Stack ranking is a controversial performance evaluation system that many companies have used over the years.
This guide will overview stack ranking and discuss its key features, rationale, benefits, appropriate usage, and alternatives.
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Background on Stack Ranking
Stack ranking, also known as forced distribution ranking, is a performance appraisal method where employees are ranked relative to one another into different performance tiers.
GE popularized the stack ranking system in the 1980s, and other organizations, such as Microsoft, Ford, and ConocoPhillips, later adopted it.
What is Stack Ranking?
Stack ranking involves managers ranking their team members against each other based on performance and contributions.
The employees are then sorted into different “stacks” or groups—typically the top 20%, middle 70%, and bottom 10%. Resources like promotions, bonuses, and sometimes even termination decisions are allocated based on these rankings.
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Rationale Behind Stack Ranking
The rationale behind stack ranking is that it provides an evaluation and project-based system based on relative performance rather than absolute performance.
Managers can identify top and bottom performers by comparing employees. We hear this from customers who regularly use our employee and leadership courses.
The system is meant to reward top performers and encourage bottom performers to improve or leave the company.
7 Key Features of Stack Ranking
Here are some key features of a stack ranking system:
- Forced distribution: Employees are distributed along a bell curve, with a fixed percentage in the top and bottom tiers.
- Ranking relative to peers: Employees are evaluated based on performance relative to peers rather than absolute standards.
- Ranking occurs at the team/department level: Employees are ranked within their teams or business units.
- Repeated periodic rankings: Rankings are conducted periodically, like annually or bi-annually.
- Resources allocated by rank: Promotions, compensation, etc, are decided based on rank.
- Low performers are encouraged to leave: Bottom-ranked employees may be pushed to resign or terminated.
- Creates competition: By nature, stack ranking fosters competition as employees compete for higher ranks.
Benefits of Stack Ranking
Proponents of stack ranking highlight these potential benefits:
- Identifies top talent and improves retention of top performers.
- Identifies poor performers so appropriate action can be taken.
- Creates a culture of performance by fostering competition.
- Provides a quantitative way to distribute rewards like compensation and promotions.
- Encourages employees to work collaboratively within teams.
When to Use and Not Use Stack Ranking
Stack ranking may be suitable when:
- There is a need to drive performance and productivity aggressively.
- Clear, measurable performance metrics are available.
- The organization is comfortable with the high turnover of low performers.
- Work is individual rather than collaborative.
Stack ranking may not work well when:
- Strong teamwork and collaboration is required.
- Performance is dependent on factors outside an employee’s control.
- Low performers leaving can risk critical knowledge loss.
- Morale and trust need to be built in an organization.
- Quantitative performance data is unreliable or unavailable.
8 Alternatives to Stack Ranking
Companies today are increasingly moving away from stack ranking systems and trying alternatives like:
- 360-degree feedback: Feedback is taken from peers, subordinates, and managers – not just top-down.
- OKR – Objectives and Key Results: Goals and metrics are set at the team level.
- Check-ins: More frequent and informal performance discussions.
- Peer feedback: Feedback from colleagues as well as managers.
- Skills-based assessment: Evaluating growth in capabilities versus relative performance.
- Manager discretion: Giving managers flexibility rather than forcing rankings.
- Absolute rating: Rating employees on pre-defined standards.
- Self-evaluation: Employees assess their performance.
Conclusion
While stack ranking was once very popular, it has fallen out of favor due to negative competitive culture and impact on morale.
Companies now gravitate towards more holistic, collaborative, and discretionary evaluation systems.
However, if implemented relatively, stack ranking may still be relevant for some roles where individual output is paramount.
The key is choosing a performance management philosophy that aligns with the organization’s culture and objectives.
With 30+ years of experience, Catherine Fitzgerald, B.A., M.A., PGDip, founded Oak Innovation in 1995. Catherine received her Bachelor’s degree and Master’s from University College Cork. She holds qualifications in Professional Development And Training from University College Galway. She is completing a second Master’s from University College Cork. Since 1995, clients include Apple, Time Warner, and Harvard University.