Performance Reviews Get Two Very Different Overhauls at Microsoft and Yahoo

Five Tips to Keep the Best IT Staff on Board

Employee evaluations are on the minds of many at year’s end. They’re in the news, as well, as Yahoo and Microsoft have both recently announced and begun to implement new performance review processes. Making for an interesting compare/contrast situation, the two tech giants are moving toward very different approaches.

Under the direction of CEO Marissa Mayer, Yahoo employees earlier this year famously had their work-from-home privileges largely removed. Heavy analysis of that policy change was largely critical in terms of employee morale, while acknowledging that the switch could be an efficient means of tightening up management practices and getting rid of part of a bloated staff. Now, a major shift in performance review processes at Yahoo has created fresh confusion and fear among managers and staff. The two workforce management decisions at the company are definitely linked, David Lewis, president and CEO of OperationsInc., told me when I interviewed him about the forced curve or “employee stacking” approach that Yahoo is now using:

They’re saying that managers do a lousy job of managing people who work remotely, and of assessing performance levels. Rather than fix those two issues, they will artificially alter the results of poor management.

The main issue for critics of employee stacking in the review process is that it forces managers to “grade on a curve,” giving a portion of their reports very low rankings. In some companies, as has been claimed by Yahoo managers, these low rankings then lead directly to terminations. The problem is that even a team of superstars will of necessity end up with a range of rankings, from high to low. The worst-case results: competitiveness, fear, stress and possibly loss of productivity.

At Microsoft, that sort of competition-inducing performance review process is being replaced with one that revolves around a more collaborative focus. Rather than ranking individuals from 1 to 5, managers will now provide feedback more frequently, focus on motivating employees’ teamwork and collaboration, and be free to distribute rewards less rigidly, within their total compensation budgets. Lewis sees the shift as a potentially positive one, but warns, “We’re talking about one of the largest organizations in the world. It doesn’t feel like they’ve given themselves enough time for this system to work for everyone.”

And despite Microsoft’s desire for this and many more major policy and procedural changes to create “One Microsoft,” inadequate planning could send the company swinging back in the direction of its former, more rigid and competitive reviews. As Lewis told me, the risk to the confidence and morale of the entire company is huge:

When you throw this out there, when you make this radical shift, if you put it on the managers’ desks without getting behind it, it’s suicide. The way to do it correctly is to address the changes with management. Say it will be a pain in the butt. Hold a focus group style, working meeting, where managers will raise concerns and questions. Figure out how to address those concerns, and how to move forward in a positive way. They may not be happy, but they’ll feel they helped develop the system. If you throw it out to them without planning, managers will find it easy to rebel. They will say “I can’t use this form, I don’t agree with this.” You’ve created an easier path to mutiny, and you will revert back to the old system vs. create support for the new one.

Stacking isn’t all negative, Lewis said, as it forces managers to be more thoughtful in their reviews, but it won’t solve the underlying issue:

Managers overinflate ratings. The root cause is that they don’t understand how to appraise effectively and use appraisals as a motivational tool.

Companies need to invest more time in training in how performance reviews should go, how to thoughtfully compile and strategically communicate them. With proper training, this translates to a five-person department of people who are all superstars, all getting great ratings. And there’s nothing wrong with that.