Microsoft Corp. is abandoning major elements of its controversial "stack ranking" employee-review and compensation system, the latest blow against a once-popular management technique.

The Redmond, Wash., software company said it would no longer require managers to grade employees against one another and rank them on a scale of one to five. The system—often called "stack" or "forced" ranking—meant a small percentage of Microsoft's 100,000 employees had to be designated as underperformers.

The rankings were a key factor in promotions and in allocating bonuses and equity awards under Chief Executive Steve Ballmer, who in August said he plans to retire within a year. But many current and former Microsoft employees complained the system resulted in capricious rankings, power struggles among managers, and unhealthy competition among colleagues.

Microsoft said Tuesday it is dumping the numerical rankings in favor of more frequent and qualitative employee evaluations. The change took effect immediately.

That makes Microsoft the latest in a series of companies to eliminate forced ranking, which was widely copied in the 1980s after rising to popularity at General Electric Co. under Chief Executive Jack Welch. The system was often referred to as "rank and yank," because poor performers were encouraged to leave the company.