Is Big Tech becoming more cutthroat?
Is it the end of a golden age of Big Tech, when jobs at leading companies offered high-impact work, top compensation, and good work-life balance? More signs suggest harsh perf management is the norm
A few years ago, companies like Google, Microsoft and Facebook were known as places where – inside certain organizations – some engineers could earn large sums of money for doing comparatively little work, and wile away the work week waiting for their large new joiner equity to vest over four years. This chill approach is what the “rest” in rest-and-vest refers to, which was a popular phrase at the time for it. These places also had many teams where work was laid back, and it was possible to “coast” and get by doing relatively little.
In 2017, Business Insider interviewed several such folks and wrote:
“Business Insider talked to about a half a dozen people with direct knowledge of the rest-and-vest culture. Some were "fat cats" themselves. Some were hiring managers who tried to lure these folks back to the world of productivity. Many acknowledged that resting and vesting was a common, hush-hush practice at their own companies. Internally, these people are often referred to as "coasters."
Their lives counter the other reality for many in the tech world: long work hours and pressure for workers to pledge unrelenting devotion to their companies and jobs above all else.”
A culture of lenient performance management at the biggest tech businesses contributed to laidback work patterns; I talked with managers at the likes of Google and Microsoft at the time who were frustrated that the system made it hard to manage out folks who were visibly checked out, and were hard to motivate to do even the bare minimum work.
Fast forward to today, and there are signs that Big Tech employers are being tougher than ever in performance management, and any tolerance of “rest and vest” culture is history. This article covers:
Meta: first performance-based mass layoffs. Nearly 3,700 people have been dismissed as ‘low performers’; it’s the first time that another reason wasn’t given for layoffs by the social media giant.
Microsoft: performance-based firings are back. Employees terminated on the spot for performance reasons, without warning, and some don’t get severance.
Evolution of Microsoft’s performance management. The Windows maker has been brutal in performance management before: its old stack ranking system was unpopular for close to two decades.
Even without stack ranking, there’s still bucketing. Stack ranking fell out of favor years ago, but bucketing is still how performance reviews work.
Why now? The end of zero rates, a cooling job market, and more. Takeaways from recent mass layoffs.
Companies that always had high performance expectations. Some Big Tech businesses have always had strict performance standards. For example, within Amazon, Netflix, and NVIDIA, little will change.
Related to this article is our two-part deepdive into How performance calibrations are done at tech companies.
1. Meta: first performance-based mass layoffs
Meta did no mass layoffs for its first 18 years of its existence, until November 2022 when it let go 13% of staff. Back then, there were business reasons. I wrote at the time:
Meta’s revenue is simply not growing fast enough. In Meta’s Historic Growth Challenge, I suggested that just by allowing attrition to slightly reduce headcount expenses, Meta could catch up with profitability. However, what I did not account for was how attrition was likely too slow to wait for, and not fully within the company’s control. Layoffs, however, are.
The stock price pressure likely became too much. Meta’s stock price dipped under $100 for the first time on Thursday, 27 October, a week before layoffs. The stock dropped by 26% that day, which was the biggest one-day fall, after the company forecast weaker-than-expected revenue growth for Q4 2022. (...)
Zuck has summarized these layoffs:
“We’ve cut costs across our business, including scaling back budgets, reducing perks, and shrinking our real estate footprint. We’re restructuring teams to increase our efficiency. But these measures alone won’t bring our expenses in line with our revenue growth, so I’ve also made the hard decision to let people go.”
Six months later in early 2023, the company reduced headcount by another 11%, letting go 10,000 people The reasoning was that it had overhired during the pandemic years of 2020-2021, and was too bloated. The layoffs flattened the organization and boosted efficiency.
That was two years ago, and since then Meta has become more efficient: it generates more revenue ($164B per year) and profit ($62B) than ever before, and its value is at an all-time high of $1.8 trillion dollars.
It’s in this context that Meta announces its first-ever performance-based mass layoffs. Five percent of staff are expected to be let go, starting this week with around 3,700 people. An internal email from Mark Zuckerberg explains why, as reported by CNBC:
“I’ve decided to raise the bar on performance management and move out low performers faster. We typically manage out people who aren’t meeting expectations over the course of a year, but now we’re going to do more extensive performance-based cuts during this cycle, with the intention of back filling these roles in 2025.
We won’t manage out everyone who didn’t meet expectations for the last period if we’re optimistic about their future performance, and for those we do let go, we’ll provide generous severance in line with what we provided with previous cuts.”
