Use of Bell Curve in Performance Appraisals –

Good or Bad?

Before we go deep into the science of Bell Curve in performance appraisal,

do you really think it is fair to categorize your employees in boxes designated
as ‘top performers’, ‘average performers’ and ‘non-performers’!

There are a number of opinions, both for and against this concept, and we
can help you make an informed decision through this post.

What is a Bell Curve?

Google says the following when you search for the term “bell curve”:

“a graph of a normal (Gaussian) distribution, with a large rounded peak

tapering away at each end.”

Ugh! Doesn’t help us understand much!

So let us try to explain this in simple English using some basic statistical
concepts.

You have a large data-set such as employee earnings, age, performance

appraisal scores, number of defects per 1000 items, call handling time or any
other data that you want to analyze.
You want to look at this data to better understand the patterns, predict
future outcomes and take proactive decisions. So what are the options for an
analysis?

Gut feel: While followed the most frequently, and often based on our past
experiences, this is the least scientific method to analyze data.
Mean: You find the average of the data set and use that for predicting
behavior. This fails often since very large (or very small) values can skew
results.
Scatter or cluster chart: This can give an idea of where most of the values
are. But you cannot analyze the data further.
Median: You order things in a sequence and then find the midpoint. This
avoids the problem with mean but still doesn’t allow analysis.
Bell curve: By using a statistical package or a spreadsheet program, you can
quickly determine standard deviation and draw a curve of the population –
called the bell curve.
Standard deviation implies how spread-out the numbers are.

While we will explain the concept of a normal distribution through an

example ahead, the general rules for a standardized normal distribution are

 – 68% of the population of the data-set will lie within 1 standard

deviation of the mean.
 – 95% of the population will lie within 2 standard deviations of the
mean.
 – 99.7% of the population will lie within 3 standard deviations of the
mean.
And the same can be illustrated pictorially as:
 Source
Why is the bell-curve used?
Let us look at an example to understand the benefit of the normalized
distribution (or a bell curve), when applied to a business scenario.

Assume we have 1000 employees in our organization and we find that their
average age is 32 years with a standard deviation of 4.

Using the standardized normal distribution explained above, we can

conclude that

 – 680 employes (68% of 1000) will be within the age range of 28 (32 – 4)
years  and 36 (32 + 4) years. (68% of employees will be within one
standard deviation of the mean. )
 – 950 employees will be within age of 24 years and 40 years (95% of
employees will be within two standard deviations of the mean.)
 – Only 3 employees will be either less than 20 years in age or more
than 44 years in age (And 99.7% will be within 3 standard deviations or
0.3% will be outside this range.)
The normalized distribution or a bell-curve based analysis can help us plan
employee benefits, setup office environment to cater to the appropriate age
groups, identify career growth aspirations and also project attrition, hiring
needs etc.

Just looking at the mean or median would not have helped us do any such
analysis.
Similar analysis can be carried out for a  variety of data points, and
specifically in our case, the outcome of the performance appraisals.

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History of the Bell Curve in Performance Appraisal

While productivity of employees has been measured since the beginning of
the industrial revolution, the bell curve gained popularity when Jack Welch,
the famed CEO of GE implemented this within his organization.

The concept has various names such as stacked ranking, forced ranking, rank
and yank and the vitality model and is described as a “20-70-10” system by
GE. It says:
The “top 20” percent of the workforce is most productive, and 70% (the “vital
70”) work adequately. The other 10% (“bottom 10”) are nonproducers and
should be fired.

This system, while credited with increasing GE revenues 5 fold, has been
labeled as too harsh, said to affect employee morale and has been the
subject of a fierce debate.

Each coin has 2 sides and the same applies to Bell Curve Performance
Management too. Let us explore the benefits and challenges with
normalization of the performance appraisal scores.

Benefits of Performance management based on the Bell

Curve
Identify Top Performers through the Bell Curve Grading
The forced ranking compels managers to make decisions and differentiate
between different employees.

Those who are identified as high-top performers are rewarded: they feel
motivated and work harder to grow in the company. Such employees are
called HIPOs.

HIPO growth and career plans can be developed suitably, and initiatives
taken to retain them within the company. This not only helps retain the top
talent but also helps build succession pipelines.
Removing manager bias

The bell curve is perhaps the only method that can be used by the
organization to manage leniency and strictness of managers’ ratings.

Lenient scores mean a larger cluster of employees in a high-rating group (a

right-skewed bell-curve), and strict scores mean large numbers of employees
in a low-rating group (a left-skewed bell curve).

This scoring may change from one manager to the next making the
performance appraisal unfair for one group of employees.

