How performance reviews are changing at Microsoft

Microsoft said this morning it is overhauling its performance review system for 89,000 employees, and the new system echoes the old performance system Microsoft used for ranking employees before 2006.

The new rating system assigns each employee a level of 1 to 5. Each level has a set compensation level tied to it, which employees can check out now on the internal Microsoft human resources website. Performance reviews have not yet taken place this year, however, so employees will not know what kind of raises they will receive until later this year.

Microsoft Chief Executive Steve Ballmer wrote in an email to all employees Thursday: "These ratings will be based on the results you accomplished during the review period (assessed against your commitments), how you accomplished them, and your proven capability. Ratings will be a simple 1-5 system with relative performance being assessed across common peer groups."

The previous performance review system, established in 2006, divided employees into three percentile groups: 20, 70 or 10. Employees in the top 20 percent were considered "outstanding," those in the 70 percent group were considered "strong," and workers in the 10 percent group were considered "limited." The system forced managers to grade workers based on a curve. A separate three-tier ranking determined the employee's stock awards.

The 2006 system replaced a system called the "Commitment Rating," which was a numerical scale ranging from 2.5 to 5. That scale also limited how many employees could be rated by managers at any level, because the number of employees who could receive a top score was fixed. Raises and bonuses were tied to the ratings.

Mini Microsoft, an anonymously written blog about working at Microsoft, posted this about the new performance reviews: "... Let's celebrate saying goodbye to the 10% / Limited rating. Since the 10%-ers were not actually fired you ended up keeping people on staff who were designated as now plateaued and limited in there [sic] career at Microsoft."

The blogger compared the new system announced Thursday to the pre-2006 system that ranked employees from 2.5 to 5: "Old school: with respect to the new Scarlet A, I assume that a 4 is the old 3.0 and that a 5 is a 2.5 and that having either a 4 or a 5 now limits other group's interest in your career, which kind of means that we've gone from making 10% of the employees unattractive to making 20% of the employees unattractive."

Here is our earlier Seattle Times story Thursday that details all the changes to compensation and performance reviews for all Microsoft employees. That link will also take you to a poll to share your thoughts on the raises Microsoft announced.

And here is The Seattle Times' 2006 story by Benjamin J. Romano on the last time Microsoft revamped the performance review system.

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