Use of Bell Curve in Performance Appraisals – Good or Bad?

Before we go deep into the science of Bell Curve in performance appraisal, let’s consider: Is it fair to categorize your employees in boxes designated as ‘top performers’, ‘average performers’ and ‘non-performers’!

There are several opinions, both for and against this concept. Read this post to understand its significance for your workplace.

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 explain this in simple English, using some basic statistical concepts.

You have a large data set. It could include employee earnings, age, performance appraisal scores, and number of defects per 1000 items. It could also cover call handling time or any other data you want to analyze.

You want to look at this data to understand the patterns better, predict future outcomes, and take proactive decisions. So what are the ways to analyze patterns? Let’s discuss these.

Gut feel: While followed 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 often fails, 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 set things in a sequence and then find the midpoint. This avoids the problem with mean, but still doesn’t allow analysis.

Bell curve: Using a statistical package or a spreadsheet program, you can quickly determine standard deviation. In addition, you can also draw a curve of the population. This curve is called the bell curve. Standard deviation implies how spread out the numbers are.

General Rules for a Standardized Normal Distribution

And the same can be illustrated pictorially as:

Source

Why is the bell curve used?

Let us look at an example. This will help in understanding the benefit of the normalized distribution (or a bell curve) when applied to a business scenario.

Let’s assume we have 1000 employees in our organization. We find that their average age is 32 years, with a standard deviation of 4.

Using the standardized normal distribution explained above, we can thus conclude that,

• 680 employees (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 the 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. 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 in various ways. 

Firstly, it can be helpful in planning employee benefits. Secondly, we can setup office environment to cater to the appropriate age groups. Thirdly, it can help to 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. Especially the outcome of the performance appraisals.

History of the Bell Curve in Performance Appraisal

Productivity of employees has been measured since the beginning of the industrial revolution. Yet 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. This is described as a “20-70-10” system by GE. It says:

On one hand, this system is credited with increasing GE revenues by 5 fold. On the other hand, it has been labeled as too harsh, affecting employee morale adversely. This even made it 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.

The company can develop suitable growth and career plans for HIPOs and take initiatives to retain them within the company. This not only helps retain the top talent but also helps build succession pipelines.

Removing manager bias

Perhaps the organizations can use the bell curve 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). The 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 scores 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. They can keep employees in roles 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 in Performance Appraisal

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 for employees. They 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 the bell curve is not suitable for small companies, with less than 150 employees.

The categorization cannot be done properly with fewer employees. Therefore, the results are often erroneous.

For a long time here has been an ongoing debate on the bell curve based normalization methodology. However, inclusion of  360 feedback helps clear some of these doubts.

Conclusion and next steps

Many organizations have publicly opposed stack ranking. All the same, they don’t have a viable alternative for recognizing, rewarding and retaining top performers.

Moreover, companies remain unsure about the existence of challenges in employee productivity. This uncertainty stems from various factors such as employees goals not conforming to the SMART framework, or there was infrequent coaching by managers. Additionally it may result from skills gaps or other inherent business challenges.

Hence most organizations still continue with some kind of stack-ranking or bell curve performance management. They do so to identify and motivate top performers and work on developing the rest of the staff.

As mentioned earlier, you may use Bell Curve Appraisal successfully to identify top-performers. You can also use other tools such as 360 Feedback, Continuous Performance Management, and Project-centric evaluations. These will help 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.

Frequently Asked Questions