Set a stack ranking system to evaluate employee performance
Many companies can have a hard time evaluating employee performance. It is often up to the managers to carry out this task. But their opinions can be unbiased and, coming from a superior hierarchical position, they might not have as good an input as the employee's coworkers regarding his or her performance, as they are in the same level of hierarchy.
Valve believes that peers are the best judges of each other's value to the company. Valve uses a "stack ranking" system to compare the employees' performance to each others' in order to determine who are the ones that bring the most value to the company and those that bring the least. When this is set, employee compensation is adjusted according to the ranking.
Ask each employee to rank the peers he or she has worked with in teams during the year
Employees cannot rank themselves, they can only evaluate the peers they have worked with in project/product groups, in the most unbiased way possible. Valve's flat structure allows for more unbiased opinions than in other organizations, as there is no hierarchical structure.
Tell the employees to rank according to these metrics
- Skill level/technical ability.
- Group contribution.
- Product contribution.
Extrapolate the information to the whole company
Once employees have made their rankings for their group members, employees are stacked up against the employees they have worked with. Now, employees need to be ranked against the workers of the entire company in order to later be able to adjust their salaries according to where they stand in the employees ranking.