How Microsoft's Performance Reviews Empower Employees and Drive Business Performance

How can you create a culture of growth and inclusion in your organization? Take a cue from Microsoft's performance review process. 

In a recent interview with Fortune about the RTO (return to office) strategy, Kathleen Hogan, Chief People Officer at Microsoft, explained that they rely on data to test their assumptions on how and where work gets done. 

"It challenges us to use a growth mindset and be open to new ways of working and empowering our employees." 

Employee empowerment is at the core of their policy-making. 

In 2022, employees ranked the company's culture higher than all companies (with over 500 employees), even beating Google for the top spot.

It'll become more evident why, when we unpack how Microsoft conducts performance reviews, aka "Connects." 

We aim to inspire you with insights and strategies you can apply to your organization's performance review process.

🤓 Note: We've distilled information from Microsoft's blog, executive interviews, and employee discussions online.

💻 How does Microsoft run performance reviews?

At Microsoft, employees and managers meet at least bi-monthly to discuss performance. It is a continuous process that goes beyond measuring individual performance. 

The performance review process reportedly includes 360 reviews with a special emphasis on peer feedback and shared core values like collaboration and inclusion. 

🎯 They aim to ensure that people aren't working for good reviews and focus on doing what's right for the company.

🎯 Improving internal efficiency and employee engagement with OKRs

How employers and employees think about work is evolving as the hybrid workspace becomes the norm. Employees seek flexibility, work-life balance, and purpose-driven work. Employers want to ensure employees focus on the most impactful areas, especially in the "do more with less" era. 

The 2022 Microsoft Work Trend Index Special Report found that when work priorities are clear, employees are 4x more likely to stay at the company for more than two years and 4.5x more likely to report they're happy at their current job.

But the same research found that only 13% of frontline managers understood how their work tied in with the company's strategy, and 72% of executives couldn't share the company's top 3 goals. 

Microsoft's solution to employee engagement and internal efficiency is using objective and key results (OKRs) and Microsoft Viva Goals (the platform where employers and employees can use the OKR framework.)

Microsoft clarifies that OKRs measure business performance, not individual employee performance. But based on our research, it is indirectly connected to performance reviews.

🔗 No more performance reviews: Introducing Connects and check-ins 

Microsoft is known for "dogfooding,"—a concept popular in the tech world that means you try your products and become "Customer Zero." 

And so, several articles reference help documentation for Dynamics 365 that details the performance management process with three primary components:

• Performance journals allow employees to jot down events and activities that contributed to their success and the praise they received. 
• Performance goals are created in collaboration with managers and can be simple or complex and span several review periods.
• Performance reviews are formally known as "discussions." They are flexible enough to support continuous feedback, employee development plans, and more formal reviews. Managers can create 1:1 meetings or more complex review processes. 

But based on our research on what employees have reported on Glassdoor, Blind, and Quora, it seems unlikely that this is the exact process Microsoft follows internally. 

Here's what a former Microsoft employee shared about the process on Quora.

"Microsoft no longer does performance reviews. Connects are used to provide actionable feedback to employees [and] communicate financial rewards based on impact. This happens once per year.

Impact is assessed via a spectrum of inputs, including connects, peer feedback, external manager and partner feedback, assessment of deliverables, metrics, customer feedback, and so on.

Managers do Connect discussions with their reports. The connect is a document initiated by the employee, which also contains a response from the employee's manager. This is a formal career check-in. It should be completed at least twice every 12-month period, ideally as often as every three months. Connects are a continual part of managing your relationship with your manager. They form the permanent record that will be reviewed during career events. They should be a concise and complete record of an employee's work over the connect period." 

A note about who initiates the process: Connects are part of a company-wide cycle. Managers would remind employees to fill out their Connect, so they can discuss it together.

In terms of timing, the same employee shares the following timeline:

• Reviews start in May with initial manager input.
• The next step is calibration at each management level to create a consistent and fair assessment of impact and corresponding rewards.
• The fiscal year starts in July and that's also when headcount decisions, financial planning etc take place. So, departments and locations get their budget and headcount by the end of June, so that they can take these into account when negotiating and giving raises in July.
• Employees receive the results in August, with subsequent paychecks reflecting any financial decisions.

👀 Note: While Quora does not authenticate a user's workplace, we've found quotes from current and former employees on Blind that back this up. Since no one can use Blind without a verified work email address, we believe this is the current process.

