It's that mid-point review time of the year, and (surprise!) I feel that Microsoft's performance review and compensation system is outdated and sorely needing a major revision. Looking at the problems with the current system and where we want our employees to be going forward, what should the goals be for a new review and reward system?
I want to focus on the goals first, and I'll throw some of my own out there down below. Why focus on the goals first? Because I want to see what kind of system organically arranges itself to satisfy those goals. Right now, any sort of new system is going to suffer under arrows of "oh, it's so much more worse." Anyone and everyone can come up with reasons as to why we shouldn't change, just like I can come up with reasons why I think the current stank-rank-based-performance-curve compensation system is utterly busted. I think it helps focus on where we want to be, and then arrange a system out of that. Let's first see where we want to be, putting criticism and sarcasm aside, and see what kind of system can meet that challenge.
Articles folks have pointed out as of late:
- Forced Ranking: Making Performance Management Work. The article is by Dick Grote, who has a new book out about stack ranking / rank and yank.
- Excerpt from January 2006 HBR: Evidence Based Management.
- Business Week, Jan 09 2006: The Struggle To Measure Performance - interesting to read how Yahoo! is getting a rude awakening by implementing stack ranking. Perhaps we craftily implanted some borg HR technology over there with their ex-Microsoftie hires... watch out for those new hires, Google! You might start finding Mini-Microsoft less entertaining and more relevant if you're not careful.
In general, most companies are beginning to realize that there are fundamental problems with slavish devotion to some sort of bucketed based compensation system. It's certainly come to a head at Microsoft, now that we're not growing like gangbusters and the stock as been flatlined since 2001. Microsofties have had enough.
First of all: Microsoft shouldn't be determined to copy any other company's review system. Forget GE. We are not a GE so there's no reason to go to the altar of Jack Welch and implement his business scripture. There really isn't any other big-ass company like Microsoft out there given the background of our employees and the focus of our business.
Microsoft is entirely capable of creating its very own review and compensation system that best fits the needs of its employees and shareholders. We have the technology and brainpower to do this well (and, yes, the risk to fallback to some sort of consensus driven cluster fubar without strong leadership). To continue to copy and paste ideas from mismatching companies will only make things worse. We should be the leader here in coming up with a new review compensation system that other software companies eventually copy and implement because it's a good fit for them and for rewarding their staff.
What should the end results be? That our employees work in an environment where their compensation and performance management positively affects the quality and shipping frequency of the software that they design, implement, test, market, sell, and support, resulting in increased customer satisfaction and increased shareholder value. That the employees can see a direct correlation to their good hard work, the increase in quality of what's delivered to our customer, and the compensation that they receive. Employees do not succeed at the expense of other employees.
Note: I just banged these goals out one by one, not as a cohesive set, so some goals would be irrelevant if other goals got implemented.
Goal: when someone is justly fired, someone else on the team should not have to have their review suffer. "Huh?" you might say. Maybe even, "Duh, of course not." The scenario is when you have either a 2.5 performer or a person who is on the low-end of 3.0 rating and who is not reliably getting better. So you do the right thing for the company and move that person on outside of Microsoft. More than likely, that just opened up a new slot for the bottom of the stack rank and now someone else on the team who was getting a 3.5 now is at risk of getting a 3.0. And they haven't changed what they are contributing to the company at all. It's an evil sort of Tetris, and they just went down a notch for no fault of their own.
Once you're a manager and you go through this painful experience ("why oh why did I ever fire that knuckle-dragger?!?"), do you think you'd want to support getting rid of someone if that means now more good people are trended downwards?
I personally believe one reason we have a hard time getting rid of people is just because it's nice to have your consistent low-end 3.0 folks around to fill the bottom (hell, there are even some managers who go out purposefully to hire 3.0 quality people to push up the bottom and increase rewards for their current team). Maybe the lifetime 3.0s are plain happy to have their job and benefits. What looks like win-win is lose-lose in too many ways.
Goal: people are rewarded based on their results and not relative to their peers. The whole performance-curve based relative to your peers trended-downward score legacy that we still limp along with should be taken out back and shot out of its misery. I want to give honest review results and not have to re-message someone's review according to the bucket they got fit in. Trust me to manage honestly. If you don't trust your managers to honestly run the performance review, it sounds like you've identified some managers Microsoft could do without.
Goal: you should be able to give true, encouraging feedback anytime. Good feedback, or feedback of anysort, should not have to be an encoded game about communicating people's potential rating to help motivate or scare them. Maybe I'm a bad boss. But I spend more time finding things that people do wrong and getting them on track because I don't want them trended downwards and risk getting a dreaded 3.0. We spend more time managing our "at risk of 3.0s" than supporting our 4.0s and pushing our 3.5s to be 4.0s.
