Is it Time to move on from Bell-Curve Performance Appraisal?

Published by MBA Skool Team, Published on June 01, 2016

When it comes to performance appraisal, one method that has been used most extensively is the bell-curve performance appraisal system. After gaining traction in the late 90s, it went on to become one of the most widely used performance appraisal system, one which was followed by most of the top companies in the world. But, of late some major companies which earlier were the advocates of this system are themselves letting go of this system. This has led to a major debate as to whether it is time to let go of this immensely popular and successful (?) appraisal system.

Let’s first look at Bell-curve method. We know that for any company to perform well it is imperative that it hires good employees who perform exceptionally. But we also know that while most of the employees will perform as per the expectations there will be few who will not be able to perform and yet another few who will perform way better than expected. Well, this is what bell-curve is all about. It focuses on categorizing the employees into one of the three groups. The three groups are top performers, average performers and low performers.

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The catch is that there should be a predetermined number of people in each category. One of the most popular ones is having 10% top performers, 80% average performers and remaining 10% as low performers. So there should be no more than 10% at the top and no less than 10% at the bottom. This is a relative grading system wherein everybody can be a good performer, but still some of them will have to be rated low performers and the opposite can also be true. I.e. there can be more than 10% of really bad performers, but still some will be considered average. It is one of the most widely used appraisal systems and was pioneered by GE, which was also a strong advocate of this system. The system also gives guidelines as to what should be done to improve the performance of each of the three groups. For example, it advocates motivating the top performers by providing them with stock options, bonuses etc. to carry on their exceptional work. The average people are provided training to improve their performance and also they get motivated to reach to the top through the benefits offered to the top performers. Similarly, for the low performers this is a sort of warning bell to improve the performance or else they would be ’weeded’ out.

One of the most important reasons for the success of bell-curve method is its simplicity. It is easier to understand than most of the alternative systems. Its advocates focused on the fact that it provides the push for employees to move forward and go on improving their performance and aiming high. Also, they reason that when the market itself judges relatively then companies have to have a relative rating system. They believe it is fair to both the parties – shareholders and employees. Another major reason for its success is the predictability factor. It provides a predictable form of identifying the performance of employees and is a transparent method of showing employees about their performance compared to others. It is easier for the companies to adopt this system and it is also easily understood by the companies. It also replicates market in that the low performers have to be weeded out over time.

But of late many companies have been letting go of this famous appraisal system. Leading the way are some top IT companies in the country. Wipro, TCS, Infosys have let go of this system. They followed their western counterparts such as IBM, Cisco, Microsoft and Accenture. The list is very big and is growing. So, as some major advocates of the bell-curve system are letting go of the system, is it time to follow the suit. To answer that, let us first look at the major drivers behind abandoning bell-curve.

Bell-curve is a forced rating system which in itself leads to certain problems. Say you have a team of 5 in which everybody has performed equally well to make the project a huge success. But you, still, will have to judge 1 person as a top performer and 1 person as a low performer. A person who in spite of performing well is judged as a low performer will be demotivated to work well anymore. Next there are certain problems with which these rankings and ratings re provided. Sometimes the criteria are vague. There is ambiguity in judging as there may be factors other than performance that creeps into this rating. Many times there is ambiguity in who is giving the ratings. HR is made a scapegoat in such times. Even if the manager decides to give a low rating to a person he might blame HR for forcing him to rate his performance low. Citing somebody as a low performer also has the effect of fight or flight. The employees will either deny the authenticity of the ratings or will look out for other options. The ratings instead of motivating to perform better, demotivate a person to perform at all. Also, an annual review doesn’t allow for improving the performance as it usually comes way after completion of tasks and the employees don’t know what mistakes they did. Thus, the pressing need for evaluation and feedback more recent to the completion of task was required and hence a more continuous feedback system was preferred. The system was designed for the people in the manufacturing era where it was easier to quantify the outputs and compare them effectively. In today’s knowledge era, it is tough to quantify output and compare the performance. Finally, the race to reach the top also nurtures unhealthy competition, which is not good for the organization. At a time when the importance of collaboration has increased, this can be dangerous for team dynamics.

The bell-curve system is simple to understand, is predictable and offers various advantages, but the times have changed and its negatives far outweigh its positives. The need of the hour is to look at performance appraisal as a mechanism to improve performance through frequent interactions among the managers and the employees as to how the employees can improve their performance. Also, it is necessary to move away from forced ratings to increase collaboration. Therefore, it is time to slowly, but surely phase away the bell-curve performance appraisal system.

This article has been authored by Harshil Patel from IIM Kashipur

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