What is stack ranking?

Stack ranking is a performance measurement system that divides employees into certain percentages based on their capability in relation to other employees. Also known as “forced ranking” or “forced distribution,” this methodology assesses the number of people in each percentile category, both positive and negative, along a bell curve of employee performance distribution.

In the 1980s, former General Electric CEO Jack Welch created stack ranking when he theorized that 20% of the employees were at the top of the productivity curve, 70% were doing well but not exceeding expectations and 10% were underperforming. Combined together, these percentages make up the bell curve commonly used in employee ranking.

In a modern context, the numbers may vary, but the distribution remains more or less the same for many heavily-staffed companies:

• A small number of low-performing employees (i.e., 10% – 15%)
• A slightly larger number of exceptional, high-performing employees (i.e., 15% – 20%)
• The majority of employees who simply meet performance expectations (i.e., 65% – 75%)

By using this method, managers can identify and formulate management methodologies for top performers, mid-range performers and low-performing employees.

Related:What is the Definition of Performance Management?

The benefits and problems of stack ranking

Stack ranking tendencies along a bell curve of performance can be markedly visible and useful as a management metric in large, heavily staffed companies with plenty of internal bureaucracy. However, the entire process and philosophy behind it can start to break down when applied to smaller organizations whose staff interconnect in fluid ways. Let’s go into more detail on both the bad and the good about this methodology.

Pros of stack ranking employees

There are many reasons to try stack ranking in your organization, including:

• Increasedemployee motivation:Use a stack ranking system to reward the top performers on your team for their hard work. When these employees feel appreciated, they’re more likely to keep working hard to maintain or improve their performance. Mid-range and low-range performers can then strive to be better performers and gain recognition.
• More efficient hiring decisions:Seeing who the lower performers are can help you determine who needs additional training and support. If an employee remains in the lower-performing category after training efforts, you’ll be able to decide between letting them go or moving them to a different team or role.
• Improved overall performance: When you effectively use a stack ranking system to find and address performance issues, you can establish a more specific measure of employee accountability. This shows top- and mid-range performers that you value their hard work and are dedicated to making sure performance is recognized.
• Stronger company culture:Keeping employees accountable, valuing hard work and rewarding those who do perform well can promote a company culture focused on high achievement. This canimprove retention rates, especially among middle and top performers.

Cons of stack ranking employees

On the other hand, stack ranking is prone to a number of notable weaknesses that make it far from ideal for just any kind of company or internal corporate culture. If anything, stack ranking can quickly fall apart in its effectiveness if used outside of highly segmented, large and bureaucratic organizations.

With that said, you should keep the following cons in mind:

• Use of arbitrary performance metrics: A crucial part of the argument in favor of stack ranking is the notion that employee performance measurements are strictly objective. However, this may not be true in many situations. Managers can be just as human as anyone when it comes to overly subjective perceptions of employee contribution, and this can cause results that skew in certain directions regardless of real employee performance quality.
• Increased focus on quantitative performance measurements: Due to stack ranking’s statistical nature, managers must use more quantitative measurements to categorize employees. Some roles don’t have accurate or consistent quantitative measurements, and some quantitative measurements don’t reflect the quality of work being done. This may lead to a quantity-over-quality culture that may not be applicable in your business.
• Negative consequences of competitive culture: While the stack ranking system can lead to increased employee motivation, not every staff member will be happy with being compared to others. Managers can also be in competition with one another to make sure their teams perform well to avoid negative consequences. This environment can lead to unhealthy competition that promotes internal strife and unethical behavior, which can weaken company culture.
• Decreased employee morale: Having a high-competition culture can be beneficial in some industries, but it’s important to consider that this environment can also lead to employee dissatisfaction, mistrust and discouragement, especially among employees who fall into lower-ranking categories.
• Less innovation and creativity: When employees compete against one another, they’re less likely to collaborate and share ideas, both of which lead to more effective communication, innovation and creativity. All of these elements are essential in many workplaces, so if your team needs to be creative and collaborative, this system may hinder that.
• Possible inconsistencies in ranking results:Because the categories’ boundaries are so strict, higher-performing employees may fall into the lower-ranking category. Though they can complete training to help them improve, the system isn’t fully representative of those who are doing well but don’t quite make the mark. This can lead to narrow ideas of what good performance is and jeopardize the motivation of employees who do well but don’t improve.
• Decreased overall productivity: If the system is not properly used and managers aren’t able to foster a healthy environment, productivity overall could drop due to all of these factors.

Alternative methods to stack ranking

Stack ranking has declined across top companies—as many businesses now emphasize comprehensive feedback, improvement and collaboration—but many still use a numerical form of ranking to better help managers identify employees who can improve.

Here are some performance measurement methods you can use in place of or in combination with stack ranking:

• Calibration:Managers share their team or department rankings with one another, justifying each employee’s rank. This system requires managers to establish clearer and more consistent metrics, standardize grading efforts and create a more realistic system for accountability.
• 360 feedback:This process involves multiple employees and customers or clients reviewing a single employee. This gives managers a more comprehensive idea of an employee’s performance in many key areas—including those they could improve—to help managers tailor training efforts.
• Management by objective:Managers and employees collaborate to determine goals and outcomes within a set timeframe. Then, managersmeasure performance based on the employee’s ability to achieve those outcomes. Employees are more involved in their goal-setting, and managers can better understand what employees want to accomplish, which improves employee-manager relationships and communication.
• Peer review:Fellow team members provide feedback on each others’ performance. Since teammates are better able to understand what another teammate needs improvement in, managers can better tailor training efforts to help employees improve in the areas that matter most to the team’s performance overall.

Stack ranking FAQs

Has stack ranking been completely discredited?

No, it hasn’t. Despite having dropped significantly in popularity, stack ranking still has a place in certain types of corporate cultures and organizations, such as large, bureaucratic companies with rigidly defined expectations.

Can I take a hybrid approach to stack ranking?

Yes, it’s possible to apply stack ranking to a partial or limited degree in your company as a general rubric of employee performance. You can then apply other, less aggressive employee vetting and improvement strategies such as those listed above to create better workplace productivity.

Is stack ranking applicable to any type of large business?

One of the major criticisms of stack ranking is that it works best in larger business organizations with specifically defined workforce profiles. In large companies with a less hierarchical culture of cooperation among teams, the rigidities and competitiveness that stack ranking can provoke might be disadvantageous for productivity. Therefore, stack ranking is not ideal for all large businesses.