These unbalanced scoring may demotivate high performers and retain

mediocre employees.

The average manager tends to rate on a lenient scale. Use individual z-scores
to remove manager bias easily.
Identify Suitability of Employees in a Job Position

An underperforming employee may be more suited for another position in

the company.

The forced ranking with adequate analysis and HR intervention can help
identify other positions for employees.
By analyzing capabilities, skills, strengths and weaknesses, HR can play a key
role in employee development and place employees in positions that map
better to their individual capabilities.
Manage Training Needs

The training management talks about the importance of the correct

allocation of training to employees. The bell curve graph can help identify the
training needs applicable to different groups of employees.
Disadvantages of Bell Curve
Too Rigid

Using the bell curve model in performance management may be considered

a rigid approach for rating employees.

Sometimes managers need to put employees in specific gradients just for the
sake of bell curve requirements. This happens more often when the teams
are small.

Loss of Morale

The bell curve appraisal creates anxiety in the mind of employees who

may worry about the possibility of an exit during tough job market
conditions.
This may lead to further deterioration of job performance.

Not Suitable for Small Companies

The performance review in bell curve is not suitable for small companies
where the number of employees is less than 150.

With fewer employees, the categorization cannot be done properly, and the
results are often erroneous.

While there is an ongoing debate on the bell curve based normalization

methodology, an additional 360 feedback may help ease some of these
doubts.
Conclusion and next steps
Many organizations, while publicly opposed to stack ranking, believe that
they don’t have a viable alternative for recognizing, rewarding and retaining
top performers.

In addition, companies are unsure if the employee productivity challenges

exists because employee goals were not SMART, the managers did not
coach often, because of skill gaps or other inherent business challenges.
Hence most organizations still continue with some kind of stack-ranking or
bell curve performance management to identify and motivate top
performers and work on developing the rest of the staff.
As mentioned previously, you may use Bell Curve Appraisal successfully to
identify top-performers and use other tools such as 360
Feedback, Continuous Performance Management, and Project-centric
evaluations to determine the capabilities, promotability, recognition and
training needs of all employees.
It is important to say  that Bell Curve Appraisal should not be used  to create
fear or terminate employees.

-----------------------------------------------

Time to move away from the Bell Curve Performance

After more than 40 years of adopting the Bell Curve into Performance Appraisal systems, why
big companies are moving away from the Bell Curve?

The bell curve-based performance appraisal refers to forced rankings which compare employees'
performance relative to others and require that managers plot team members along a distribution
curve. 

The bell curve (one of the most popular appraisal methods), which has been around since the
1970s, was made famous by General Electric’s (GE’s) former chief executive, Jack Welch. This
led to companies, in segments as diverse as manufacturing and the knowledge sector, adopting
the method of force-fitting employees into various buckets, where performance becomes relative.

Over the past few years, some of the most admired big companies moved away from using this
model such as Google, Microsoft, Amazon, Deliotte, adobe, KPMG, Accenture, Infosys, IBM,
Wipro, Cisco, Netfix, & GE (the company that introduced and mastered this model).

Some can debate that the bell curve creates too much emotional stress, and most importantly, it
destroys the loyalty factor and leads to high levels of attrition. A study by the Society for Human
Resource Management found that 90% of performance appraisals are painful and don’t work.

HR experts say that the forced rating methodology was losing relevance, and companies are now
looking to move towards an appraisal system free of forced rankings in the current financial year
and years to come.

The reason why the bell curve has existed for so long, it that it has provided a predictable way of
identifying the top and bottom performers, and has been a transparent way for companies to let
employees know where they stand.

Over the last few years, the increasing need for collaboration and innovation has begun ringing
in the change, with companies citing reasons ranging from employee motivation to dissolving
team silos, the pressure was on to find other suitable models and firms started to rely on a regular
feedback mechanism to monitor performance and rewards.

According to HR experts, there are two reasons for this move. One is that this system was
designed for the manufacturing world and implementing it in IT and other services companies
was creating a problem, moreover, the younger people, who form the bulk of the workforce
nowadays, want quick feedback and resolution rather than waiting for the formal mid-year or
end-of-year exercise.

With the bell curve, there was forced ranking and a mandated distribution of 20% as the top
performers and 5% as bottom performers. This was counter-intuitive to the collaborative culture
and instead created internal competition.

While companies will continue to differentiate among employees when it comes to rewards, it
need not boil down to a number, say experts.

In short, the time has come to look at incorporating other means of assessments including 360
degree feedback, Management by Objectives (absolute rating based on goals), Graphic rating
scale (evaluating on behaviors and job characteristics) and timely feedback on ongoing basis.