Yahoo employee quarterly performance review
| Company type | Public |
|---|---|
| Industry | Conglomerate |
| Founded | April 15, 1892 in Schenectady, New York, United States |
| Founder | Thomas Edison, Charles A. Coffin, Elihu Thomson, Edwin J. Houston |
Key people | Jack Welch (former CEO) |
| Products | Various industrial, financial, and consumer products |
| Website | www |
A vitality curve is a performance management technique that evaluates employees by comparing them directly with their peers. Also referred to as stack ranking, forced ranking, or rank and yank, this method was introduced by GE's Jack Welch during the 1980s and continues to provoke debate. Although widely implemented, many organizations apply it discreetly to minimize backlash.
Overview
Jack Welch implemented a "20-70-10" vitality framework at General Electric, categorizing the workforce into three groups: the top 20% are deemed highly productive, the middle 70% meet expectations, and the lowest 10% are considered underperformers who should face dismissal.
The "80-20 rule," also known as the Pareto principle, which states that roughly 80% of results stem from 20% of causes, reflects similar distribution patterns in social dynamics. These patterns often correspond to a Pareto distribution curve.
Ratings
In his 2001 publication Jack: Straight from the Gut, Welch explained his approach to classifying GE’s senior executives into "A", "B", and "C" categories, admitting that these distinctions were sometimes imprecise.
Traits typical of "A" players include:
- Strong passion and dedication to achieving outcomes
- Receptiveness to ideas regardless of origin
- Considerable potential for advancement ("runway")
- Charismatic influence that motivates themselves and others
- Capacity to enhance both productivity and workplace satisfaction
- Embodiment of the "four Es" of leadership:
- Elevated Energy
- Ability to Energize colleagues toward objectives
- Possessing the "Edge" necessary for difficult decisions
- Reliable Execution
"B" players, while generally less ambitious or innovative, constitute an essential majority. Conversely, "C" players are often nonproductive, tend to procrastinate, sap team energy, and fail to fulfill commitments.
Consequences
Welch recommended terminating "C" players while offering promotions, bonuses, and stock options to "A" players. Yet when these incentives become a substantial and predictable part of an “A” player’s compensation package, they may generate perverse incentives. The widespread use of stock-based rewards complicates efforts to mitigate such unintended effects.
Prevalence
Determining how widespread forced ranking is proves difficult because many companies rebrand these systems as "talent assessment" or "performance management" programs. Nevertheless, studies reveal a downward trend. A 2006 Bloomberg Businessweek report estimated that about one-third of U.S. firms employed peer-ranking systems. The Institute for Corporate Productivity noted a decline from 42% usage in 2009 to 14% by 2011.
By 2013, approximately 30% of Fortune 500 corporations were believed to use some variant of ranking methods—often under different names. In that year, a WorldatWork survey found that 12% of U.S. businesses applied it, while a CEB survey indicated a rate of 29%. By 2015, CEB research showed only 6% of Fortune 500 companies had officially discontinued forced ranking but did not clarify current adoption levels.
Morale
Stack ranking fosters a competitive environment likened to Darwinian "survival of the fittest," which can demotivate employees and reduce engagement. This internal rivalry may undermine collaboration, creativity, and innovation while diverting focus from external market competition. Moreover, high-performing teams risk losing members as individuals anticipate receiving lower rankings compared to less capable groups.
Cost
According to CEB, managers dedicate over 200 hours annually to activities related to performance reviews, including both training and evaluation processes. For an organization with a workforce of 10,000 employees, this effort equates to an estimated annual expense of around $35 million. Additionally, employees who are terminated often move on to work for rival companies, thereby transferring valuable expertise to competitors.
Discrimination
Forced ranking methodologies have resulted in biased outcomes and allegations of discrimination. Employees from companies such as Microsoft, Ford, and Conoco have initiated legal actions against their employers, claiming these systems disproportionately advantage certain demographics—favoring white males over minority groups and women, younger supervisors over older ones, and non-U.S. citizens over American workers. For instance, Ford abandoned its forced ranking approach with fixed quotas (10%, 80%, 10%) following a $10.5 million class-action lawsuit settlement.
