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

How can you create a culture of performance, growth, and inclusion in your organization? Take a cue from Microsoft’s performance management process. In an interview with Fortune Kathleen Hogan, Chief People Officer at Microsoft, explained that they rely on data to test their assumptions on how and where work gets done.

Employee empowerment is at the core of their policy-making. In 2024, employees ranked the company’s culture higher than most companies (with over 500 employees), beating the likes of Google and Netflix.

This article will unpack Microsoft’s approach to performance reviews and performance management. We’ve distilled information from Microsoft’s blog, executive interviews, and employee discussions online. We aim to inspire you with insights and strategies you can apply to your organization’s performance review process.

How does Microsoft’s performance management system look like?

In the early 2000s, Microsoft employed a “stack ranking” system, where employees were ranked against each other, leading to a highly competitive environment. This approach often discouraged collaboration, as individuals were pitted against their peers.

Under CEO Satya Nadella’s leadership, Microsoft has embraced a more growth-oriented and collaborative performance management system where employees and managers meet at least bi-monthly to discuss performance. It is a continuous process that goes beyond measuring individual performance.

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

Improving internal efficiency and employee engagement with OKRs

How employers and employees think about work evolves as the hybrid workspace has become a new norm. Employees seek flexibility, work-life balance, and purpose-driven work. However, they also seek clarity in their roles, targets, and deliverables.

Microsoft’s solution to employee engagement and internal efficiency is using objective and key results (OKRs) through their solution, Microsoft Viva Goals.

The formula for crafting OKRs at Microsoft | Source: Microsoft

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

Several articles reference help documentation for Dynamics 365 that details the performance management process with three primary components:

1. Performance journals allow employees to jot down events and activities that contributed to their success and the praise they received
2. Performance goals are created in collaboration with managers and can be simple or complex and span several review periods
3. 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

Note that 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:

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

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.

Anonymous employee quotes on performance reviews at Microsoft | Source: Blind

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 Hogan shared the three factors emphasized in reviews:

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.

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.

Brain-friendly peer feedback tool: Asking for “perspectives”

Peer feedback is a fundamental part of Microsoft’s growth culture mindset. Microsoft adopted a new behavioral approach to peer feedback and a tool called Perspectives.

With the Perspectives tool, employees can suggest things their colleagues should “keep doing” and actions they should “rethink.” The “keep doing” category allows the feedback giver to call out the person’s strengths and suggest how to leverage them further. “Rethink” offers reviewees someone else’s perspective on how to approach something differently.

This feedback goes directly to the employee without a supervisor reviewing and distilling it first, and it’s no longer anonymous.

Kristen Roby Dimlow, Corporate Vice President of Microsoft Human Resources Total Rewards and Performance, shared:

Reasons behind Microsoft’s current performance review system

Microsoft’s performance review before 2013 was hyper-competitive. However, 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.

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 in a YouTube video.

Plummer observed that the effectiveness of an employee’s performance review could heavily depend on their manager’s ability to advocate on their behalf during evaluation meetings. Persuasive and assertive managers could secure better rankings and rewards for their team members. In contrast, those who were less vocal or assertive might inadvertently disadvantage their employees.

This system also introduced disparities based on team assignments. Employees working on high-visibility or critical projects, such as operating systems, faced intense competition and had to demonstrate exceptional performance to achieve favorable rankings. Conversely, those on less demanding projects might find it easier to attain higher rankings with comparatively less effort.

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

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 on how to 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.

Kristen Roby Dimlow, Microsoft’s Corporate Vice President of Global Talent Acquisition, Total Rewards and Performance, worked with David Rock and the NeuroLeadership Institute to understand the neuroscience of feedback:

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

An employee-driven collaborative culture is important

With the death of stack rankings, a massive cultural shift occurred at Microsoft. Satya Nadella pushed 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 doesn’t 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.

Based on over 50,0000 ratings and more than 4,500 participants on Comparably, 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

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: HR as enablers

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

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.

Additionally, Human resources leaders are instrumental in company-wide adoption of new policies, such as the implementation of the OKR framework. They ensure alignment to accelerate company culture and employee experience:

• They ensure access to learning and development planning resources, such as Q and A style documentation, to answer typical questions and provide a common base for understanding new processes
• They deliver consistent adoption messaging
• They support team leaders in the practical implementation of new frameworks

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.

No discussions of performance and productivity without looking at engagement

Employee engagement is not just a cultural priority but a strategic imperative with measurable financial impact. Research conducted by Microsoft shows that organizations that actively invest in engagement, especially during periods of economic uncertainty, see significantly stronger financial outcomes.

Why? Employees who feel energized and empowered to do meaningful work contribute more effectively, while those facing bureaucratic barriers struggle. Those who feel excluded or disconnected from decision-making report lower levels of engagement.

Engagement and productivity are mutually reinforcing, driving both individual performance and business success. By consistently measuring engagement and thriving, organizations can identify and address systemic challenges, ensuring that employees are not just productive but also fulfilled. This approach to engagement enables companies to adapt to the evolving expectations of their workforce and drive sustainable performance.

How can you implement a performance review process like Microsoft?

Highly engaged organizations excel in clear communication, goal setting, and responsiveness to employee feedback. With Deel Engage, you can replicate 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 peer and manager reviews,
• Planning for performance improvement and skill development, Deel Engage is the go-to tool for you.

Define organizational-wide OKRs

Microsoft uses its proprietary Viva Goals as a single source of truth for goals and how daily work contributes. The tool enables leaders to track progress toward goals without having to track down data. Similarly, employees understand how the projects they are working on impact team and company goals. This visibility around goals improves alignment, focus, and transparency.

