The Seattle area’s two big technology companies are Microsoft and Amazon. In 2013, Microsoft became one of the early major companies to overhaul its performance review process, eliminating stack ranking and adapting its compensation process to put more influence in the hands of managers. Now, Amazon is making changes of its own.
“We’re launching a new annual review process next year that is radically simplified and focuses on our employees’ strengths, not the absence of weaknesses,” Amazon told GeekWire in a statement. “We will continue to iterate and build on the program based on what we learn from our employees.”
Amazon was hit by criticism last year in a 2015 New York Times article on its performance management process, discussing its use of a real-time feedback tool that allowed employees to send praise and criticism about coworkers to their managers — anonymously – with some complications. Since then, Amazon has made a number of changes to address work-life balance concerns raised in the article, including opening up more opportunities for flexible work. This is the first major change to performance management, and represents and important shift in how top companies grow talent.
The stack ranking approach is designed to drive performance through competition and eliminate the lower 10 percent of employees based on performance to optimize output. With today’s workforce evolving to knowledge workers and more creative, customer-centric work, business goals are driven by impact, not basic productivity. Teamwork begins to outweigh performance. Companies need to develop their workers to win, not eliminate them.Companies need to develop their workers to win, not eliminate them Click To Tweet
Amazon’s approach is likely to reflect this new reality. Companies of all sizes need performance management that sets employees up to succeed to attract and retain the best talent. The new program is expected to start in February of next year.
Interestingly, Microsoft also changed its approach after a 2012 article in Vanity Fair that blamed stack ranking for its slowdown in innovation. Its new system gives managers more ownership of performance management. Instead of basing rewards such as raises and bonuses on an algorithm driven by employee ratings, managers are given a budget for compensation that they can hand out as they see fit, a topic we cover in our e-book on compensation without ratings.