Can you believe that a dozen years have passed since General Electric’s iconic CEO Jack Welch retired and passed the helm to Jeff Immelt? Despite the passage of time, Mr. Welch’s pioneering theories of human resource management still dominate the strategic policies and procedures of many firms.
Consider Welch’s theory of employee stacking, for instance. Under Welch’s leadership, GE implemented a policy of assigning each employee a performance grade once or twice a year. The top 20% were then rewarded with promotions and bonuses, and were groomed to become the future leaders of the firm.
And the bottom 10%? They were “encouraged” (euphemistically speaking) to leave the firm.
Welch argued that this policy appropriately purged his firm of under performers and provided suitable attention and support to star employees. And today, many firms still follow this policy. In fact, even companies that compete in industries where employees must collaborate in teams — such as Yahoo, for instance — are practicing this stacking technique.
But last week, Microsoft decided to abandon its stacking policy. The reason? Its executives concluded that the practice greatly discouraged collaboration between divisions and among employees.
It’s easy to understand why Microsoft would arrive at this conclusion. Let’s assume, for instance, that Microsoft assigns ten programmers to a project team that intends to develop a service that competes with Twitter or Facebook. And let’s assume that all ten programmers are equally competent employees.
What would happen if the Project Director tells the ten team members that, every six months, (s)he will be forced by Microsoft executives to identify two star performers for promotion and one under performer for dismissal? Even though all ten employees are equally competent?
Such a policy would inevitably result in the use of minor, or even trivial, factors to distinguish star performers from under performers. The programmers would thus start to compete with each other about minor or trivial matters, and would not collaborate to develop a service that could compete with Twitter or Facebook.
That’s exactly what is now occurring at Microsoft; it explains why the firm has decided to abandon its policy of stacking. And yet CEO Marissa Meyer of Yahoo! and executives at other organizations continue to implement the policy.
Thus, human resource professionals will likely debate employee stacking for the foreseeable future. Indeed, the theory appears to be as controversial today as when Jack Welch first pioneered it more than a decade ago.