⚰️ Annual reviews are dead: Switching up the cadence

Microsoft scrapped the concept of annual performance evaluations in favor of bi-monthly check-ins with managers. 

We found more details when a new hire asked about when reviews occur on Blind. 

Current and former employees chimed in on both the exact schedule and performance checks:

"Reviews are in Aug through early Sep. Bonuses used to be in the Sep 15 paycheck." Former Microsoft employee

"One of the September paychecks will be the bonus, reviews happen when you wrote, and it's a back and forth with your manager on your review." Current Microsoft employee

🤝 Factors that drive reviews: Collaborating, not competing

In 2013, Microsoft quashed its controversial stack system that pitted employees against each other and moved towards a culture of collaboration. 

In an interview with Business Insider, Kathleen shared the three factors emphasized in reviews:

"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. [...] 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'."

Employees can't put their heads down and work because they're evaluated based on how they help others.

🌈 Inclusion: Making it a part of the review process

Instead of preaching diversity and inclusion, Microsoft decided to start living it. 

In 2016, they incorporated inclusion into the performance review process. 

"We refer to this as a "shared core priority." which calls for ongoing dialogue between employees and managers to discuss how each person can incorporate inclusion into their daily work, in both large and small ways." Lindsay-Rae McIntyre, Chief Diversity Officer at Microsoft.

In reviews, employees discuss their peers' work and its impact and how inclusion is being practiced within the team and the organization so that diversity can flourish.

OKRs also help teams improve the broader company culture. 

"We want all employees to think about how to improve our culture, and we build that directly into our team OKR. Currently, our objective is to create a diverse, inclusive team that can balance business performance and well-being." Maryleen Emeric Leal, Chief of Staff for the Microsoft Modern Work marketing organization.

"Review discussions are happening now [June]; you should have completed your connect in May. Your manager is having discussions now or has already wrapped them up, and the discussion has started going up the levels. In July, the numbers will be locked, and if you have a good manager you should get the results back from mid to end of August. In September you should get your bonus and the first stocks should start vesting on the next vest cycle (Dec I believe)." Current Microsoft Employee.

👯🏾 Brain-friendly peer feedback tool: Asking for feedback

Peer feedback is a fundamental part of the growth culture mindset at Microsoft. 

And so, in 2018, Microsoft adopted a new behavioral approach to peer feedback together with a tool called Perspectives.

Practically, employees ask for constructive feedback over Skype, email, and in-person conversations. And "Perspectives" acts as another channel to collect feedback. 

Kirsten Roby Dimlow, corporate vice president of Microsoft Human Resources Total Rewards and Performance, shared: 

"The questions are all qualitative with prompts for real examples and ideas for improvement. There are no simple check boxes, no pre-determined attributes to measure. Instead, there is room for observations or, said another way, perspectives."

Managers and employees can see responses in real-time and go through the comments together.

🔍 4 Reasons behind Microsoft's current performance review system

Microsoft's performance review before 2013 was hyper-competitive. 

But after the massive cultural shift that happened when Satya Nadella took over as CEO, the process has become employee driven and collaborative. 

It's only fair to dive deep into why the shift happened and explore the cultural makeover and the death of stack rankings and annual reviews.

Stack rankings were controversial and killed innovation

No matter how well an employee performed, the individual would still get a bad review because a certain percentage had to be ranked as bottom performers compared to their peers.

"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." Kathleen Hogan.

Microsoft didn't invent the stack rankings, but it did mean that when layoffs happened, "bottom performers" were naturally the first to go. 

Employees complained about stack rankings for years on Glassdoor, leading to poor morale and "crippled Microsoft's ability to innovate."

Dave Plummer, a former Microsoft employee who invented Task Manager and many other software products and was granted several patents in his ten years at the company, shared his thoughts on stack rankings on YouTube:

The new review process, which includes peer feedback, frequent discussions, and collaborative impact, was naturally a welcome change.

Note: Employees on Blind corroborated that stack rankings no longer exist, and there is no "forced curve," but budget constraints still exist. That means similar performances may not beget similar raises.

Annual reviews are dreaded, inaccurate, and time-consuming

Employees generally hate the thought of annual reviews. 

It is not beneficial to employees or managers to formally discuss performance once a year, especially when a bad review can mean no increment or, worse, being laid off. 

An SHRM article shared research from CEB, a management research firm, that cemented why annual reviews were dead.

