Microsoft Ditches Its Employee Ranking System For Something Less Internally Destructive

This morning an internal memo inside of Microsoft detailed a new employee ranking system that will replace former policy. Microsoft’s former method for judging performance was widely considered backwards, poisonous, and generally a bad apple.

Tom Warren of The Verge published the memo this morning, and TechCrunch independently confirmed its veracity. A Microsoft spokesperson released the following statement to us: “These changes will encourage greater speed, creativity and teamwork to help us bring innovation to market faster and better serve our customers.”

The former system used a method of rating employees that encouraged strong employees to surround themselves with weaker workers to ensure that they would stay at the top of their cohort, with the requisite performance incentives and job security. That’s hardly a system that is conducive to strong teams and big new products.

Instead, performance reviews will now better match new product cycles so that employee results can be more accurately measured. Microsoft wants to ensure that workers slugging it out on long-term projects don’t forfeit bonuses, or other compensation boosts merely because they are in the trenches for a lengthy time.

The last caveat to this is that the company name-checks “leverag[ing] input and ideas from others, and what you contribute to others’ success.” This could foster better cross-department collaboration. Microsoft has long had infamously bitchy, bickering, and boxing business blocs. Its recent reorganization broke up former divisions in favor of more vertically distinct, and less overlapping, units. This forces teamwork. The Windows team needs to kick it with hardware, or the next Surface is going to be a weaker consumer experience, and so forth.

So the new groups need to get along, and what better way to encourage that by dropping some cash into the game?

On paper, Microsoft’s new ranking system has promise and could hardly be worse than what came before it. If it can dovetail neatly into the company’s new divisions, it could be a long-term boon for the firm. But for now it’s just a memo. Enjoy:

To Global Employees,

I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company.

This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives. This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world-changing work.

Here are the key elements:

More emphasis on teamwork and collaboration. We’re getting more specific about how we think about successful performance and are focusing on three elements – not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others’ success – and how they add up to greater business impact.
More emphasis on employee growth and development. Through a process called “Connects” we are optimizing for more timely feedback and meaningful discussions to help employees learn in the moment, grow and drive great results. These will be timed based on the rhythm of each part of our business, introducing more flexibility in how and when we discuss performance and development rather than following one timeline for the whole company. Our business cycles have accelerated and our teams operate on different schedules, and the new approach will accommodate that.
No more curve.We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.
No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.
We will continue to align our rewards to the fiscal year, so there will be no change in timing for your rewards conversation with your manager, or when rewards are paid. And we will continue to ensure that our employees who make the most impact to the business will receive truly great compensation.

Just like any other company with a defined budget for compensation, we will continue to need to make decisions about how to allocate annual rewards. Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams.

I look forward to sharing more detail with you at the Town Hall, and to bringing the new approach to life with leaders across the company. We will transition starting today, and you will hear from your leadership in the coming days about next steps for how the transition will look in your business. We are also briefing managers and will continue to provide them with resources to answer questions and support you as we transition to this approach.

I’m excited about this new approach that’s supported by the Senior Leadership Team and my HR Leadership Team, and I hope you are too. Coming together in this way will reaffirm Microsoft as one of the greatest places to work in the world.

There is nothing we cannot accomplish when we work together as One Microsoft.

Lisa