Leaders continually seek effective methods to evaluate employee contributions, identify top talent, and address underperformance. One of the most debated systems is stack ranking, an approach to employee evaluation used by major corporations and known for its rigid structure. Understanding its mechanics, consequences, and alternatives is valuable for anyone involved in performance reviews.
What Is Stack Ranking?
Stack ranking is a performance management system that evaluates employees by comparing them directly against one another, rather than against fixed standards. This method, also known as forced ranking or a “vitality curve,” requires managers to order their direct reports from best to worst. The system uses a predetermined distribution, often a bell curve, to categorize the workforce.
The most common model sorts employees into three tiers: the top 20% are identified as high performers, the middle 70% are core contributors, and the bottom 10% are underperformers. This forced distribution means that even on a team where all members meet their individual goals, some must be placed in the lowest category.
The system’s design is intended to combat “grade inflation,” where managers might give lenient ratings. By forcing a comparative ranking, it compels managers to differentiate talent levels. Former General Electric CEO Jack Welch popularized this “rank and yank” system, though many companies, including GE, eventually moved away from the strict model due to its cultural impact.
The Stack Ranking Process
Define Performance Criteria
The process begins by establishing clear, measurable performance criteria that align with the organization’s broader strategic goals. For credibility, criteria should move beyond subjective opinions and focus on objective metrics where possible, such as sales figures or project completion rates. This ensures the evaluation is grounded in tangible accomplishments.
Gather Performance Data
Once criteria are set, the next phase involves collecting comprehensive data on each employee’s performance over a specific evaluation period. This is a continuous process of gathering both quantitative and qualitative information. Quantitative data might include sales numbers or production metrics, while qualitative inputs could come from project reviews and peer feedback.
Conduct the Ranking Session
The central event is the ranking session, often called a calibration meeting, where managers come together to discuss their direct reports and debate their relative placements. Each manager presents their initial rankings, and the group collectively scrutinizes and adjusts them to ensure consistency across departments. This leads to a finalized, ordered list for the entire group.
Assign Employees to Tiers
With the ranked list finalized, employees are formally sorted into predetermined tiers, such as the 20-70-10 distribution. This is the “forced distribution” aspect of the system, where individuals are categorized as top, average, or low performers. This categorization forms the basis for subsequent actions and decisions.
Link Outcomes to Rankings
The final step is to tie specific consequences and rewards to each tier. Top performers often receive bonuses, promotions, and leadership opportunities. The middle group receives smaller rewards and development plans, while those in the bottom tier can face a performance improvement plan (PIP) or termination.
Advantages and Disadvantages of Stack Ranking
One of the primary arguments in favor of stack ranking is its ability to clearly differentiate performance levels across a workforce. It forces managers to have candid conversations about who their strongest contributors are, enabling the organization to strategically reward and retain top talent. This process also illuminates consistent underperformance.
The system also provides a structured framework for making difficult decisions regarding compensation and promotions. By creating a clear hierarchy of performance, it gives leadership a data-driven justification for allocating limited resources like bonuses and raises. This can reduce the impact of favoritism and align rewards with tangible contributions.
However, the disadvantages of stack ranking are significant and have led many companies to abandon the practice. The system fosters a competitive, zero-sum environment where an employee’s success can mean a colleague’s failure. This can undermine teamwork and collaboration, as individuals may become hesitant to help one another.
This method can damage employee morale and create a culture of fear. Being labeled a “core contributor” or “average” can be demotivating for the 70% of employees who meet expectations but are not in the top tier. The pressure of a forced curve can also lead to manager bias, exposing the company to legal risks if protected groups are disproportionately ranked in the bottom tier.
Best Practices for Implementation
For organizations that choose to use stack ranking, mitigating its inherent risks is a primary concern. A foundational best practice is to ensure the process is as transparent as possible. Leaders should clearly communicate the criteria being used for evaluation, how the ranking sessions are conducted, and what the consequences are for each tier. This clarity helps reduce employee anxiety.
Another important practice is to invest heavily in manager training. Managers must be coached on how to conduct evaluations based on objective evidence and minimize personal biases. This training should equip them to have difficult feedback conversations constructively, focusing on development even for those who land in the bottom tier.
The system’s fairness can be enhanced by incorporating multiple data sources beyond a single manager’s opinion. Using 360-degree feedback that includes input from peers, direct reports, and even clients can provide a more holistic view of an employee’s performance. Establishing a formal and accessible appeals process is another way to build trust.
Finally, it is wise to decouple the ranking from immediate, automatic termination. Modern best practice suggests using the bottom-tier designation as a trigger for a structured development plan rather than a direct path to dismissal. This reframes the system as a tool for improvement rather than solely a mechanism for punishment.
Alternatives to Stack Ranking
Given the drawbacks of forced ranking, many organizations have adopted alternative performance management systems. These modern approaches tend to focus more on continuous development and collaboration rather than direct competition. They provide a different framework for evaluating and motivating employees.
Popular alternatives include:
- Continuous feedback loops. Instead of a single annual review, this model emphasizes ongoing coaching, regular check-ins, and real-time feedback to help employees improve consistently. This forward-looking approach keeps performance conversations relevant.
- The 360-degree review. This method gathers feedback from an employee’s manager, peers, and direct reports. This provides a comprehensive and well-rounded view of an individual’s performance, highlighting strengths and areas for improvement.
- Management by Objectives (MBO). This involves managers and employees collaborating to set and agree upon specific, measurable goals, shifting the focus from comparison to personal achievement.