausted the formal grievance process they could potentially take a claim for constructive dismissal, being that due to the work environment they were left with no option but to leave.
In the case of Troy v Ennis Handling Systems Ltd. (UD601/1991) an employee was awarded €9,000 for Constructive Dismissal where the employee justified their claim of constructive dismissal as the employee had given them warnings that were unjustified.
This is just one of many cases that demonstrate how employers must be careful when looking at giving employees warnings, or perhaps shipping them off into a department that is destined to fail.
It should be remembered that Irish employment legislation is far more stringent than that of the US, and practices that can work well there do not always translate here. So just because a fortune 500 company uses such a policy, it does not mean it is the correct fit for your organisation.
