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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