Stacked ranking: Jack Welch of GE has a terrible idea

or “How to redefine everyone’s job into a game of Survivor”.

First, let’s get the question out of the way: “What is stacked ranking?” Stacked ranking is a labor policy. With it, once per year, every year, the bottom xx% of employees are terminated, and will be replaced with fresh blood. I think it started with 10% of GE getting replaced yearly, but later the percentage was dropped to the bottom 5% – 8%, depending on the company.

I hear that Facebook is now doing Stacked Ranking. This tells me “short Facebook stock“. And if you don’t believe me, look at GE’s stock performance.

Another aspect, although I don’t think it’s directly required, is that the management that implements stacked ranking doesn’t want to be responsible for the decision of who gets terminated. So they push the decision as far down the management chain as they can: peer review. So, you get to rank your co-workers, and your co-workers get to rank you. This lets your direct supervisor weasel out of the responsibility of ranking you at the bottom.

I understand the reasons behind Jack Welch’s idea: get rid of the expensive (experienced) employees, and replace them with cheap newbies. Wall Street loved the idea, too.

I doubt they are going to still love the idea when those old, experienced, expensive Wall Street analysts start getting replaced by cheap newbies.

I’m not terribly against the idea of getting rid of the bottom 10% of an organization, either – IF the policy is executed once per decade. I work in a government organization where there are a few people who are simply wastes of time and taxpayer money. But because it is so hard to get rid of terrible government employees, they remain. So if lopping off the bottom 10% was something we could do once a decade, I would be in favor of that.

My personal story is that if “lopping off” showed up three years ago, I might have been one of the ones lopped. I would have deserved it, and I might have been angry with it. If the rest of my life then went as it has, I would have gotten to the point where I accepted it as right and honest. People do change; I’ve seen it, and I have changed myself. But I’m not willfully ignoring the fact that “lopping off the bottom 10%” might strike at a unfortunate time, for some people.

As I understand it, Jack Welch’s idea was that he had all these older engineers who commanded high wages; how could he cut costs? With decades of experience, they expected a reward for learning their jobs so well. They also had outside interests like a wife, and children, and the activities their children were in – like sports or music or whatever.

By hiring new kids, fresh out of college, Jack could pay them less because they had no experience. Because they were fresh out of college, they didn’t yet have a wife and kids; which meant they could throw themselves into their work, and do 10 – 16 hour days, and reap no home life repercussions for it. They could absorb the knowledge the old guys have, and they and Jack win. As I understand it, part of the pitch to the new kids was “if you work your tail off, you could get that vaunted Engineer Level II position with the high wages and the decades long career”.

The stupidity of the idea, doing this once a year, every year, is that everyone sees the plan, and must adapt to the plan. Everyone needs to stop doing their real job, and start their new job of setting up the patsy.

Someone is getting voted off the island. We need to make sure it’s the new kid.

The old staffers have too much at risk. For starters, at 50 years old, getting fired from a good job with a high salary is often the end of a person’s career (irrespective of employer). 92% never get as good a job, ever, for the rest of their lives. Yes, there are those 8% that do – but 92% against is too great a risk to take.

The old staffers also have financial obligations: mortgage, college tuition for their kids, saving up for retirement, perhaps needing to care for parents who are beginning to need elder care. A lot of a person’s identity might be tied up in being a professional in their decades-long career. Having to switch over to “Would you like fries with that?” is far too humbling.

The new kid has none of that. Also, the new kid has plenty of time to recover, going to work for a different company that doesn’t suck.

So, backstabbing the new kid is the new SCP (Salary Continuation Plan). It is a terrible waste of time and effort. Making the customer happy should be Job 1. But now it is Job 2, with Job 1 being “someone else must get voted off the island”.

I was at a trade show, where a vendor we used (a lot), put on a “meet the engineers” night. I was talking with a group of them, telling them of an improvement in the product I would like to see. One of the new kids had walked up, and chimed in with “That’s a great idea, we should do that!” The three old guys standing around just rolled their eyes. One of them told the new kid “Yeah, you should work on that.” This was still a little bit of a shock, that the old guys would set the new kid up for failure like that. He was going to get no support, would be wasting his time on a wild goose chase, and at the end of the year be in the bottom 8%. Later, I was told that the company was using stacked ranking; this event suddenly made sense.

Not only was it bad news for the kid; I wasn’t going to get my feature request, either.

All in all, I think Jack Welch tremendously hurt GE, and, because he touted his change as successful (and Wall Street celebrated his success), other companies followed suit. It’s a terrible idea, and deserves to be recognized as such.