Lack of empirical evidence
Opponents contend that forced ranking perpetuates substandard performance by arbitrarily designating a fixed portion of employees as underachievers regardless of their actual contributions. Authorities like Jeffrey Pfeffer and Robert I. Sutton emphasize the scarcity of solid empirical data supporting the efficacy of such systems within organizations.
Unrealistic assumptions
The model presupposes that employee ratings remain unchanged over time. In practice, the apprehension of being classified as a "C" performer frequently drives individuals to enhance their performance, thereby decreasing the proportion of low-rated staff.
Critics argue that the 20-70-10 framework oversimplifies complex human behavior. While it may be applicable in randomly assigned tasks, repeated application tends to elevate overall employee quality by increasing the number of "A" performers and reducing the "C" category to less than 10% of the workforce.
This system can also restrict mobility between departments; for example, an employee rated as "C" in Customer Service might find it difficult to transfer to Marketing even if their skills align with an "A" rating in that area.
Management philosophy
The rank-based competitive model attracts criticism for its ethical implications and operational effectiveness. Concerns include fairness in selecting "C" players, impacts on workplace politics, morale, productivity, communication, and potential encouragement of unethical conduct. Such evaluation methods have been associated with aggressive corporate cultures and dishonesty. At Enron, these systems devolved into politically motivated favoritism. Forced ranking fosters a zero-sum environment that discourages collaboration and teamwork, shifting workplace dynamics from altruistic behaviors toward self-interest.
This approach sharply contrasts with management philosophies like those of W. Edwards Deming, which played a significant role in Japan’s industrial achievements. Deming criticized merit-based evaluations as one of his "Seven Deadly Diseases," stressing that organizational success relies on systems designed by management rather than individual merit assessments. He regarded forced ranking as detrimental to organizational well-being.
Specific examples
Ryan Smith, CEO of Qualtrics, observes that stack-ranking is suitable for evaluating sales personnel due to its competitive nature but proves less effective for engineers who require collaboration.
A 2006 study from MIT referenced by Bloomberg Businessweek highlights limitations of forced ranking during downsizing: when firms reduce headcount, the forced distribution compels managers to classify some high performers as average or below average, which undermines motivation among top talent.
MIT Research Fellow Michael Schrage points out a paradox in successful organizations using forced ranking: as overall employee quality rises, distinctions for rewards become increasingly arbitrary, resulting in subjective decisions regarding personnel. High achievers are simultaneously encouraged to cooperate while competing within what amounts to a “rigged game” akin to musical chairs managed by supervisors.
IBM
IBM has implemented a vitality curve framework known as Personal Business Commitments (PBC) since prior to 2006. This approach is designed to lower labor expenses by reallocating employees to regions with reduced costs through a seemingly objective justification. The PBC methodology enforces corporate distribution quotas cascading from upper to lower management tiers, involving managerial discussions where supervisors vie for a limited number of top employee rankings. An individual’s evaluation is influenced not only by their direct manager’s judgment but also by the standing of that manager within the organizational hierarchy—managers with higher internal ratings often have subordinates ranked more favorably.
AIG
During Bob Benmosche’s tenure, American International Group (AIG) introduced a five-level performance rating system in 2010 with a distribution of 10%/20%/50%/10%/10%. The highest 10% ("1s") are awarded the most substantial bonuses; the following 20% ("2s") receive smaller incentive payments; the majority ("3s") obtain minimal bonuses. Employees rated "4s" do not earn bonuses, while those classified as "5s" face termination unless their performance improves. Jeffrey Hurd, AIG’s senior vice president of human resources, explained this replaced a previous model where nearly all employees were rated above average, thereby providing clearer differentiation in performance.
Yahoo
In 2012, Yahoo CEO Marissa Mayer launched the "QPR" (quarterly performance review) system, categorizing staff into Greatly Exceeds (10%), Exceeds (25%), Achieves (50%), Occasionally Misses (10%), and Misses (5%). By the fourth quarter of 2013, these proportions were revised to Greatly Exceeds (10%), Exceeds (35%), Achieves (50%), Occasionally Misses (5%), and Misses (0%). This updated framework resulted in approximately 600 layoffs toward the end of 2013.
