Stack Ranking

The Diff recently wrote an article about how you can’t escape stack ranking.  Stack ranking has a bad odor in many circles, but this article is pretty realistic.

Before becoming a founder, I worked for two employers during my career — Booz-Allen & Hamilton and Microsoft.  They were very different organizations but had some things in common.  The businesses were demanding, and they both had a lot of super-capable people.

They both used stack ranking.  Booz-Allen was an up-or-out organization by design, and they were completely transparent about it.  You got promoted from Associate to Senior Associate in ~2 years or were “counseled” to find work elsewhere.   And you either got promoted to Principal in another 2-3 years or were “counseled out” again.  There was a quota for these promotions, as the firm had to keep hiring fresh associates and could only retain as many tenured employees as revenue growth would allow.   I knew the deal when I joined Booz-Allen, and while it was a lot of pressure, there was no surprise.

Microsoft infamously used stack ranking and walked away from it in 2013.  The system was in use when I was there in the 90s, though not so rigidly in place as it later became.  I often heard the phrase, “The marketplace is a tough teacher,” which encouraged challenging internal debate and stress testing for products, ideas, and, ultimately, people.   In the 90s, the stock was growing fast enough, and the company was growing fast enough that stack ranking was not a big deal.  The slowing stock growth post-2000 put more stress on the system.

Some degree of stack ranking in a company is necessary and appropriate.  The marketplace is a tough and relentless teacher.  Companies have to respond.  And ultimately, this means individuals must meet a market performance test. There are good and bad ways to handle this.  

First, companies must exercise tight controls on hiring.  When employees switch companies, it is disruptive; the change affects their daily commute, work-life balance, health care, and their family’s health care, perhaps their kid's schools, and almost every other aspect of their life.  Companies must be cautious about hiring people and take every step to ensure that there is a good fit and that the position is necessary.  

Second, companies must work with employees to find the best fit for them.  Not everyone is excellent in every position, but everyone can be good in some position.  And in a large company, there are a lot of different kinds of jobs.  So, if an employee is not hitting it out of the park in their current job, their manager needs to dig in, understand what the employee is good at, and try to direct them to the position in which they will excel.  This is good for the employee and the company — it is tough to find and hire people; it is expensive to onboard them.  If a company can spend a little time and get a lot more value out of the people they have, that is an excellent investment.

Thirdly, employers must be super transparent about the nature of their business.  If the company works in a very competitive domain and faces a lot of market pressure, then be upfront at hiring time and in regular communications with employees.  The company should let them know how tough the business is and the pressure the company faces.  Perhaps employees will rise to the challenge or decide to work elsewhere.  Give them all the information to make their own life decisions.   Not everyone wants to work in a stressful and demanding environment, which is okay. 

For employees — wrap your head around the fact that you will always be stack ranked somehow.  It is your responsibility to grow in your job and perform at a high level or to find a job that will allow you to do so.  We are not in the paternalistic employer days of the 1950s; there is no guarantee of job safety anywhere – automation and globalization come for all of us.  Your career is in your hands and your hands only.