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Shaping The Bell Right
Summary
The article discusses the drawbacks of bell curve method of performance appraisal, the views of Indian HR professionals and academicians regarding it as well as the ways to overcome such drawbacks.
A pulp-making unit hired 40 engineers from prestigious institutions, as management trainees who were toppers in their respective branches and institutions.
The management of the plant adopted a freakish policy with regard to performance appraisal - 10 percent of all employees were to be rated below average. The management did not want all the employees to be ranked high, notwithstanding their excellent performance.
The axe fell on the trainees. The raters rated all the 40 trainees below average. Humiliated, these 40 put in their papers even before their training period expired.
The above bizarre case is the result of rank and yank method, which is the coolest thing in performance appraisal system these days. Under this method, employees are rated against one another on a subjective scale of 1 to 10. This concept of forced ranking, a tough minded approach, also entails that bottom dwellers get pushed out of the organization, if their relative positioning on the curve does not improve in the three consecutive years.
Strong Back
The Bell Curve system was pioneered by the leader of the century, Jack Welch early in his tenure at General Electric under the name "Vitality Curve". At present, 20 percent of the large corporates follow the 'Bell Curve Rating Method', the most prominent being Conoco, Hewlett-Packard, Microsoft, Ford Motors and notoriously Enron!
Explaining the term and the system, T. N. Hari, Director, Performance Management and Benefits, Daksh e-Services, says, "Call it by any name, 'Rank and Yank' strategy, 'up or out' policy, 'bell-curve' rating, or Jack Welch's 'vitality curve', what it actually implies is that at least ten percent of the company's strength has to be replaced every year. The system though controversial is fairly popular in HR circles abroad."
There is no single way of implementing this rating process - the concept encompasses any system in which individuals are rated against one another. The most common is where 20 percent are rated as 'excellent', 70 percent as the unspectacular but necessary back bone of the company, and the rest 10 percent as bottom-feeders, who are too poor in the performance to ever be trained, so the solution is to cut 10 percent of this superfluous flab every year.
Some companies rank their employees on a totem pole, one above the other, while others divide their staff into quartiles as done by Polaris. According to R. Shekhar, Senior VP and Head of HR, Corporate Strategy and Business Excellence, Polaris, "Performance at Polaris is categorized into four levels - Premium, Outstanding, Competent and Learning. These are indexed to 90th, 50th and 25th percentile. The Premium performers are at the top end of the industry, and that is consistent with our policy of institutionalizing meritocracy at all levels of the company."
According to Gautam Sinha, CEO, TVA Infotech, a recruitment agency, "The system is based on the normal distribution of employees on a bell-shaped curve. Companies use it to temper their appraisal processes order to correct managers who tend to overrate their people, as statistics prove that in any company only 20 percent of the total population can really be considered exceptional."
The normal distribution of employees in a bell shaped curve is shown in Figure 1:
Figure 1: Normal Distribution of Employees
Pitfalls
Although Forced Distribution Method is quite popular in western countries, it does not ensure its success in our country. It is severely criticized for being unethical, subjective, and unsuitable for small teams and creating a dysfunctional work environment. These pitfalls far out the way its contribution in terms of minimizing the errors of central tendency and facilitating comparative ranking.
Unethical
Bell Curve Method is in fact the most unethical form of performance appraisal system currently used. According to Praneet Mehrish, Country Human Resource Director, ST Microelectronics Ltd., "You cannot forcibly retire a certain section of your staff, every year. This would be unethical."
Further, according to Pradeep Nevatia, Vice President (Operations) & Country, Vetri Software India Ltd., "Such a concept may be working fine in the west but it is not certainly suitable for Indian companies. Here, if a person is asked to leave, other issues crop, such as who will feed his family, what happenS to his self-esteem, who will arrange for his re-engagement, etc."
Subjective
Bell curve method is highly subjective. As put by Madhukar Shukla, Professor, OB & Strategic Management, XLRI, Jamshedpur, "Since the bell curve is applied, not across all the employees, but to individual department / team / function, there is a good chance that the worst in the high performing group may be better than the best in an average performing group. Finally, the company may be left with low performers, while losing some good ones."
Further, applying this method year after year may result in erroneous results. The first time you may be cutting the obvious fat. But the second time you are cutting the interstitial fat. And the third time, you are only getting down to the muscle and the bone.
According to Hari Mohan Jha, VP (HR), ITC Welcome Group Hotels, "The highly subjective nature of this evaluation system often results in making people angry or ambivalent. The message that goes out to employees is that an overabundance of people cannot be allowed to perform at an optimum level, because this would skew the 'curve'."
Not Compatible for Small Teams
The biggest hurdle comes when bell curve has to be applied to smaller teams. According to Madhukar Shukla, "Since the model is based on the statistical characteristics of large groups of at least 30 people, it cannot be a valid differentiator if applied to, say, a group of 7-10 employees."
In smaller teams, there is so much proximity that it only leads to hoarding of knowledge and customers, because the last thing an employee wants to do is to share information with the people he or she is competing with.
Logically too, such a model cannot work for a very small group of extremely high or low performers for the simple reason that it force-fits them into predefined compartments. If it works, it can work only for a large, randomly selected sample.
Suren Singh Rasaily, Head-NIIT (Planetworkz), Head-HR Strategy Group of ITES-BPO Forum at NASSCOM, says, "Forced ranking can indeed be a complex issue. Suppose a company was asked to pick the best talent from amongst it various departments to comprise a task force, these would necessarily be the best performers. At the end of the year, under the "Rank and Yank" system, the manager would be asked to rank his teammates.
