Instead of comparing employees against each other, Microsoft managers evaluate how workers contribute to the team.
This, Microsoft Chief People Officer Kathleen Hogan said, is the big change that came in 2013, when it quashed its "stack-ranking" system.
In October, Microsoft reported $37.2 billion in revenue for its first fiscal quarter, beating Wall Street's expectations. And, thanks largely to the transition to remote work during the pandemic, Business Insider's Ashley Stewart reported, the Microsoft Teams chat app reached 115 million daily active users in October. That's up from 75 million in April.
The spike in market performance has run parallel to the reboot of employee-performance management.
"We really moved from a system that was a forced rating system, where 20% of folks had to get a 1 and 20% got a 2. And largely it was focused on your individual impact," Hogan told Business Insider in an exclusive interview in August 2019.
But, following Microsoft's massive culture shift, that has all changed: "What we really value is three dimensions," she added. "One is your own individual impact, the second is how you contributed to others and other success, and the third is how you leveraged the work of others."
Microsoft's performance-review system was once notorious for ranking employees relative to each other.
Even high-performing employees would get low scores because the team's scores had to fall along a distribution curve, with 20% of people getting a 1, 20% getting a 2, and so on until 5, the lowest score.
As part of the "One Microsoft" strategy, which rolled out in 2013 to make the company more efficient and innovative, Microsoft changed its performance and development process. The stack-ranking system had to go. Hogan said the performance-review modification was one change that heralded a new era for Microsoft. Since becoming CEO in 2014, Satya Nadella has encouraged employees to adopt a "growth mindset," or the belief that skills are developed through hard work and challenges are opportunities to learn. Mistakes, and even failure, are part of the process.
In a follow-up, a Microsoft spokesperson told Business Insider that the company did not publicly disclose data reflecting how changes in its performance-review system has affected employee performance. The spokesperson did say managers and leaders no longer allocated rewards based on a predetermined distribution curve.
The mechanics of Microsoft performance reviews, distilled
Employees at Microsoft meet with their managers in a series of "connects" to look at their performance instead of meeting with them once a year.
Managers must emphasize more than just individual impact. "We had a little bit of a 'not-invented-here' syndrome," Hogan said, which means the company has moved from a "know-it-all" to a "learn-it-all" mentality.
Collaboration is crucial to developing technologies in-house. It's not enough for employees to work on their own projects with their heads down because they're evaluated based on how they help and incorporate the work of others.
Inclusion became part of the performance-review process last year for every employee. Employees and managers have to cultivate a general awareness of other people's ideas and influence, and have conversations around inclusion on a macro and micro scale.
For example, employees should actively create an environment where people of diverse backgrounds can thrive. Microsoft as a company practices inclusive design, or creating products for a diverse audience by considering that diversity throughout the design process.
Besides inclusion, other shared core values include teamwork and collaboration, plus employee growth and development.
The future of performance reviews is conversational
Microsoft is still working to improve its system. A spokesperson highlighted the launch of Perspectives in May 2018, which is a peer-to-peer technique that addresses the difficulty of giving and receiving feedback. When people ask for feedback, they're generally more receptive to it.
When you ask for a perspective, you're supposed to suggest things that people can "keep doing" and things they should "rethink." Employees can ask for specific input, which is no longer anonymous, and feedback comes directly to them instead of being filtered through managers.
Early reports on the tool were positive.
"We're really recognizing people who were driving impact but were enabling others' success, as well as leveraging others, in the spirit of One Microsoft," Hogan said.
This is an update of an earlier story.
