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Microsoft Axes Its Terrible, Horrible, No Good, Very Bad Employee-Ranking System The tech giant hopes to pivot out of its 'lost decade' by ending internal competition for raises and instead fostering a collaborative culture.

By Brian Patrick Eha

Opinions expressed by Entrepreneur contributors are their own.

At Microsoft, competition is out and collaboration is in -- at least among employees.

A much-loathed employee review program, known as "stack ranking," which required managers at the tech giant to rank a certain percentage of employees as low performers, is out, effective immediately, according to an internal memo by Lisa Brummel, Microsoft's head of human resources. In its place will be a new focus on teamwork and employee development.

Under stack ranking, which prevailed for years at Microsoft and is reportedly in place at Yahoo, managers are forced to designate a certain percentage of their employees as either high, average or poor performers. Raises at Microsoft were allocated accordingly, and this procedure caused fierce competition among employees, according to many reports. But now, Brummel said, there will be no more ratings and no more bell curve of rewards distribution.

"Our new approach will make it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams," Brummel said in the memo, a copy of which was obtained by The Verge.

Microsoft confirmed to Entrepreneur.com that the memo was legitimate and that is author was Brummel.

To foster collaboration within the company, Microsoft managers will now be evaluating employee performance holistically. "[It's] not just the work you do on your own, but also how you leverage input and ideas from others, and what you contribute to others' success," Brummel said.

The changes are taking place as part of the One Microsoft reorganization strategy announced by Microsoft chief executive Steve Ballmer in July. "This is a big undertaking," Ballmer said of the plan at that time. "It touches nearly every piece of what we do and how we work."

Ballmer is set to retire within the next nine months, perhaps as early as the end of 2013. But if this new employee policy is anything to go by, he is determined to see the reorganization through before he takes his leave.

Related: Salary Review Season Is Coming. Who's Getting a Raise?

Brian Patrick Eha is a freelance journalist and former assistant editor at Entrepreneur.com. He is writing a book about the global phenomenon of Bitcoin for Portfolio, an imprint of Penguin Random House. It will be published in 2015.

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