What's Happening?
Stack ranking, a performance management method, is being adopted by companies like Meta and Amazon to manage workforce efficiency amid rising operational costs and economic pressures. This approach involves
rating employees against each other and cutting those in the bottom performance percentile. While proponents argue it can sharpen performance insights, evidence suggests it often damages morale, increases attrition, and fails to address the root causes of underperformance. The method can lead to siloed work environments and limit the number of employees labeled as 'high performers,' potentially pushing high achievers to leave.
Why It's Important?
The adoption of stack ranking reflects the growing pressure on CHROs to deliver results in challenging economic climates. While it may offer short-term financial benefits, the long-term implications include potential damage to organizational morale and culture. Companies that focus on transformation rather than elimination may achieve more sustainable growth and resilience. The method's impact on employee collaboration and retention highlights the need for organizations to carefully consider their performance management strategies, balancing efficiency with employee well-being and development.
What's Next?
Organizations may need to reevaluate their performance management strategies, considering alternatives to stack ranking that focus on upskilling and reskilling employees. This could involve implementing continuous feedback systems and removing bias from performance ratings to foster a more inclusive and supportive work environment. As economic pressures continue, companies will likely explore innovative workforce planning models that prioritize long-term growth and employee engagement over short-term cost-cutting measures.
Beyond the Headlines
The reliance on stack ranking may reflect broader trends in corporate decision-making, where short-term financial gains are prioritized over long-term strategic planning. This approach can be influenced by executive compensation structures that incentivize immediate results. Organizations that shift towards more progressive workforce planning models may benefit from greater earnings growth and resilience, as demonstrated by studies on long-term focus. The cultural shift towards valuing employee development and collaboration could lead to more sustainable business practices and improved organizational outcomes.