CEB found that more than 9 in 10 managers were dissatisfied with the reviews. Plus, almost 77% of HR leaders reported that the process didn't accurately portray employee contributions. 

In addition, the whole process was time-consuming. On average, managers spent 210 hours a year in performance management activities, and each employee spent 40 hours a year.

CEB's research also uncovered some other harsh truths:

• Individual performance had 0 correlation with business performance.
• Performance reviews created an uncomfortable dynamic between managers and employees. And neuroscience research found that it made employees defensive and resulted in worse performances, even for top talent.
• Employees perceived the review process as unfair and "rigged." When companies aren't doing well financially, managers may be asked to deflate appraisals so the company doesn't spend too much on increments and bonuses.
• People leave jobs much faster, so annual reviews and engagement surveys made no sense.

So when Microsoft killed its stack rankings, it also eliminated annual reviews in favor of more frequent check-ins through Connects.

Peer feedback was uncomfortable and scanty

In 2018, 90% of employees found sharing and receiving feedback valuable, but only 25% said they got regular feedback from peers.

Plus, only 7% got feedback about how they could improve—something employees wanted the most.

This gap between what employees valued and why they ended with less feedback routinely is likely due to how uncomfortable it is for both parties involved when feedback is "less than positive" and the strain it puts on interpersonal relationships.

Kirsten Roby Dimlow, corporate vice president of Microsoft Human Resources Total Rewards and Performance, worked with David Rock and the NeuroLeadership Institute to understand the neuroscience of feedback:

"Our basic human physiology is hardwired to respond to both physical and social threat and reward. Therefore, despite our best efforts to appear open to feedback, it's often natural—in fact, totally human—to perceive it as a threat. And that triggers a cascade of "fight or flight" responses in the brain that put us on the defensive and limit our ability to effectively take in the information we want to learn so we can get better."

And so Microsoft adopted a new behavioral approach, and a brain-friendly tool was born. 

In Kirsten's words, the new program "shifts the mindset from traditional "feedback" to one of gathering "perspectives"—combining learning culture and behavior change with a new feedback approach that helps employees understand how to engage in the process in a more constructive way."

An employee-driven collaborative culture is important

With the death of stack rankings, a massive cultural shift occurred at Microsoft. 

Satya Nadella achieved the "One Microsoft" vision, which meant product groups at Microsoft were no longer at war with each other competing for resources.

As part of this "One Microsoft" strategy, Microsoft changed its approach to performance and development. 

First, they killed the stack ranking system and stopped allocating rewards based on a pre-determined distribution curve. 

Then, the company culture was overhauled to focus on core values like inclusion, teamwork, collaboration, and employee growth and development. 

Here's how Microsoft transitioned to a more employee-drive culture:

• Inclusion became a part of the performance review process.
• Performance reviews included how individuals leveraged other people's work.
• They adopted a new brain-friendly tool, "Perspectives," and a behavioral approach to peer feedback.
• They embrace OKRs to measure business performance and improve employee engagement.
• Connects replace annual reviews. 

🗝️ The key to Microsoft's performance review success

The company does not publicly disclose data that reveals how the new performance review system has affected employee performance. 

But if awards and employee reviews are anything to go by, it's safe to say that the new system works. 

Microsoft won 3 awards in 2023 and 11 in 2022 on Comparably. 

2023: 

• Best Global Culture
• Best Company Outlook

2022: 

• Best Company Culture
• Best Company Compensation
• Happiest Employees
• Best CEOs for Diversity
• Best Glibal Culture
• Best Company Outlook

Based on 49,995 ratings and 3,991 participants, Microsoft employees seem satisfied with their work experience. 

Also, Microsoft's relevance and profits exploded, even during the pandemic.

Financial success closely ties to employee performance and, consequently, the performance management system.

Embracing the growth mindset

In a 2021 interview with Human Resource Executive, Kathleen Hogan attributed much of the change to the mindset shift. 

From a fixed mindset that could not spot trends and make space for creative changes, Microsoft embraced a learning culture. 

The company became a safe space where employees could: 

• Learn from each other.
• Embrace failure.
• Collaborate.
• Innovate.

Relying on AskHR

AskHR is Microsoft's internal tool that helps with all things HR, answering employee questions, and includes support for complex queries about employee performance.

"AskHR gives Microsoft HR the ability to react quickly to changes within our corporate environment.