This clarity that it’s “low performers” who are being laid off, is new. The large mass layoffs of 2022-23 were justified differently. Of course, low performers are at risk of being let go in most circumstances. However, in Meta’s previous layoffs, plenty of high-performers were also cut who worked in teams seen as bloated cost centers, or targeted for sharp headcount drops.
While these cuts are unfortunate, Meta at least is offering generous severance to those impacted: 16 weeks of pay and an additional two weeks for each year of service.
2. Microsoft: performance-based firings are back
Meta isn’t the only tech giant terminating employees based on performance concerns; Microsoft is doing the same — except on an individual basis. Also from Business Insider:
“Microsoft has started performance-based job cuts, according to termination letters viewed by Business Insider.
Microsoft is taking a stronger stance on performance management like its competitors, and managers at the company have spent the past few months evaluating employees all the way up to level 80, one of its highest levels.”
One of several termination letters was reported by Business Insider. It reads:
"The reason(s) for the termination of your employment include that your job performance has not met minimum performance standards and expectations for your position… You are relieved of all job duties effective immediately and your access to Microsoft systems, accounts, and buildings will be removed effective today. You are not to perform any further work on behalf of Microsoft."
Just to repeat, performance-related firing is commonplace, but what’s different here is how short and quick the process is. Previously, most of Big Tech followed a standard process for workers seen as in need of improvement:
Feedback from the manager, often at a biannual performance review
Performance improvement plan (PIP) which formalises why someone is not meeting performance expectations, and how to succeed with the plan
Dismissal upon failure to clear the PIP. Big Tech has been known for generous severance packages which exceed the legal minimum
But now, Microsoft seems to be skipping PIPs and also not offering severance in some cases. This is unusual, given how differently the tech giant had treated employees since Satya Nadella became CEO. It also feels unusually petty to cancel severance packages for those affected, especially as Microsoft is reporting record profits. Is it a message to low performers to expect nothing from the company?
Microsoft getting “cutthroat” in its performance-management is also out of character, as it was Nadella who introduced a more lenient performance management approach, back in 2014.
3. Evolution of Microsoft’s performance management
Between the 1990s and 2013, Microsoft used a stack ranking system for performance management, which wasn’t advertised to employees until the mid-2000s – although many knew about Microsoft’s “vitality curve” for ranking engineers and managers. Under this, workers high on the curve got outsized bonuses and pay rises, and those low down the curve; well, they got managed out.
In 2004, Mini Microsoft (an anonymous employee at the company, blogging in the public) wrote a post explaining how the then still-secretive stack ranking worked:
“Then along came a new lead. Her feedback [to me was], "You've got to increase your team visibility so that you can do better in the stack rank meeting."
The what-rank? She said it slower as if it would help me to divine what the heck she was talking about. Then she got up and gave me the stack rank lesson and I got to learn about how the team is divided into columns of high, medium, and low folks and then each column has a person by person relative ranking, all those positions negotiated by the leads putting their people up on the whiteboard and then arguing the merits of which report belongs above which other reports.
She said they set the context of their decisions by asking a question like, "Okay, if the team were on a sinking boat and we had to decide who we would put on the life-boats, who would it be?" Up to that point, my ass was next in line for the boat but still going down with the ship.”
From 2004 – mostly thanks to this blog post – stack ranking was no longer a secret, but it wasn’t until 2011 that then-CEO Stever Ballmer acknowledged its existence in an internal email, writing:
“Each rating at each level will now have set compensation tied to the rating.
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 buckets were pre-defined, supposedly as 20% (top performers), 20% (good performers), 40% (average), 13% (below average), and 7% (poor performers).
I worked at Microsoft starting in 2012, the year after the existence of the stack ranking system became public knowledge. Knowing the distribution made me hope for a grade of 1-2, which would have meant my manager saw me as the “top 40%” within the team. I ended up getting a “3” in 2013, which I was disappointed with, as I interpreted it as being in the bottom 20th to 60th percentile.
Later, I talked with a HR person, who told me that nobody at Microsoft was ever happy with their grades:
Those getting a “1” (the highest rating for the top 20%) think they deserve it. Many feel entitled to it, more than they’re happy to achieve it
Everyone on a 2 to a 5 is disappointed to different extents
Stever Ballmer’s departure spelt the end of the stack ranking system. Shortly after Ballmer announced his retirement in August 2013, the company announced the system was also being retired, effective immediately in November 2013. There are a few possible reasons why Stack Ranking went extinct:
1. Office politics ruled Microsoft. From the mid-2000s, it was increasingly clear that internal politics was more important than building products customers loved.
