Why Stack Ranking Sucks and Yahoo! Inc. (YHOO) Should Drop It

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Yahoo! Inc. (NASDAQ:YHOO), under Marissa Mayer as CEO, is attempting to return to its former glory as a digital company. For the duration that Mayer has been in the leadership at Yahoo, a number of strategies have been tried to boost performance in the company. If you leave the acquisition of startups aside, one of the other strategies that Mayer has endorsed to lift Yahoo is the so-called stack ranking.

Restoring Yahoo! Inc. (NASDAQ:YHOO) to the glory that it once had as a digital company is the main challenge for Mayer.  Shortly after Mayer joined Yahoo, one of the strategies she brought with her from Google is a quarterly performance review of employees, also known as QPR or “stack ranking.”

Recap of QPR system

The QPR system was already being practiced at Google Inc (NASDAQ:GOOGL), Mayer’s former employer immediately before she joined Yahoo. Quite a number of companies in various sectors have tried QPR to help improve their overall performance. Besides Google and now Yahoo, Microsoft Corporation (NASDAQ:MSFT) also tried QPR, and like others, the company abolished the practice in 2013. QPR was practiced at General Electric Company (NYSE:GE) for a long time, and the results were good, prompting other executives to try it out, but without much success.

Quarterly Performance Reviews are a leadership construct whereby a workforce is graded in accordance with the individual productivity of its members.The system is also known as forced ranking, forced distribution, rank and yank, quota-based differentiation, and stack ranking. The thought is that employees should rate their peers with a grade, and the A players should be rewarded while the C players should be fired. Stack Ranking has numerous unintended consequences including making it more difficult on previous A players to keep raises, encouraging sabotage and encouraging employees to not hire players who may “raise the curve” too high for their own personal survival.

Calls to drop stack ranking at Yahoo

Mayer herself has admitted that QPR presents a complex challenge because of the weaknesses in the system. However, Yahoo! Inc. (NASDAQ:YHOO) still holds on to it, but experts say that the company should move with speed to abolish the practice because it is sucking. QPR has been known to kill innovation in the company. It also demoralizes employees that they cannot participate in projects freely, lest they fail and earn poor ranking scores.

As Yahoo! Inc. (NASDAQ:YHOO) makes efforts to restore itself, the company needs to foster innovation within its systems, which is QPR is not good for it. Furthermore, the company should learn from peers, such as Microsoft, why they had to scrap it.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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  • Dick Grote

    It’s disappointing that Neha Gupta
    has written an article on a subject about which he knows little and can’t even
    get the working terminology correct.

    What Yahoo and Marissa Mayer are doing is recognizing that Yahoo is in an
    extremely tough competitive position and, frankly, has been coasting for a long
    time. In order to inject some desperately needed rigor to the organization, she
    is embarking on a well-though-out process that involves using a relative
    comparison procedure to evaluate employee performance.

    “Relative comparison” examines the simple and important issue of an
    employee’s performance through a different lens in the performance management
    spectacles. Instead of asking the conventional question, “How good a job
    did George do against his goals and objectives?” (ABSOLUTE COMPARISON),
    the question Yahoo is now asking is “How good a job did George do compared
    with how well Sally and Bob and Mary did? (RELATIVE COMPARISON).

    It is a legitimate and needed process. Relative comparison drives the truth into
    performance management. But relative comparison, as Yahoo is using it, isn’t
    “rank-n-yank.” It certainly isn’t “forced distribution.” It
    isn’t “stack ranking.” These are all different procedures, and it’s
    disappointing that Neha Gupta wrote has article without understanding what is
    actually going on.

    Dick Grote

    • Mr. Grote: Please stop with the word games; this system is rank and yank. Trying to find a palatable euphemism is useless.

      Now, here is what you wrote in one of your papers, “Forced Ranking: Behind the Scenes”: “But what if a company’s forced ranking procedure, honestly and
      objectively done, reveals that the blacks or women or disabled employees
      just aren’t as talented as the white ones? Should they do what some
      Harvard professors are said to do and award A’s to all the blacks, just
      to keep them from squawking?”

      Would you care to provide an explanation for this statement?

  • Dhruv patel

    Hello sir
    My friend has forgat the his facebook account password….so how can solve this problem??

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