When COVID-19 hit, we were able to organize and prioritize pandemic-related cases, allocate advisors to the proper queues, and shift the focus of our HR support to meet needs on an ongoing basis, whether day-to-day or week-to-week, as different demands and situations came and went." Andrew Winnemore, general manager, HR Services.

When employees have a complex performance-related question, AskHR assigns advisors and prioritizes the request so human HR executives are not overwhelmed by hundreds of inquiries. 

Going all in on people data

Microsoft has routinely used internal data to inform changes to its performance review process. 

Data led to the elimination of stack rankings. Internal surveys also backed the introduction of OKRs and Perspectives.

Microsoft's continuous shift from accountability to learning will remain rooted in people data. 

This data-driven policy showcases how companies can take advantage of people data to improve other aspects of the employee experience.

For instance, during the pandemic, Kathleen used daily pulse surveys to identify specific pain points and implemented game-changing benefits and help. 

➡️ How can you implement a performance review process like Microsoft?

With a little help from Zavvy, you can emulate Microsoft's performance management and review process. 

Whether it's for:

• Training managers on new processes. 
• Creating space for leaders to discuss promotions and rewards. Carrying out check-ins with employees. 
• Conducting 360 reviews, Zavvy is the go-to tool for you. 

💼 Train managers and set up discussions

When Microsoft introduces a new tool that benefits the performance review process or adopts a new behavior, managers are trained to use it and cultivate a learning culture.

Zavvy lets you create self-paced learning journeys and enables peer learning in an easy-to-digest format through email or Slack nudges.

Our research also found that managers get together to discuss promotions and rewards. 

Zavvy lets you set those up too. 

For instance, Zavvy helped Freeletics create a People Manager Roundtable that brought different team leads together every six weeks.

🔁 Make self and peer feedback easy

Microsoft uses its internal tool, Perspectives, to collect constructive peer feedback and "Connects" to discuss self-feedback.

You could spend time building internal tools or use Zavvy's easy-to-use 360 feedback software.  

With Zavvy, you can set up a fully customizable company-wide meaningful feedback system for upward, downward, peer, or self. 

While Microsoft's peer feedback makes it an individual's responsibility to ask for feedback, it is time-consuming to go around having those conversations. 

Zavvy helps you automate those discussions and reminds people when they have to provide peer feedback and set up times to discuss and share that feedback. 

You can also combine feedback types, manage transparency, choose questions and audiences, and let Zavvy handle the rest.

STEP 1: Name your feedback cycle

Give the cycle a name that all stakeholders can understand. For instance, if you recreate Microsoft's Connects or check-ins, you can name it 360 feedback or Bi-Monthly Check-In. 

Add a description (optional) to explain the purpose of the review cycle. 

STEP 2: Choose the type of feedback you want to collect

While there's no explicit mention of managers reviewing employees or vice-versa in documentation we could find about Microsoft's performance reviews, it's a common practice to collect upward and downward feedback.

So you can select all of them. 

STEP 3: Create questions for each feedback type

Although we know feedback is based on qualitative questions, we don't have the exact questions Microsoft uses in its performance reviews. 

So for each type of feedback you want to collect, create questions from scratch or choose from Zavvy's templates (created by learning scientists). You can also add additional instructions so users know what to write in their answers.

PS: Microsoft does not have a rating system. So you don't have to enable that.

Here are some qualitative questions you can add for each type of feedback:

Self-feedback:

• What was the biggest impact you had in the last review period?
• Make a summary of your key contributions. 
• What's one thing you do well that you plan to continue doing?
• What is one thing that your peer could do differently to have more impact?

Peer-feedback:

• How well do you know the project your peer discusses in their self-evaluation?
• How significant was your peer's impact on the project?
• What is one thing that your peer should do more of?
• What is one thing that your peer could do differently to have more impact?

Upward feedback:

• What would you recommend your manager keep doing?
• What would you have your manager change?

You can add Yes/No statements on Zavvy to indicate your manager's role in your performance.

Still, we're skipping those here since Microsoft doesn't believe in checkboxes. 

Downward feedback:

How would you qualify your employee's performance over the last review period?

• 1. Needs improvement
• 2. Consistently meets expectations
• 3. Exceeds expectations
• 4. Strongly exceeds expectations
• 5. Superb

It's unlikely that managers at Microsoft use rating systems to quantify employee performance. Still, calibration meetings would require putting employees in different buckets.