Regardless of the goal-setting frameworks you choose, OKRs or another framework, Deel Engage’s performance module can streamline goals setting and tracking by:

• Customizing the platform to fit the structure of your goal-setting frameworks
• Defining objectives (parent goals) and key results (sub-goals) so that every individual and department stays accountable
• Assigning timeframes to each goal
• Using employee goals to add more context to 1:1 meetings and performance reviews
• Managing all team and individual goals from a centralized location

Make feedback collection easy

Microsoft has overhauled its performance review system and will likely continue making changes based on business performance and people data. In practice, it means being more flexible, removing inherent bias from the process, and stopping wasting time setting up reviews and chasing various stakeholders to leave feedback.

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 Deel Engage’s easy-to-use performance management module. With it, you can set up a fully customizable company-wide meaningful feedback system for upward, downward, peer, or self-evaluations.

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. Deel 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 (developmental and future-focused, or evaluative, focused on past work and results), manage transparency, choose questions and audiences, and let Deel handle the rest.

Deel Engage helps you automate multisource feedback and performance evaluations. Here is how:

• Customize every aspect of the review:
  • Who to ask about employee performance—peers, managers, teams, or only the employees themselves should fill in self-evaluations
  • What to evaluate: Do you want to measure OKRs, team priorities, shared company values, core competencies such as collaboration, or more technical role competencies?
  • How should the feedback be: Should the results be anonymous for all? Maybe only for the reviewee but not the manager?
  • What kind of feedback data to collect: Do you want to eliminate or incorporate rankings and rating scales?
  • Who to rate: Should leaders and teams be rated while others are not?
  • Additional steps: Should there be a calibration step before each person can receive their feedback report?
  • What is the timeline: How much time do the reviewers have at their disposal?

• Guide, engage, and remind everyone:
  • Inform all participants when a review cycle is open
  • Trigger reminders to ensure all reviewers are on track
  • All tasks will be available on each person’s dashboard—e.g., a person has to submit a self-evaluation, but also three peer reviews
• Conduct calibration:
  • Analyze data to spot inconsistencies across managerial reviews
  • Discuss promotions
  • Finalize performance reviews

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

Post calibration, Deel 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.

Use these questions for collecting high-quality 360-degree feedback

Next are some qualitative questions you can add for each type of feedback, adapted after Microsoft's philosophy.

Self-feedback

1. What was the biggest impact you had in the last review period? Make a summary of your key contributions.
2. What’s one thing you do well that you plan to continue doing?

Peer-feedback

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

Upward feedback

1. What would you recommend your manager keep doing?
2. What would you have your manager change?

Downward feedback

Ask these questions to evaluate individual performance in alignment with the three dimensions emphasized by Kathleen Hogan:

1. Individual impact: Can you provide specific examples where the employee has made significant contributions to their projects or tasks, and how these contributions have advanced team or organizational objectives?
2. Contribution to others’ success: How has the employee supported their colleagues’ development and success? For instance, have they mentored team members, shared knowledge or collaborated effectively to achieve collective goals?
3. Leveraging others’ work: In what ways has the employee utilized existing resources, tools, or expertise within the organization to enhance their own work? Can you cite instances where they have built upon others’ ideas or solutions to drive innovation and efficiency?

These questions aim to provide a comprehensive assessment of an employee’s performance by examining their achievements, their support for peers, and their ability to integrate and capitalize on the work of others, reflecting the “One Microsoft” philosophy.

Set up recurring check-ins

To recreate Microsoft’s “Connects” and check-ins:

1. Set up your 1:1 meetings via Deel’s Slack plugin
2. Track goals and collaborate on priorities and meeting agendas
3. Make notes on employee performance
4. Check in on blockers, well-being, and task load, along with performance-related questions, ahead of the meeting

Train managers and set up discussions

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

Deel lets you create self-paced learning courses and enables peer learning in an easy-to-digest, engaging format.

Moreover, you can personalize your courses according to individual employees’ requirements and preferences—add videos for those who are more visual or text for those who prefer going through the written material.

Use our LMS to create learning courses for your leaders covering key topics such as:

• How to set expectations
• How to give effective feedback
• How to assess and reward performance
• How to coach people

Link feedback to development 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.

Some managers were asked to embrace “good attrition” and nominate employees to be laid off without performance coaching if HR agreed. But this isn’t a company-wide strategy. The focus is still on employee development.

And you can do the same with Deel Engage. Use the feedback to identify skills or knowledge gaps and define a plan of action with the development plan feature. HR teams can define plan templates that managers and their teams can use to define the steps toward improvement.

Keep the pulse on staff engagement

Microsoft firmly believes that engagement and productivity are mutually reinforcing, driving both individual performance and business success. By treating engagement as a core performance metric—tracking it alongside financial results—your organization will position itself for long-term growth and resilience.

With the survey module on Deel Engage, you can run and automate engagement surveys with a lot of flexibility:

• Decide who participates
• Decide on the kind of questions you want to ask—quantitative and qualitative, or both
• Decide on survey length
• Decide on anonymity
• Decide on the frequency of the surveys—monthly, bi-yearly, etc.
• Mix and match different kinds of survey types—quarterly pulse surveys with a narrower focus and annual engagement surveys that target broader themes, etc.

You get an overview of the survey results and use these to inform strategic decision-making, embracing the data-driven approach of team Microsoft.

Enable high-performance teams with Deel Engage

Deel is not an isolated solution used only for feedback or performance reviews. We support your workforce in reaching its highest potential, from new hire onboarding to continuous learning and career growth.