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There was a time it would have pained me to give Microsoft a compliment. But no more.

There are those in the industry who see all of Microsoft through a Windows 8 lens. Not that it has anything to do with this week’s missive; my opinion is that Windows 8 is best understood as Vista 2 — what matters isn’t Windows 8 itself, but what Microsoft learns from Windows 8 as it figures out Windows 9.

No, this isn’t a Windows 8 column. It also isn’t a Visual Studio column, although from what I’ve read, Visual Studio is outstanding. Nor is it an Azure column, even though Azure might just be the most interesting and enterprise-ready PaaS platform available, especially given the enterprise need to integrate the development environment (that would be Visual Studio) and identity management (Active Directory) into the whole shebang.

Nope. This isn’t a technology column. It’s a human-resources-management column (aka “human capital management,” aka “how you treat the men and women who work for you” column).

Microsoft has made a cutting-edge discovery: Stack rankings are a terrible idea and must be stopped.

To understand why stacked ranking … insisting that ten or twenty percent of every manager’s direct reports must be classified as “doesn’t meet expectations” … is a terrible idea you have to start by understanding where and in what circumstances they were a good idea, namely, General Electric when Jack Welch first took the helm.

Welch had been put in charge of a flabby, complacent company. He was quite sure it was overstaffed, and equally sure it had more than its share of mediocre-or-worse employees. It wasn’t hard to go from there to an inescapable inference: GE also had more than its share of managers who were quite comfortable drifting into the future on the efforts of mediocre employees.

These managers were too numerous to terminate en masse, so the only practical alternative was to give them no choice in the matter. Every year, every manager had to cut the bottom ten percent of their workforce.

Which had two salutary effects. First, General Electric got rid of its least profitable employees. And second, managers learned it was okay to terminate employees who weren’t worth keeping.

But just because it made sense in that restricted set of circumstances doesn’t mean it makes sense as an HR practice that pervades American industry.

As pointed out here years ago (“Staff inflections,“ KJR, 9/11/2006):

 Jack Welch popularized cutting the bottom ten percent of the workforce every year. Because it was Jack Welch, too many business leaders decided it must be a great idea. If you inherit a complacent, flabby organization this might be just the ticket … for a year or two. Beyond that limit, forget it — it’s both statistically and socially invalid.

Statistically: If you trim the worst performers, and choose strong replacements, then after two years your average performers must be well ahead of the industry average. And if you give other managers credit for brains, those they’ve terminated were the ones who didn’t do their jobs well, dragging down the average among the currently unemployed. If you can continue to strengthen your workforce by churning those rated lowest among your employees, you’ve been doing a poor job of recruiting and retaining great employees. You won’t fix this by continuing to cut.

Socially: How do you think your best employees will respond to the annual ritual? My guess — they’ll find companies that take a more surgical approach to dealing with problem performers. So in the effort to cut your worst employees you also lose your best.

Even worse: The more you churn your workforce, the less employees will trust each other, or you, because trust takes time to develop. Without trust there is no teamwork; without teamwork few organizations can achieve anything important.

Sorry to quote myself so extensively and self-congratulatorily, but I have nothing new to say on the topic, other than to congratulate Steve Ballmer.

Yes, Steve, your name is on several seriously bone-headed moves. Fair’s fair. If you’re going to get nailed for them, you also deserve credit: for making Microsoft’s products far more enterprise-ready than when you took over; and for building Microsoft’s enterprise infrastructure product portfolio. And especially now, you deserve credit for getting rid of stacked ranking at Microsoft.

It’s a fine legacy. Even more important, it just might make it okay for the HR departments in other companies to abandon the practice in favor of alternatives that have the advantages of making … what’s the word I’m looking for? Oh, yeah, now I have it.

Sense.

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Models leave things out. If they don’t, they aren’t models.

As an example, so far as I can tell economists leave the asymmetries wealth imposes on political and social power out of their models (although I know far too little about economics to say this with any certainty).

And so, for example, to an economist labor unions and other cartels distort marketplaces and are therefore distressing. Businesses, in contrast, do not represent an employment-supply cartel because employees can, in theory, shop for a better job in the same frictionless fashion that employers can shop for new employees.

It’s the model thing — a pretty theory that ignores an important practicality — the balance of power.

Employers, can, for example, uh … encourage … exempt employees to work more than 40 hours per week with no additional compensation. They apparently can, in fact, require any number of hours, so long as it doesn’t exceed 960, and that only because there aren’t any more.

Employers get immediate, tangible advantages from this (higher “productivity” as it’s usually measured). Sure there are trade-offs, like poorer quality and loss of the best talent, but they’re delayed and indirect. They can be lethal, but they aren’t lethal right now, and as any behavioral scientist knows, delayed feedback is ineffective feedback.

For the employee the disadvantages are immediate, tangible, and too obvious to bother listing. Often there are no delayed advantages either: Many employers act as though these extra, free work hours are an entitlement and not an investment employees make in their careers.

Nor can these employees shop for a better job as easily as their employers can shop for replacements, because they don’t have the time. They’re donating that to their current employer. Most don’t have the financial cushion, either. If an employee leaves, their employer can distribute their work among the remaining employees, but the employee will have to spend retirement savings to pay the bills.

It isn’t a subtle point: The employer has more power than the employee. Duh.

I’ve received quite a bit of correspondence over the years from IT professionals who find themselves trapped in this situation. Unsurprisingly, it seems to correlate with the employer’s size.

Here’s a particularly sad example: The executive sponsor of a very large application development effort in a Fortune 100 company was explicit about these “not being 40-hour-a-week jobs,” but was very hard to pin down on just how many hours a week the jobs were.

The result: Two funerals, millions of dollars and opportunity costs spent, large executive bonuses for holding employees’ feet to the fire, and my correspondent, among many others, laid off, all for a project that eventually failed.

How to turn this trend toward increasingly unhealthy workplaces around?

If you’re on the employer side of the equation, do what you can to take the long view. Healthy workplaces really do result in higher profits … not quarter by quarter, but they do.

Also: Make it official that you hire only the best, never settling for good enough. The best are at least ten times more effective than the average, at far less than ten times the cost. Hiring only the best is a brilliant financial investment.

And, managers who hire only the best generally remember how hard it is to attract and recruit them, and so are less likely to create working conditions that drive them away.

If you’re an employee?

First: Choose a career path for which you are one of the best. Employees might be easy to replace, but the best employees are always scarce, by definition.

Second: Don’t bother trying to persuade management that healthier workplaces are more profitable workplaces. If you’re working in a toxic environment, nobody in a position to do something about cares anything about it.

Third: Daydream about getting your revenge if you like, but don’t actually try to get it. You won’t, and anything you do to try to get it will end up putting you on the street (you work for an at-will employer after all) and making you so toxic you’ll stay on the street.

And fourth: No matter how hard it is, build a financial cushion. From now until the day you retire, figure you’ll spend a quarter of your career between jobs, so salt enough away when you have one to cover your expenses when you don’t.

If it helps, don’t think of this as a reduction in your lifestyle.

Think of it as an investment in the economics of power.

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