Normalization of Employee Performance Review Scores

Rating Patterns of Managers in a Performance Review

During a performance review, managers tend to rate differently – some are naturally lenient while others are strict. However, more often than not, it is the employees reporting to them that experience the brunt of these variations. This impact becomes crucial in environments where organizations offer employees performance-based remuneration or incentives. To address this, normalization of employee performance review scores is implemented to ensure fairness and consistency across all teams, helping to balance out individual manager biases.

Normalization of scores is intended to introduce greater objectivity in the employee performance review software of an organization.

The figure above shows that Manager ‘A’ tends to rate subordinates between 7 and 8 points on a performance rating scale of 1 to 10. Manager ‘C’, on the other hand, is highly conservative and the best ratings are still in the range of 5-6 points. Thus, we equate an average performer under Manager ‘B’ with the best employee under Manager ‘C’ and with the lower-average employees of Manager ‘A’.

The training of Managers A, B & C on the rating norms may improve this trend subsequently. However, what should the company do with the evaluations already conducted? How has the company management looked into this problem which has an impact on promotions, compensations and career management of all employees? Some outstanding performers (placed under a harsh reviewer like Manager ‘C’) may quit the organization and some low performers (placed under a lenient reviewer like Manager ‘A’) could become tomorrow’s managers. This vicious cycle tends to boost average performers who cling to their jobs and promote mediocrity in the organization. A performance-driven company need to normalize the rating trends of their managers and weigh employee performance against the proper average rating.

What does normalization mean in a performance review process?

Assume ten managers are reporting to ten executives, who then report to three different senior managers within the organization’s hierarchy. In this scenario, there are 13 different appraisers who are reporting on 110 employees in the organization. Among these employees, 100 are at the same level and 10 are at the managerial level. Each of the 13 appraisers has a different rating style meaning that employees reporting to them have a high degree of variability in their performance appraisal scores. We call the process of balancing this variability “Normalization.”

Normalization of Employee Performance Review Scores Process

The process comprises the following steps:

1. The organization computes the statistical mean of the rating patterns of all reviewers at the same level across various departments. Let this mean be ‘M’.
   
   
2. The organization computes the statistical mean for each appraiser at the same level (i.e., for all ten managers in the example above). Each manager would have appraised 40 to 50 employees over time. The mean is ‘Mi’ (i = 1 to 10).
   
   
3. The system then computes a Correction Factor (CF) for each of these managers using the formula CF = Mi/M. Its value, for example, will be 1.0 if the rating pattern of a manager is the same as the statistical managerial mean.
   
   
4. Performance score of each individual employee is then divided by the CF for his/her manager to compute the normalized value, which is then utilized for management decisions.

Connected issues of Employee Performance Review Process

1. To implement the normalization process in employee performance review, companies need data from appraisals that a manager has conducted over a period of time. This allows computing each manager’s statistical mean from 40–50 appraisal reports.This requires a data base approach.
   
   
2. What happens when a manager has not completed the requisite 40 to 50 appraisals? The approach normally adopted, is to compute the mean Mi and CF for the manager based on the number of completed appraisals.  However, the CF is not applied to subordinates’ performance scores without discreet approval by the management. (Note: Some organizations prefer to use the normalized score awarded by the reviewer).
   
   
3. Appraisers tend to refine their rating tendencies automatically over the years. Therefore, some organizations prefer to use the Moving Mean concept (MMi) for each manager instead of a constant Mi. The moving mean for a Manager is an indicator of the improvement in his/her rating trend. CF = MMi/M is the computing algorithm used in this case.
   
   
4. In mid to large organizations, there are 4 to 5 different levels of appraisers across various departments and functions. Hence, Wwith employee strength ranging from 200 to 5000, normalizing appraisal scores without automating the entire process through performance review software is not possible.

Conclusion

In some organizations, a high-level committee manages the normalization of employee performance review scores, but the process often lacks transparency for employees. If these committees consider the rating patterns of various managers, such as MMi (discussed above), they can thus make data-based and objective decisions. Organizations can use a customized and configurable performance review software to implement these normalization features and align the process with client needs.