Microsoft is abandoning a ranking system that has been blamed for hampering innovation and pitting employees against one another, while it has been reported Yahoo CEO Marissa Mayer has adopted the same practice.
Employees Microsoft learned of the move yesterday in an email from Lisa Brummel, Microsoft's executive vice president of human resources.
It was also reported yesterday by Bloomberg and AllThingsD that Mayer, who banned home working earlier this year, that it would start employee rankings, although the company has not confirmed this.
The system, known as "stack ranking," has become emblematic of much that is wrong with Microsoft's corporate culture.
Employees have called it the most destructive process inside the company, blaming it for crippling Microsoft's ability to innovate, according to a Vanity Fair article, "Microsoft's Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant," published in June last year.
Stack ranking forced managers to give a predetermined proportion of employees in a team a top, fair or bad annual review, even when all team members did an excellent job.
This led to employees competing with each other instead of competing with other companies, according to one developer cited by Vanity Fair.
Now, though, Microsoft has decided to stop the ranking system, Brummel told employees via email. The email was shared with IDG News Service by Microsoft's German corporate communications department today.
"I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company," she wrote.
Stopping the rating system was one of the changes made: "No more ratings. This will let us focus on what matters - having a deeper understanding of the impact we've made and our opportunities to grow and improve," Brummel wrote.
Microsoft will also stop its pre-determined targeted distribution rewards program, she wrote, adding that managers will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget. This will make it easier for managers to allocate rewards, she said.
There will also be more emphasis on teamwork and collaboration. Microsoft will be more specific about what is deemed a special performance and will not only focus on the work an employee does, but will also evaluate how the employee uses ideas from others and what they contribute to others' success, she said.
Furthermore, there will also be more focus on employee growth and development. Through a process called "Connects" there will be more timely feedback to help employees learn, grow and drive results, she wrote.
The changes were devised after obtaining feedback from thousands of employees over the past few years, and following a review of numerous external programs and practices, she wrote. The transition to the new system started on Tuesday, she said.
Microsoft is currently undergoing a vast restructuring that is aimed to help the company innovate faster and operate in a more coherent manner. The restructuring should focus the company on a single strategy, said departing CEO Steve Ballmer when he announced the his plan in July.