Microsoft was blindsided by the 2007 launch of the iPhone, and the launch of Android the next year. It took three more years to finally launch a competitive device – the Windows Phone in 2011. By then, iPhone and Android had captured the bulk of the smartphone market.
In 2011, Google software engineer and cartoonist Manu Cornet drew a cartoon about how he perceived Amazon, Google, Facebook, Microsoft, Apple, and Oracle. This was what how he represented the Xbox maker:
This image went viral, even though Manu never intended it as a big joke in his comic strip, as he explains in The Man Behind the Tech Comics. The intended target of the joke was Oracle, but his image of Microsoft captured a widely perceived truth.
Back then, there was close to zero collaboration between divisions at Microsoft, which were thousands of employees in size; like Windows Office, Server, Xbox, and Skype. I experienced the lack of collaboration – to the point of hostility – first-hand. In late 2013, my team was building Skype for Web, which we positioned as a competitor to Google Hangouts. We had a problem, though: in order to start a video or voice call, users needed to download a plugin which contained the required video codecs. We noticed Google Hangouts did the same on Internet Explorer and Firefox, but not on Chrome because the plugin was bundled with the browser for a frictionless experience.
My team decided we had to offer the same frictionless experience on Microsoft’s latest browser, Edge, which was in development at the time. After weeks of back-and-forth, the team politely and firmly rejected bundling our plugin into the new Microsoft browser. The reason? Their KPI was to minimize the download size of the browser, and helping us would not help them reach that goal.
It was a maddening experience. Microsoft could not compete with the likes of Google due to internal dysfunction like this; with teams and individuals focused on their own targets at the expense of the greater good for the company and users.
2. Stack ranking pinpointed as the core of the problem. In 2012, Vanity Fair published Microsoft’s lost decade, which said:
“At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. (...)
The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.
In the end, the stack-ranking system crippled the ability to innovate at Microsoft, executives said. “I wanted to build a team of people who would work together and whose only focus would be on making great software,” said Bill Hill, the former manager. “But you can’t do that at Microsoft.”
3. Investor and board pressure. By 2013, Microsoft’s stock had been flat for about 12 years. It was clear that cultural change was needed to turn business performance around, and removing the hated stack ranking system was one of the easiest ways for the leadership team to show that change was afoot.
4. Ballmer’s exit. Several leaders including Head of HR Lisa Brummel were never in favor of stack ranking, as Business Insider reported at the time. With Ballmer gone, executives could push decisions that would’ve previously been vetoed, before a new CEO took the helm.
Satya Nadella replaced stack ranking with a more collaborative performance review system. As CEO, he recognized the cultural problems Microsoft had. In his 2017 book, Hit Refresh, he recalled the pre-2014 times:
"Innovation was being replaced by bureaucracy. Teamwork was being replaced by internal politics. We were falling behind."
A new performance review system attempted to address the problems, rating employees in three areas:
Individual impact
Contributing to others’ success
Leveraging the work of others
Microsoft also got rid of its vitality curve (the stack ranking system), starting from 2014. The changes resulted in a different performance review process, where individual impact carried less weight. In 2022, Microsoft even started to measure how many of its employees said they were “thriving”, which it defined as being “energized and empowered to do meaningful work.” Note that this was at the peak of the hottest job market in tech, when attrition spiked across the sector, and even Big Tech needed new ways to retain people.
Signs that performance management was changing again were visible in 2023, when last September, Microsoft quietly introduced a new field for managers called “impact designators.” They had to rate the impact of their reports and not disclose this to employees. The ratings determined bonuses and pay rises.
As a former engineering manager, what surprised me about this lowkey change was not that it happened, but rather that it raises the question of what Microsoft was doing before? “Impact designator” is another name for “multiplier”, used in most tech workplaces. Ahead of performance calibration meetings, managers often know this information and must fit the budget, or can sometimes exceed it. Multipliers are finalized in the calibration which helps for dividing bonus pots, equity refresh, and pay rise budgets.
So it was a surprise to learn Microsoft operated without managers setting or recommending multipliers for nine years, as part of the performance process.
4. Even without stack ranking, there’s still bucketing
The demise of divisive stack ranking was cheered; but in reality, all larger companies still operate ranking frameworks today. At most mid-sized-and-above companies, performance review processes have the explicit goal to identify and reward top performers, and to find low performers and figure out what to do next. We cover the dynamics of the process in a two-part deepdive. Performance calibrations at tech companies, including: