Microsoft Changes Performance Review Scoring

Microsoft Logo

Microsoft just announced a number of changes in personnel policies designed to improve sagging morale. Good for them. It’s the result of a year of work by a longtime colleague of mine and now SVP of HR, Lisa Brummel. According to the reports, she spent a year listening to people and came up with a range of changes designed to stem the tide of people leaving.

Most news reports have focused on things like putting towels back in the locker rooms and giving senior people more stock, which are all well and good. But one point that was overlooked and seems intriguing is the changes they made to the scoring of performance reviews, a personal hot button of mine.

One point that was overlooked is the the scoring of performance reviews

For decades Microsoft has done performance reviews with a rating system that was graded on a 10 point scale, from 0-5 on 0.5 point increments (in a rather silly attempt to avoid the look of a “beauty contest”). The ratings generally went like this:

  • 5.0 – You walked on water, then turned the water into a nice Merlot. Almost impossible to reach, given to maybe one person a year, I saw perhaps 5 in my career there. Used to mean you would get a surprise 1-1 visit from BillG in your office.
  • 4.5 – Outstanding work, really above and beyond the call. Used to mean something like 100 hour weeks, and with amazing results. Hard to get more than one of these without a promotion. Very small percentage of people: < 1%.
  • 4.0 – Great work, excellent results, clearly leading the pack. Something like 10-15% of the people would get this score.
  • 3.5 – Solid work, well done, everything is fine. Most people (e.g. 70+%) would get this score.
  • 3.0 – You have a number of things to work on, some of them are threatening to your livelihood. You must improve or you are at risk. This was managed by HR to be about 10% of the team. There was always pressure for managers to give someone a 3.0, although the 10% was never rock-solid. But come on, SOMEONE on that team isn’t doing everything perfectly. If you got a string of 3.0s you are in trouble.
  • 2.5 – This is the first step before the exit. If you get a 2.5 and don’t get fired, it means you got the message. If you get a 2.5, you had better either have an exit plan, or be working your butt off to save your job.
  • 2.0 – Security is waiting outside my door to take your badge and help you pack.
  • 0 – 1.5 were unused.

This system worked fine for years (e.g. the last 25 years), but was always a source of complaints. Some people didn’t like the subjective nature of reviews –- come on, performance reviews are subjective, that’s why you do them. Some people didn’t like being rated like cuts of beef (oh, get over it, you’re rated every day by your salary, by your peers…). But the biggest point of pain seemed to be the requirement for people to give a reasonable percentage of people a 3.0 or lower.

This can be seen as a Jack Welch’ian “toss out the bottom 10%” but in fact it just stemmed grade inflation. And reasonably speaking the world is not Lake Woebegone where everyone is above average. Some people in every group need to improve. So Microsoft required groups of more than just a few to have something like 10% rated 3.0 or below. This is just reasonable.

Now, in this new system they have gone away from numbers and gone to words. As I understand it, there are now three categories: “Exceptional”, “Strong”, and “Needs Improvement”. Seems to me that is the same as 4.0, 3.5, and 3.0 — but nobody asked me.

My concern is where it should be: at the top

More importantly, however, this has made a good system worse. Not at the bottom of the scale, where it simply replaced a number with a name — they still need to worry about grade inflation, and there will still be groups that get told “oh, come on, you have to have at least some ‘needs improvements’.” No, my concern is where it should be: at the top.

Rewarding good performance is at least as important as correcting poor performance. And now Microsoft has lumped all good performers together in a lump. No longer will the true stars stand out from the really hard workers. No longer will people who achieve “Exceptional” (aka “better than average”) have motivation to strive for more.

And why did they change this? Because people at the bottom were offended. Ouch. Seems like a big mistake to me. I’m a huge believer that the best performers aren’t just better than average, they are 10 times better than average. You need to worry more about those people than anyone else. This seems like a move in the wrong direction.

How important are titles?

Job titles serve a number of purposes, and treating them lightly is done at your peril. Job titles help to indicate organizational structure to newcomers and outsiders, they tell people the relative importance of the person they are working with, and they reward their holders.

Job titles serve a number of purposes, and treating them lightly is done at your peril

Some companies are famous for their disdain for titles, even mocking them, using titles such as chief humor officer, head honcho, and the like. Imagine what the new person, especially from another culture, thinks when they see “head honcho” on a business card. Even if they do understand what the words mean, they either think this person is a joke and not worth working with, or they are confused as to who this person is. Are they so important that they can get away with this joke, or are they such a low person that no one cares what they put on their business card?

Business Card

These people are missing an important aspect of titles: they communicate to people you meet, in a short and easily understood format, where in the organization this person stands. You see a business card that reads “CEO” or “Managing Director”, and you immediately know that this is the top person in that organization. You can assume they have the power to commit the other organization to agreements you might make. If you see “vice president” you can tell they are not a peon, but that there will be more work ahead to get a commitment on behalf of the entire company (especially if it’s a bank, where VPs seem to multiply like rabbits).

