A Couple Business Observations

I recently decided to leave my employer in order to take time off for personal professional development and recharging before exploring other opportunities. I want to share some of my thoughts regarding some common workplace practices, specifically Stack Ranking and Flat Management Structures, and how they harm retention of quality employees.

Stack Ranking Doesn’t Work

Stack ranking is a performance review process in which all employees (or those within a group) are ranked from top to bottom. A normal standard distribution is assumed, with a location parameter of 0.5, so everyone falls between 0 and 1.

The middle 68.2% - plus or minus one standard deviation – earn a score of a 3. The next standard deviation above, which is the next 13.6%, earns a score of 2. (This scale has 1 at the top and 5 at the bottom, but I’ve seen other organizations, like the US Army, have the scale flipped.) Similarly, one standard deviation below the middle group earns a 4. The top performers, representing the “best” 2.1%, earns a score of 1, and correspondingly the best raises. The bottom 2.1% often get fired or placed on performance improvement plans. (For this reason, stack ranking is often referred to as “rank and yank.”)

This means that:

84.3% of employees earn a score of 3 or worse.
Someone ranked in the 20th percentile has the same score as someone ranked in the 80th percentile.

What if you have a company of high achievers, or those who have previously performed at the top in high school / college / previous jobs, and now because of distribution, earn an “average” score? It often results in a high level of resentment – and attrition.

The other inherent problem is how the employees are stacked. Let’s be clear: this is no truly objective measure of an employee’s performance. (This is one of the inherent flaws in the various meritocracy arguments, along with unconscious bias.) Major factors that influence where someone is ranked include:

How important your project or team is perceived inside the company.
How strongly your manager is willing to fight for your placement with the other managers in your group.

Stack ranking needs to be eliminated as a performance evaluation system.

Flat Management Structures Don’t Work for Retention

In a flat structure, there are very few management levels – and often very few managers. The overwhelming number of employees are individual contributors. A manager can have large numbers of direct reports, from a half dozen to over forty. Flat management structures result in the following often unintended effects:

Individual contributors can have very little interaction with their managers, given how spread out they are.
Consequently, individual contributors can receive very little professional development or mentoring from their managers. (One of the things that the military absolutely gets right is that one of the primary roles of every leader is to prepare their subordinates to take their place. This doesn’t always happen in private industry.)
When a management position becomes open, you are competing with a high number of team members and individual contributors from other teams – assuming the company wants to promote from within.

The ones in power are the ones more likely to be promoted to higher positions, given that they are already managers. Power and authority are concentrated among the ones already in power, and those who aspire to leadership positions often face an insurmountable barrier. Like stack ranking, flat management structures have a detrimental effect on retention.