Microsoft employees woke up to some good news this morning, when bosses sent out a company-wide email announcing the end of its despised “stack ranking” review system for workers’ performance.

The email, which was obtained by the ZDNet’s Mary Jo Foley, came from Lisa Brummel, executive VP of Redmond’s human resources department, and explained that employees will no longer be assessed and ranked on a bell curve, as the company has previously done:

“We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution,” said Brummel. “Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.”

Before, Microsoft required that its various department managers ranked their employees in different segments – “top performers”, “good performers”, and all the way down to “poor performers”, irrespective of whether or not anyone actually deserved these labels. Called “stack ranking”, this kind of review system was inaugurated by General Electric CEO Jack Welch back in the 1980s. Welch went on to win Fortune magazine’s “Manager of the Century” award in 1999, but the policy hasn’t gone down so well over at Redmond. Rather, critics have said that the policy in fact drive away many talented employees from the company, as many were unfairly labeled as “poor performers” and forced to compete with their peers rather than focus on their actual jobs.

Last year, Vanity Fair went as far as to blame the policy for “Microsoft’s lost decade”, when the company completely missed the boat with the emergence of devices like smartphones, tablets and e-readers.

In her email, Brummel announced that Microsoft would in fact be doing away with rankings altogether. Instead of rating employees, the company plans to focus more on collaboration and teamwork, with future performance reviews taking this into account.

The news might not impact consumers directly, but could well help to re-energize Microsoft as it looks to restructure itself as a ‘hardware and services’ company around Steve Ballmer’s “One Microsoft” strategy. If nothing else, by doing away with its unfair ranking system, Microsoft will at least become a better place to work and that could help it to attract the new talent and ideas it needs to help it in its pursuit of Google, Apple and others.