Having titles that are clear, common, and well understood is very important. Choosing “Top Dog” over CEO may seem cute at the time, but it can reflect badly on you and your company. In that respect titles also can communicate company culture, where Top Dog may be fine for a surf shop, but not good for an auto parts manufacturer.

Some use titles to communicate other aspects of culture. For example, in the US choosing Managing Director over CEO sends a message about the company, and perhaps its heritage and even ownership. Many feel that this lends a sophisticated European air to the firm. Of course, that can be overused and even ridiculed, but it is one example of where titles can be used to present one element of organizational culture.

Assign clear, common, and well-respected titles, and dole them out sparingly

Finally, titles are seemingly vital to their holders. Some employees get so wrapped up in their title, that concern over it can get in the way. Even I am guilty of this, writhing in pain over being simply a Vice President of Human Resources at Microsoft, rather than “Senior VP” or “Executive VP” (or, heaven forbid “Chief People Officer” {ugh}). For me it was a matter of respect among my peers in the outside world, where every person in a comparable position in a Fortune 500 had a fancy title. In the end, it really didn’t matter, but I only realized that years later.

This leads people to use titles as compensation, but that’s another question, and you can find that in “Can Titles Be Compensation?”

So, all in all, yes, titles are really important. Design a clear organizational structure, assign clear, common, and well-respected titles, and dole them out sparingly.

What time of year is best for reviews?

Set the time for reviews to be off-schedule from your main business processes, especially budgetting. The last thing you want is for your team to be overwhelmed with non-line-of-business work, or to give either budgetting or reviews short shrift. Neither your business, nor your employees will appreciate that.

For example, if you are on a calendar year schedule and you typically budget in the fall, do your big review right after the first of the year, with a “mini-review” in the summer. (See my FAQ on review frequency.) A typical schedule would be to set the reviews to be written and delivered in late January (due January 31), and then for the checkup review to be due by July 31st.

This approach lets you budget for the pay increases that will happen right after the first of the year. You will also have light weight reviews in the middle of the cycle, in time for managers to give their best guess as to necessary pay increases for the next budget season. See, there is a rhyme and reason to these things…

How often should we do reviews?

Immediately after an organization decides to do performance reviews, the first thing they ask is: how often should we do them? There is very real tension between providing enough feedback to the employees, and making painful busy work for the management team. Fortunately there is a good compromise that many people choose.

I recommend that you do performance reviews on a twice-a-year cycle that includes a comprehensive annual review with a mid-year “checkup” review. This approach has several important advantages:

I recommend that you do performance reviews on a twice-a-year cycle
  • Employees get feedback more than once a year, which is a real benefit. Most managers simply never give enough feedback, and this kind of system forces it to happen.
  • The burden on the team to go through the process is lessened by the lighter weight mid-year reviews.
  • You can offer pay increases and other rewards more than once a year. (I firmly believe in tying pay changes to the performance review.)
  • Practice makes perfect – if you only do reviews once a year, people get out of practice. By doing them more frequently, managers get better at delivering both good and bad messages, and employees get used to getting feedback.

Reviews don’t have to be that hard. If you would like to see examples of what I think performance reviews should look like, see the performance review whitepaper elsewhere on the site.

Blog Manifesto

Apparently every web log needs to begin with a manifesto, like Charles Foster Kane’s Declaration of Principles for the fictional New York Inquirer in “Citizen Kane”. It seems that, without it, the audience never can understand the point of the whole thing. Not one to buck tradition, here goes:

Kane Manifesto
“Citizen Kane” Manifesto

I started this blog because the fodder is there. I am struck daily by things that just seem wrong or silly in the world of business, especially in the world of management and organizations.

I can’t pick up a newspaper, glance at a magazine, or read a book without thinking “no, that’s not right”, “oh, come on, that’s ridiculous”, or “how can they say that with a straight face?” With PR machines working overtime, CEO’s fiddling while their corporate empires burn, and countless executives writing worthless vanity books, there’s plenty to talk about.

I believe there’s value in this kind of criticism

More importantly, though, I believe there’s value in this kind of criticism. And, no, I don’t mean some quixotic quest to single-handedly make the business world “a better place.” The goal is far more modest, and localized, than that. For I’ve found that, often as not, one can learn a great deal by watching others and NOT doing what they do. It is often through this sort of reflection (“well that clearly didn’t work”) that we gain our best insight in what to do.

So, in the fashion of one of the “100 best movies ever made” here is my promise to you:

The “Scale Your Organization” Blog Will:

  • Focus on the people aspects of the world of business, on the leaders, the teams, and the cultures of the world’s organizations.
  • Shine a light on the charlatans, scoundrels, egotists, and wannabes who lead (and advise the leaders of) organizations large and small.
  • Highlight the good, the bad, and the ugly in team building, leadership development, performance management, and human resources policy and practice.
  • Offer hope that, somehow, you can learn from this and make your own team a better organization while honing your own leadership skills.

Please let me know, through your comments on the articles, or by contacting me directly, when I succeed, and especially when I fail miserably at this lofty set of objectives.