Amazon
According to The New York Times, Amazon conducts an annual Organization Level Review during which managers engage in rigorous discussions to assign employee rankings within a structured matrix. Unlike companies such as Microsoft and General Electric that have discontinued stack ranking due to its inherent risks, Amazon persists with this practice, frequently pressuring supervisors to let go of some talented individuals in order to fulfill ranking quotas.
The evaluation process is highly demanding, requiring managers to prepare detailed documentation defending or critiquing employees. Tactics include identifying "sacrificial lambs" to shield essential team members. This competitive atmosphere has been associated with Amazon’s gender disparity—contrasting with peers like Facebook and Google, Amazon has fewer women in senior leadership positions.
While former Amazon workers are prized for their robust work ethic—benefitting local recruiters and firms such as Facebook expanding in Seattle—their reputation for intense competitiveness has caused some organizations to hesitate before hiring them. Within the local community, Amazon employees are sometimes colloquially referred to as "Amholes" due to the company’s aggressive workplace culture.
Other companies
Additional prominent adopters of this system include Dell, Cisco Systems, Conoco, and Canva.
Microsoft
Beginning in the early 2000s, Microsoft utilized a stack ranking approach comparable to the vitality curve. Leadership noticed that top-performing developers often avoided collaboration with other high achievers out of concern that cooperation might negatively affect their rankings. This fostered internal rivalry at the expense of innovation, fragmenting teams into isolated “non-cooperating fiefdoms” and impeding responsiveness to technological advancements. The system was generally kept confidential from non-management personnel.
As early as 2001, Microsoft faced legal challenges regarding its forced ranking system, criticized for perceived unfairness and favoring sociability over meritocracy. At that time, Microsoft publicly denied employing a “stack rank” method.
Despite ongoing criticism, Microsoft formally embraced a vitality curve system in 2006. Anonymous internal blogs discussing “the curve” prompted employee discourse. By 1996, managers allocated performance reviews according to fixed percentages—25% received low scores, 40% mid-range, and 35% high—leading some supervisors to retain underperformers strategically to avoid penalizing top talent with low ratings.
In April 2011, CEO Steve Ballmer introduced a clearly defined vitality curve model linking performance evaluations directly to compensation adjustments. This model segmented employees into five predetermined performance categories with corresponding pay modifications; those placed in the lowest category faced restricted advancement opportunities and possible dismissal.
Following Ballmer’s departure, on November 12, 2013, HR leader Lisa Brummel announced the discontinuation of stack ranking at Microsoft. The practice had attracted extensive media attention, notably after Kurt Eichenwald’s 2012 Vanity Fair article titled "Microsoft’s Lost Decade," which highlighted the detrimental effects of forced ranking on corporate culture and innovation. Internal opinions varied; however, negative publicity ultimately led Microsoft to abandon the system.
General Electric
General Electric stands out as the most prominent organization to apply this corporate management technique. During Jack Welch's tenure, the method—commonly referred to as "rank and yank"—centered on removing the lowest-performing 10% of employees. After Welch's exit, the company transitioned away from this rigid appraisal system, shifting its focus toward fostering teamwork. By 2015, GE had officially phased out the ranking practice.
Other companies
A number of leading corporations have similarly discontinued this approach, including Ford (2001), Adobe Systems (2012), Medtronic, Kelly Services, New York Life, Juniper Networks, Accenture (2016), Goldman Sachs (2016), and Gap Inc. These organizations moved beyond forced ranking in favor of more cooperative and adaptable performance management models.
See also
- Jack Welch
- Enron
- Up or out
- Elo score (metaphorical meaning)
External links
Articles
- Shyamal Majumdar: The rank-and-yank appraisal system, April 2003
- Sam Pizzigati: "Jack Welch: How He Really 'Won'" archived from the original in April 2005
- "Human Resource Management", Steve Gall – examines stack ranking at Microsoft, 2005
- "The Management Approach Guaranteed To Wreck Your Best People" by Erika Anderson in Forbes, July 2012