Companies Are Laying Off Thousands Based on Stack Rankings – Why That’s Exactly the Wrong Approach

In October, the Washington Post reported details on Elon Musk’s plans for massive layoffs at Twitter. The paper revealed that Musk planned to use manager-driven stack rankings to decide which staff will go.

According to the Post:

“[Twitter] is instituting a performance review system called stack ranking that requires managers to grade employees on a numerical curve, so that a set percentage of workers will always be marked as low performers, according to one of the company documents obtained by The Post. The move has been protested by staff members, but Twitter says other tech companies have the same practices.

“…. Musk would then have built on those plans by first targeting low performers — people the company’s human resources system designated as ‘not on track’ or receiving below a 3 out of 5 rating — before moving to other phases of downsizing.”

Even worse, more recently Platformer reported that layoff decisions were also made based on two-sentence descriptions managers were asked to write on each direct report. Two sentences!

This exact scenario is playing out at thousands of companies across the US as they consider staff reductions and make difficult decisions about whom to let go.

I’ve spent the past two years helping companies improve the way they do performance reviews, and I can tell you that Musk’s approach is exactly the wrong tack to take. Manager-driven stack rankings result in people “managing up,” which rarely leads to keeping the best people — instead, you keep people who best know how to work the system.

As an alternative, I recommend a performance review based on Organizational Network Analysis (ONA), which considers the views of an employee’s in-company network, across departments — reflecting the networked way most people work nowadays. Companies can gather this input quickly with a short online survey.

Complementing hierarchical performance reviews with ONA can help balance the “managing up” phenomenon and identify valuable employees that companies can’t afford to lose. Instead of working to only identify the worst-performing team members, it’s more important to identify the true top-performing ones and then invest in retaining them. This is especially true in chaotic environments, as most would describe Twitter right now. There’s a good chance all this drama is already causing some of their best people to leave — if Twitter doesn’t act now, there won’t be anyone good left to keep.

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How ONA-Based Performance Reviews Work

ONA is an analytical tool for visualizing and analyzing relationships among people. In the context of performance reviews, that translates into asking employees a few specific questions to help identify which team members are making the greatest impact. Questions might include:

  • Whom do you consider to be a top contributor at the company?
  • Whom do you believe needs additional support or attention?
  • Whom at the company do you go to for help and advice?

Why is this effective? Because most of us now work in networked ways, not hierarchical ways. Instead of interfacing only with the same small group every day, we are cross-pollinating and collaborating with people from all over the organization. An engineer might work regularly with a product marketer or a salesperson. A finance manager may work with department heads across the organization. Inviting input from a broader group helps build a more complete mosaic of a person’s work performance and impact, smoothing out any biases that may be introduced when a review relies on just one person’s opinion (a person’s direct manager).

Importantly, this process is focused less on whom to manage out, and more on identifying a company’s superstars — the ones they need to develop and retain. Companies who use this technique tend to run mini-surveys using the questions above as often as monthly, constantly working to identify their best people. In the event a reduction in force is needed, they can then rely on this data to ensure they are keeping them.

That perspective and focus on keeping your best people is what will separate the best companies from the pack when the economy improves, as it inevitably will. If your company is still using stack rankings, it may end up populated primarily by staff who are adept only at telling managers what they want to hear — and that’s no way to build a successful company.

Joshua Merrill

Joshua Merrill
Joshua Merrill is co-founder and CEO of Confirm.

Joshua Merrill

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