Consider a group of 60 students in a classroom. The performance evaluation method specifies that only 10% students can be rated A+ and 5% students should be rated a D. The remaining students can be assigned grades between A and D+. This relative rating method separates high performers from average, below-average, and poor performers.
Similarly, an organization defines its own bell-curve before the end-year performance appraisal. Managers are assigned a set of percentages in which high performers, average performers, below-average performers, and poor performers (4-point scale) are to be fitted. The bell-curve is generally a function-specific bell-curve in which employees in a same function, across the world, are a part of the same bell-curve to ensure parity.
However, this method fails if all employees have a similar level of performance. For example, in an organization, all employees can be high performers, but the relative standards method requires to separate high performers from poor performers based on specified percentages. This might lead to the high performers, rated poorly, to quit the organization.