Internal Microsoft documents and insiders reveal how the company decides employee pay. Some say it’s like ‘stack ranking.’

• Microsoft’s review process includes a mandate for managers to distribute employees across a scale.
• Some employees feel the process is essentially “stack ranking,” a controversial review process.
• A Microsoft spokesperson said there are no quotas or requirements for employees to rank low.

According to internal Microsoft documents and employees, during the employee review process, Microsoft asks managers to adjust individuals’ rankings based on where others on the team land to prevent too many from achieving the highest ranking and the pay that comes with it.

These requests came this year, as Microsoft launched a new rating system.

Some have compared the adjustment process to the contentious practice of “stack ranking,” which involved managers ranking employees on a forced curve.

When Steve Ballmer was CEO, Microsoft famously used stank ranking. It was extremely unpopular within the company, and it was officially abandoned in late 2013, before long-time’softie’ Satya Nadella took over in early 2014. Managers had to rank employees on a scale of 1 to 5, with the lowest score going to someone.

With the company’s instructions to managers on how to handle this year’s employee reviews, some employees believe the essence of stack ranking has returned.

“What we tell the employees is absolute crap,” one employee involved in this year’s review process told Insider. “First and foremost, Microsoft informs employees that they no longer stack rank. That is not correct.”

As in previous years, Microsoft managers graded employees on a scale of 0 to 200. The scale is known as the “ManageRewards slider,” and Microsoft advises managers not to share it or tell employees their “tick mark.”

“You should not talk about slider placement or tick marks with your direct report,” an internal document states. “The tick marks are not intended to be ratings or labels, but rather a way for managers to determine impact and consistently recommend rewards across the company.”

Microsoft’s annual review cycle typically begins in April with performance reviews, followed by notifications about how performance affects compensation in mid-August, and a payout on September 13 this year.

Front-line managers start the process by evaluating an employee’s impact and recommending where they think they should land on the slider. Then, another higher-level manager goes over where employees land for “differentiation,” ensuring that the team is distributed evenly along the slider. Average performers are around 100, while lower performers are 0, 60, and 80, and higher performers are 120, 140, and 200.

A Microsoft representative confirmed that managers are encouraged to differentiate, but only to reward high-performing employees. According to the spokesperson, there are no quotas or requirements for employees to rank low, and managers are only required to stay within the budget.

According to the manager who compared the process to stack ranking, moving people to lower scores becomes necessary in practice. After being directed to ensure that employees on their team are “differentiated” across the slider, the manager was forced to move employees to a lower score than they deserved in order to make room in the budget for compensation increases for employees whom this person was more concerned with retaining.

Along with the slider, Microsoft introduced a new employee rating system this year. There are four ratings: “Lower Impact Than Expected (LITE),” “Slightly Lower Impact Than Expected (SLITE),” “Successful Impact,” and “Exceptional Impact.” According to an internal document obtained by Insider, “Successful Impact,” defined as successful performance in all aspects of their job and “exceptional” performance in some areas, is in the middle of the range.

“If they delivered successful impact, their rewards will align to the middle of the opportunity range,” according to the document. “If the employee delivered a slightly lower impact than expected, their rewards will align below the middle of the opportunity range.”

The new system comes after Microsoft suspended raises and reduced its budget for bonuses and stock awards in May. At the time, Microsoft Chief People Officer Kathleen Hogan directed managers to give fewer employees “exceptional rewards,” which meant a high performance rating that led to higher pay and bonuses. “More will need to be at the middle of the range,” Hogan explained in an email.

Microsoft also instructed managers not to discuss the budget cuts with employees during performance evaluations. Microsoft advised managers not to use budget cuts as a “explanation” for individual employee compensation decisions, instead emphasizing that the employee’s own “impact” determines “rewards.”