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Amazon’s Use of ‘Stack’ Ranking for Workers May Backfire, Experts Say

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It’s not just the pallets in its vast warehouses. Amazon’s employees are also “stacked” based on their performance, and the ones near the bottom may find their jobs at risk.

A critical look at the corporate culture of Amazon.com by the New York Times this weekend raised questions about the company’s use of numerous “bruising” workplace practices to try to raise employees’ performance, including the use of an HR tool known as stacked ranking.

Stacked ranking – sometimes known as forced ranking – requires managers to assign their subordinates into buckets using a predetermined formula. For instance, a manager might be told to identify the top 20 percent, middle 70 percent and bottom 10 percent of their workers. The workers who end up in the bottom bucket often are put on performance-improvement programs, “managed out” of the company or simply terminated.

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Human resources experts say the practice can hurt employee morale and note that has been abandoned by several other big companies that used it. Many also warn that blind adherence to stacked ranking could give a company like Amazon trouble in the future, as the more social, collaboratively minded Generation Y grows in numbers and influence across the workforce.

"The millennials today, they’re not looking for a career, they’re looking for an experience," said Mark Murphy, CEO of leadership training and research company Leadership IQ. Millennials value flexibility and free time, and they like feeling that they're working toward collective goals — an ethos at odds with the highly competitive workforce stacked rankings can produce.

"They want a sense of purpose... being part of something that’s great," Murphy said. Push them the wrong way, and they'll stick around long enough to get the name on their resume, then bolt.

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"The fact is they’re coming in, they are the workforce and they're not going to deal with that environment for very long," he said.

First enshrined in management consciousness by General Electric under former CEO Jack Welch, forced ranking is an especially appealing idea in the tech sector, which tends to embrace the use of data and attract competitive risk-takers who want a fast-paced environment.

The need for a performance-evaluation system that rewards high performers and weeds out low achievers becomes particularly critical as a company matures, said Jonny Rejholec, senior product manager at HR technology company BambooHR.

“Everything moves so quickly in the tech sector,” he said. “Founders at the beginning of a company’s growth know where everyone stands and how they’re contributing. There’s definitely a need as a company grows to understand if your employees are engaged and if they’re productive.”

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Although the Seattle area’s other technology behemoth, Microsoft, abandoned forced ranking in 2013, variations of it remain popular at other tech firms. In his book “Marissa Mayer and the Fight to Save Yahoo!," author Nicholas Carlson highlighted a strategy the company rolled out in 2012 called “quarterly performance reviews” in which managers ranked workers on a curve, similar to stacked rankings. In an excerpt published on Business Insider, Carlson said the system was introduced by Mayer as an alternative to big across-the-board layoffs, but implementation led to some "unintended consequences," like workers prioritizing personal gains over team goals and struggling with morale issues.

HR experts say there’s merit in the idea of forcing managers to differentiate between top workers and unproductive ones and eliminating a sort of performance review “grade inflation” in which everyone gets a top mark regardless of performance.

“The thing that generally makes them appealing is that it forces everybody, every leader, to actually do robust performance reviews — that is, actually differentiate the scores of various employees,” Murphy said.

“The stacked ranking can be beneficial when it’s used properly to help get a picture of who are the higher performers,” agreed Amy Letke, founder and CEO of consulting company Integrity HR.

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But these accolades come with some pretty big caveats. The top challenge with forced ranking is that it can push a manager to label workers as poor performers even if they’re not, just to fill a quota.

“Once you start raising the bar, you’ve got to be really careful,” Letke said. “Maybe you have weeded out the lower performers (already).”

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That’s especially true in fast-moving, high-pressure fields like technology, she said. “The challenge is to put something in place that encourages innovation… without demotivating people.”

When bosses that excel at hiring, retaining and training employees are held to the same standards as their less-stellar counterparts, it creates a fundamental inequality, Murphy said. “As long as there are differences between managers and their ability to hire and develop people, [stacked ranking] is always going to cause problems at the fringes,” he said

Even proponents of the practice say poor implementation can create divisions and foster mistrust.

“I am actually a big fan of the exercise of stack ranking,” David Slight, an independent consultant who spent 18 years at Microsoft, said via email. “It requires critical thinking both about what contributions you are looking for and how your people are contributing.”

But he said companies need to be careful how they implement such a system, adding that he saw problems with it at Microsoft.

“Different teams had different criteria and different goals,” Slight said. “There was no equity and many teams ‘suffered’ even when they had made a fantastic contribution.”

“It no longer becomes, ‘How can people get better?’ It now becomes a game, and it’s a very selfish game of, ‘How do I rise up in the rankings at the expense of my co-workers?’”

Rejholec also said that a forced ranking system can become a distraction for workers.

“The forced curve that comes from the ranking isn’t giving you a true picture of what’s going on,” he said. “It no longer becomes, ‘How can people get better?’ It now becomes a game, and it’s a very selfish game of, ‘How do I rise up in the rankings at the expense of my co-workers?’”

“It’s a tactic that might be good in specific situations, (like) if you have a workforce that hasn’t had a talent review in a long time” said Vivian Rank, a talent management professional and a member of the Society for Human Resource Management’s HR Disciplines Special Expertise Panel.

“The problem is once you do it one year and then the next year, then what you’ve got is really great talent that you’d be trying to stack against each other, and that’s not productive,” she said.

While stacked ranking operates from the assumption that every department has slackers, that’s not necessarily the case, Rank said. “We can have a workforce where they’re all great performers. … They’re not racehorses.”