📆 Set up recurring check-ins

To recreate Microsoft's "Connects" and check-ins, you would need to:

• Set up all those 1:1 meetings.
• Track goals.
• Collaborate on priorities.
• Make notes on employee performance.

Without an internal tool, you'd have to use a hodgepodge of different tools to facilitate this process. But with Zavvy's meeting tool, all things 1:1 stay in one place. 

• Pulse questions: Managers can check in on blockers, well-being, and task load, along with performance-related questions, ahead of the meeting.
• Collaborative agenda: Managers and employees can collaborate in preparing the meeting agenda.
• Action items: Tasks and goals can be saved and tracked in a central place. 
• Private notes: Participants can make notes privately to jot down important (but secret) discussion points.

📈 Run flexible performance reviews

Microsoft has overhauled its performance review system and will likely continue making changes based on business performance and people data. 

The company ditched the ranking system and annual performance reviews. Instead, they introduced neuroscience-backed tools and made inclusion a core part of the process. 

The central idea behind those changes was to be more employee-centric and adopt a growth mindset. 

In practice, it means being more flexible, removing inherent bias from the process, and stopping wasting time writing and working for reviews. 

Zavvy helps you do just that with its performance review software. 

You don't have to compromise your company's culture to fit online templates. 

STEP 1: Customize every aspect of the review:

• Who to ask about employee performance: Peers, managers, teams, or only self?
• What to share about the performance: Should the results be anonymous? If so, which part?

• What to evaluate: Do you want to measure OKRs, team priorities, shared company values, or role competency?

• How to rate: Do you want to eliminate or incorporate rankings and rating scales?
• Who to rate: Should leaders and teams be rated while others are not?

• What is the timeline: How much time do the reviewers have at their disposal?

STEP 2: Guide, engage and remind everyone

You don't have to lift a finger after setting up the review process. Zavvy handholds each employee through the process and automates reminders to complete the review. 

STEP 3: Add a calibration step and analyze data to spot issues and talent

You can add a calibration step to ensure the review process is fair and transparent.

Usually, this involves managers getting together to discuss their proposed employee ratings so top performers don't end up with a 3 for "meeting expectations" on one team and with a 5 on another when they "exceed expectations."

While Microsoft doesn't rank employees, managers influence pay raises and naturally need to identify top talent and bottom performers.

Post calibration, Zavvy's software also lets you analyze your people's competency profiles so you can spot the best performers and talent density. And see if some leaders have routinely received negative feedback so you can address toxic leadership early and head-on.

STEP 4: Connect results to career progression frameworks and growth plans

When managers identify underperforming employees, they contact Microsoft's internal HR system AskHR to start a consultation on an employee's performance. It could take up to 6 months before planning an exit.

Recently, some managers were asked to embrace "good attrition" and nominate employees to be laid off without performance coaching if HR agrees.

But this isn't a company-wide strategy. The focus is still on employee development. 

And you can do the same with Zavvy's help. Reward performance and identify issues by taking targeted action. 

For instance, you can set up performance development plans for employees struggling in their roles and track those goals. 

Book a free 30-minute demo with Zavvy's learning experts to see how to create a human-first performance review system that improves your business performance and keeps employees engaged.

🙋‍♂️ The future of performance reviews in the hybrid workspace is "human"

Traditional performance review systems cannot hold up in the hybrid workspace. 

Companies that believe that a performance review means setting goals and meeting once a year to discuss them will be left behind.

Microsoft and other Fortune 500 companies have come a long way in making reviews more employee-centric, frequent, and less about individual performance. But there's more work to be done.

Employers need to factor in employee well-being when managing performance. 

If people data indicates that an employee is on the verge of burnout, managers should step in and encourage them to take time off and share internal or external mental health resources.

Companies (especially tech) should stop using performance discussions as a tool to weed out underperformers. Unchecked growth has caused several companies to announce frequent "mass layoffs." And survivors of layoffs show a 20% decline in performance. 

Not to mention the decline in trust and morale. 

Changing workforce needs require a creative solution. For instance, in 2013, AT&T realized that 100,000 of its 240,000 employees were working on jobs that were no longer relevant. 

So instead of letting go of employees and spending time and resources on training new talent, they decided to retrain their existing employees by 2020. 

Since 2013, AT&T's revenue has increased by 27%, and in 2017, the company made Fortune's 100 Best Companies to Work For list for the first time. 

Taking a human approach to performance management is the only way businesses can continue to grow responsibly and retain top talent year after year.