For people working in the corporate world, you may have heard the idea of stack ranking. It is a way and grouping employees into high performers, average performers, and bottom feeders. The practice seems to have originated at G.E. under Jack Welch and spread to other corporates such as Yahoo. Much has been written about the practice. From a personal finance standpoint, you should understand if this is practiced at your company. I’ll share a bit of my observations on the aspirational goals of stack ranking and how it goes wrong.
What are the goals when you apply stack ranking? You are usually looking to trim the work force and differentiate on compensation for your superstars. If you have done a lot of hiring or you have a large and stagnant organization, there is probably a good chance you have “dead wood” that needs to be trimmed. Stack ranking is meant to find and trim the low performers.
How does stack ranking identify the dead wood and the superstars? There are forced ranks where you must fit your employee population to the curve. On the superstar side you only have limited seats. So you make hard decisions to put your brightest stars. On the low end, you are required to make tough decisions to put in the lowest relative performers into that bucket. Once you have these buckets populated, you give money, opportunities, management time to the high performers. You manage out the low performers.
What can go wrong? If you could objectively evaluate everyone on performance and every person was doing the same job/role, this might work. But I work in technology where there are many different types of roles and work. Perhaps I have someone who is not a technology superstar, leader, or hard working. But they know the legacy system inside and out. Nobody else wants to touch the legacy system because it’s seen as a career dead end. Stack Ranking says this person should be a 1 (fire in the next round of layoffs). Maybe I protect this person and stick one of my expendable junior developers under the bus because I can easily replace them when the dust settles. Maybe I know that every year I have to come up with sacrificial lambs to put into my firing bucket. I would constantly fill my pipeline with people who are not a net negative to my team and yet can get fired when the next round of layoffs come. If the outcome of stack ranking is supposed to trim the dead wood and improve the talent on the team, I have not seen that happen at scale.
What does this mean to you? If you are considering a job at a company that practices stack ranking, you should consider carefully if you are getting into a team and a role which you have what you need to succeed and get that coveted superstar seat. If you don’t get that superstar seat, you are doomed to a mediocre compensation package or worse you could be put on the next train out the door. If you are in a company that runs stack ranking, you should understand which bucket you are in. If you are in the top bucket, thats great. If not, you better start figuring what to do before you end up on the chopping block. Perhaps you better get a head start on looking for other opportunities in the company or outside the firm.
If this is happening at your firm, don’t stick your head in the sand and hope the next round of Russian Roulette doesn’t have a bullet with your name on it.