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.

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.