Goal: dump the loose-structured Word review document and make someone's performance a living website. I can't imagine that we're going to continue with that Word review document much longer... it's so 1995. The problem with it is that most people dust off their previous review / mid-point once every six months. They go to the eval site, probably wondering, "La dee da... hmm, what were my commitments anyway? Whoa? Really?"
We're bright, good looking people and we should be able to figure out how to discard the Word form for a web site that can even be used to drive weekly 1:1 sessions. A place where commitments can be updated quickly and feedback can be dropped in anytime. And maybe even a place that you can track enough progress through the year that it merges together most of your formal review when the time comes, with a little bit of editing on your part.
A website like this should easily accept:
- Feedback directly to you, anonymous if need be, regarding your work. Kudos or constructive criticism.
- Feedback to your manager regarding your performance, areas where the manager might want to consider focusing. Mentors to the employees could us this to provide feedback to the manager.
And maybe we can even come up with our own version of Microsoft achievements, like Xbox Live, that people can share on their personal my-site. Get a gold star direct from the VP? Brag about it if you want (yeah... okay, maybe bragging on that is not a good idea).
Goal: anyone can provide positive or constructive feedback anytime, and not have to deal with consequences in the stack rank arena. I've been a goo-goo-eyed optimistic in the past, proactively engaging in deep one-on-one feedback with my management peers about my, and their, team members. Oy, did that honest sharing put me at a disadvantage come stack-rank time when they pulled out the knives and tried to wipe the floor with me and all the issues I'd been dealing with. I'd much rather brainstorm with my peers about how my reports (members on their same product team) can improve their career and results and not worry that this will be shot back at me come stack rank time. I value their feedback, but for right now, I'm keeping my mouth shut and probably missing out on some great advice. And expert backstabbing.
Goal: managements commitments are public. Anyone who is a leader makes their commitments visible to anyone in their group, at any time. Your skip-level-manager reviews every manager's commitments and provides relevant feedback. Maybe your commitments show up on your internal my-site and change with your edits according to circumstances. These commitments are made available during your management review for your reports to provide feedback upon.
Goal: management feedback is broadly open. Anyone can provide feedback on someone who leads. Sort of a consequence of the above goal, where management feedback should also be based on the manager's commitments. When I find a person doing a good job of leading, I send their manager an email letting them know. I'd like a better system for collecting this, along with any constructive feedback. An end goal of this is that it becomes very clear who are the good managers and who are the managers with problems. If everyone is saying we have a management problem but there's no way to find the good and bad managers, let's start breaking out the spotlights.
Goal: if you do a good job contributing to Microsoft, your raise starts at the increased cost of living for your region; any merit is added onto that. As part of transparency, you're notified what your region's cost of living is. If you see that your raise is less than cost-of-living, you hopefully take this as a message that you're not very much valued for your contributions. For now, folks on the low-end of 3.0 should be the only ones not getting a cost-of-living increase. I just don't see why, if a person is doing a good job, that a person should be earning less effective money this year than last year. Are we just doing it because folks, up to this point, have been too busy to notice that they are getting paid less year-by-year? That they should be happy and thankful for just having a job? Well, if that's the message, deliver it honestly that way versus tiny or no raises.
Goal: if stack ranking stays around, I can find out where I am in the stack rank and why. And how I can improve my placement. For instance, some teams end with a nine-bucket stank rank (where you want to be in the first bucket, and you're probably going to be looking for a new job soon if you're in the last bucket). Where did you end up? Why did you end up there? What was valued in your team regarding the people who ended up above you? So many people just get a rating (3.0) and then have to, if they have deft corporate skills, figure out what the heck to do in their particular team to succeed. You're not going to find a whole lot of peer support for that.
Goal: reward for individual excellence. I believe we still have to keep this. For team members / individual contributors, this is probably a majority of their reward still.
Goal: reward for team excellence. If your team rocks the world, your whole team deserves an excellent extra dose of compensation. If your team sucks rocks, well, I don't see the need to lavishly compensate your failures. As you go up the management chain, this increasingly becomes the majority of your performance compensation. I think a lot of people will stress out over implementing team compensation. Perhaps up front it's never punitive but reward only.
Goal: more transparency. A broad statement... how about a small example. Eh, I'd like to bring up a page to see everything my manager can see about me. What's my stock rating? I'd furthermore like to see that information in somesort of comparison to my team. As long as you're comparing me against my anonymized peers, roll it all up and let me see it, too. If not, why? What, it would cause an uprising? Your system is pretty busted if it would cause hard-feelings and rebellions if people knew more about their compensation within the big picture.
I'd go so far as to say that your team's stack rank results should be available for people to see. Dangerous and potentially demoralizing? Dude, again, it already is.
Other goals? I don't mind some criticism here, but right now I'd rather cast our nets for goals around a revised system that would be win-win-win-win for Microsoft, Microsofties, customers, and shareholders. What would you value most in a revised performance compensation system?