The Bell Curve dilemma

It was November 12, 2013. Much to the delight of the employees of the software giant Microsoft, Lisa Brummel, the then HR head of the company, issued an internal memo. 

"No more curve" -- was the key message of that famous communication. While this was not truly a surprise for the employees, it was definitely a long awaited and much expected change that the management and employees were looking for.

The memo also said, "And no more ratings".  

Like many other companies, Microsoft had been following the Bell Curve method to evaluate employees' performance.

Over the years, many of the employees were in the opinion that this ranking system led the colleagues to compete against one another. 

There were many instances when despite strong performances many staff members were ranked either average or poor performers -- because of the inherent nature of the tool. Consequently, the company lost a large number of talent.

Steve Ballmer, the legendary chief executive officer of Microsoft, drove hard to come out of that age-old performance management tool before his retirement. 

Finally, on Nov 12, 2013, Microsoft axed the controversial tool of evaluating the performance of its employees -- the main driving force for any organisation.

Performance management is a key for employee motivation and productivity and ultimately, in reaching the overall objectives of the organisation.

Through this process, the manager and employee set objectives, monitor progresses and, finally, the employee's performance is assessed against the set objectives also known as KPI, an acronym for Key Performance Indicators. 

One of the key outcomes of this process is to review the compensation of the employees based on the performance ratings. This is normally done on an annual basis.

The ultimate objective of the performance management, however, is to improve the overall employee effectiveness. 

Over the years, businesses have been using a concept popularly known as the Bell Curve to evaluate and rate employee performance. This concept was, in fact, introduced first at General Electric by the then CEO Jack Welch. 

A bell curve is also known as normal distribution curve or Gaussian distribution. Because of the bell shape, it is called the bell curve. This is a statistical tool that shows that extremely-large values and extremely-small values are infrequent or occasional.

The most-frequent values are clustered around the mean or average value of a set of data. 

A similar concept is applied for performance management. It is assumed that there are basically three categories of performance: high performers, average performers and low performers.

The high performers are exceeding the expectations, the average performers are just meeting the expectations and the low performers need to improve their performances.

The concept further outlines that typically, 70 percent of the employees of any organisation or a team are average performers, 20 percent high performers and the remaining 10 percent low performers. 

As the distribution is predefined, it is sometimes also called forced ranking.

Once the ratings are done, the organisation is expected to take below actions:

 Reward high performing employees to boost their confidence and motivate them to achieve business goals.

 Encourage average performers to work harder and get into the square of highest performance.

 To guide the low performers and get them back on the track of better performance.

Although the Bell Curve method has been practised by many organisations over the last two decades, management experts, HR professionals and even employees started challenging the effectiveness of the tool.

Like Microsoft, there were many reputed global organisations -- Google, General Electric, Cargill, Eli Lilly, Accenture, Adobe -- that came out of the Bell Curve-based performance rating system.

Let's try to dig further into this tool to identify the challenges and the disadvantages associated with this widely used method:

- Theoretically, the Bell Curve is a scientific tool. However, one key fact that gets often overlooked is the size of the data. For any statistics to be valid there needs to be minimum set of data. For that matter, for any distribution to be normal, the size of the sample has to be at least 30. The bigger the data size, the better. Therefore, when this tool is applied to a small team it will not naturally reflect the true picture; rather, it will result in erroneous ratings for the employees.

- Because of the predetermined criteria (70 percent average, 20 percent high and 10 percent low performers), there could be situations where high performing team members would be rated as average, only because there are no more slots left in the high performance category. Similarly, few employees could slide into the category of low performers just to match with the tool.

Eventually, the employee gets wrong rating, which leads to unfair compensation and benefits and in the long run halts the career growth.

This begs the question: so, what is the alternative?  

There are various approaches that are being adopted by businesses. Instead of a yearly review system, many companies are opting for more regular and frequent feedback to their employees to help them to achieve their goals.

Some companies are doing quarterly assessment.

Companies like Microsoft are promoting collaboration and teamwork. Instead of measuring individual performance, a team's results are being taken into consideration and eventually the team is rewarded on the basis of their collective performance.

Measures like profit-sharing have proven to have better motivational affects.

In general, the employees care for fair payment as per the market benchmark.

The so-called performance rating system to reward people puts pressure not only on employees but also on their managers. The Society for Human Resource Management in one of its studies found that 90 percent of performance appraisals are painful and do not bring any meaningful result.

More often than not, employees get demoralised and the working relationships with their managers deteriorate. As a result, the overall productivity of the organisations goes down.

Time has come to revamp the traditional ways of appraising and rewarding employees. No wonder reputed and dynamic companies are redefining performance management to nurture the culture of high collaboration and driving sustainable business results.

The writer is the managing director of Syngenta Bangladesh Ltd.