Microsoft is killing off its controversial stack-ranking system today. While it could be viewed as an internal change that won’t affect consumers directly, it will have a broad effect on current and future Microsoft employees that may just shape the future of the company. For years Microsoft has used a technique, stack ranking, that effectively encourages workers to compete against each other rather than a collaborative Microsoft that CEO Steve Ballmer is trying to push ahead of his retirement.

Stack ranking is a process where each business unit's management team has to review employees' performance and rank a certain percentage of them as top performers, or as average or poorly performing. Former Microsoft employees have claimed it leads to colleagues competing with each other, especially when some employees in a group of individuals need to be given poor reviews to match the method. It’s a system that’s similar to Yahoo’s new alleged internal process of ranking employees.

Could this end a cannibalistic culture?

In a closer look at Microsoft’s turbulent history and mixed management decisions, Vanity Fair contributing editor Kurt Eichenwald blamed a combination of Microsoft’s obsessive focus on Windows and Office and the company’s internal stack ranking-system for a "lost decade" and cannibalistic culture. Eichenwald interviewed a number of current and former Microsoft employees who all cited stack ranking as the most destructive process inside the software giant.

According to an internal memo sent to Microsoft staff today, the process is being axed. Microsoft HR chief Lisa Brummel issued the memo, according to sources who spoke with The Verge. "This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact," says Brummel in the memo. Microsoft is planning to focus on teamwork and collaboration, alongside an emphasis on employee growth and development. Brummel says there will be “no more curve” so that managers will be free to allocate rewards to teams and individuals as they see fit. A lack of ratings should help there too. Ultimately, the changes could help attract talent to the software giant as it looks to move beyond its Windows roots. Here's the full memo from Brummel:

To Global Employees,

I am pleased to announce that we are changing our performance review program to better align with the goals of our One Microsoft strategy. The changes we are making are important and necessary as we work to deliver innovation and value to customers through more connected engagement across the company.

This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact. We have taken feedback from thousands of employees over the past few years, we have reviewed numerous external programs and practices, and have sought to determine the best way to make sure our feedback mechanisms support our company goals and objectives.  This change is an important step in continuing to create the best possible environment for our world-class talent to take on the toughest challenges and do world-changing work.

Here are the key elements:

  • More emphasis on teamwork and collaboration.  We’re getting more specific about how we think about successful performance and are focusing on three elements – not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others’ success – and how they add up to greater business impact.
  • More emphasis on employee growth and development. Through a process called “Connects” we are optimizing for more timely feedback and meaningful discussions to help employees learn in the moment, grow and drive great results.  These will be timed based on the rhythm of each part of our business, introducing more flexibility in how and when we discuss performance and development rather than following one timeline for the whole company.  Our business cycles have accelerated and our teams operate on different schedules, and the new approach will accommodate that.
  • No more curve.We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution.  Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.
  • No more ratings. This will let us focus on what matters – having a deeper understanding of the impact we’ve made and our opportunities to grow and improve.

We will continue to align our rewards to the fiscal year, so there will be no change in timing for your rewards conversation with your manager, or when rewards are paid. And we will continue to ensure that our employees who make the most impact to the business will receive truly great compensation.

Just like any other company with a defined budget for compensation, we will continue to need to make decisions about how to allocate annual rewards.  Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams.

I look forward to sharing more detail with you at the Town Hall, and to bringing the new approach to life with leaders across the company.  We will transition starting today, and you will hear from your leadership in the coming days about next steps for how the transition will look in your business. We are also briefing managers and will continue to provide them with resources to answer questions and support you as we transition to this approach.

I’m excited about this new approach that’s supported by the Senior Leadership Team and my HR Leadership Team, and I hope you are too.  Coming together in this way will reaffirm Microsoft as one of the greatest places to work in the world.

There is nothing we cannot accomplish when we work together as One Microsoft.

Lisa