Even if everybody had done a great job, a few would still be ranked amongst the bottom 10 percent and would have to be retrenched. This can lead to an awkward situation, as the retention of even these ten percent would be sad for the company. So, eventually instead of asking people to go, the company would be compelled to give a zero salary hike to the bottom ten percent and within six months, almost the entire team would leave including the highly rewarded top 20 percent who would quit out of sheer disgust!"
Dysfunctional Work Environment
This method is criticized for creating a dysfunctional work environment and is one of the reasons for the collapse of Enron. Ed Lawler, in 'Treat People Right!' argues that, "Rather than raising the bar for performance inside organizations, forced ranking creates a dysfunctional, hyper-competitive work environment."
When interviewing current and former Enron employees about the company's corporate culture and forced ranking process before its fall from grace, Lawler found that employees refused to collaborate with each other.
While the bell curve method may increase productivity and pave growth opportunities for good performers, it also creates a sense of fear among those who remain behind.
Utilizing Bell Productively
Does the above discussion mean that the "Rank and Yank" method is fit to be junked? Nopes, it does have its strengths like providing a guide to management on how to rate employees, allowing managers to identify the bottom performers in the team. But it needs to be used judiciously and not as a weapon to weed out people whom one does not like.
Look on the following points before you bell the curve.
Before You Bell the Curve
• Use objective parameters for the performance appraisal system.
• Keep HR in the Loop.
• Confront the employee. There could reason for his / her poor performance.
• Shift the onus of improvement onto the employee, bur offer your assistance if needed.
• Follow up frequently.
• Finally, document all performance-related conversations you have had with the employee in order to have important evidence on your side if he or she contests the termination.
The exhibit below presents the case of ABB, which has created a new deviation of Bell Curve Appraisal Method to utilize it productively.
ABB
ABB was formed in India in 1989 as a result of a worldwide merger of two large companies, ASEA Ltd. and Hindustan Brown Boveri Ltd. ABB is a global engineering group comprising a federation of 1,300 companies in about 140 countries. ABB competes in eight business segments - power plants, power transmission, power distribution, transportation, environmental control, financial services, metallurgy and process equipment, and robotics. These eight segments are divided into 65 business areas, which are further divided into 1300 independently incorporate companies.
The main business strategy of ABB all over the world is customer focus. It aims to achieve it through TQM, time-based management and supply management. ABB has four businesssegments in India comprising about 30 independent business areas. Each business area operates like an independent company with its own strategic plans and budgets. Teamwork is central to the achievement of ABB's strategy. Traditionally, ABB's performance appraisal systemfocused on individual performance and results, and its compensation system rewarded high performers. Although eminently logical, this system of appraisal and compensation discouraged teamwork, which was the prime requirement for a customer-focused strategy. ABB has changed its appraisal and compensation system to foster teamwork. There are nine aspects to the current system: -
1. Change of nomenclature: The present system is called the developmental appraisal, not performance appraisal. This emphasizes the role of appraisal in promoting individual learning and development.
2. Planning the job for the following year: This provides role clarity and builds a common understanding between the individual and the team leader.
3. Counseling for development: Counseling is an integral part of the appraisal system emphasizing openness and disclosure.
4. Team performance: The individual's contribution to team performance is of major importance.
5. Process parameters: Process parameters with emphasis on quality, customer focus and systems form the core of the appraisal.
6. Training: The appraisal system is used to identify the training needs for individuals and teams.
7. Focus: The appraisal system has a single focus, namely development of individual and teams.
8. Client-centered: The developmental appraisal system is exclusively client-oriented. There is no complex web of procedures with perforated sheets and flow charts maintained by the human resource department. The forms remain with the team leaders and team members.
9. Label-free ratings: There is no overall rating with labels such as 'outstanding', 'good', and 'average'.
ABB has also developed a system of compensation for its managers that promotes team effort. In ABB, a business area, which is roughly equivalent to a strategic business unit (SBU), is judged on certain performance parameters. Based on the performance of the business area, the team members in that particular business area receive a percentage of the basic pay and allowance as lump-sum payment. All members of the same grade receive exactly the same percentage. Performance parameters include both qualitative and quantitative indicators. Quantitative parameters include orders and profits. Qualitative indicators include factors such as on-time delivery. The company classifies individuals into three categories: -
Group A includes those who perform far below expectations with special counseling being provided to such individuals.
Group B consists of ideal performers with performance exceeding the expectations of the organization. They are given non-financial rewards in addition to flat equal increments.
Group C comprises individuals who perform strictly according to expectations. All of them receive exactly the same amount of bonus and increments.
To conclude, the systems of performance management are not rigid and static. Organizations must continuously try to find new and innovative ways to optimize individual and organizational performance through alternative ways of appraisal.
From India, Coimbatore
733Shaping The Bell Right
Summary
The article discusses the drawbacks of bell curve method of performance appraisal, the views of Indian HR professionals and academicians regarding it as well as the ways to overcome such drawbacks.
A pulp-making unit hired 40 engineers from prestigious institutions, as management trainees who were toppers in their respective branches and institutions.
The management of the plant adopted a freakish policy with regard to performance appraisal - 10 percent of all employees were to be rated below average. The management did not want all the employees to be ranked high, notwithstanding their excellent performance.
The axe fell on the trainees. The raters rated all the 40 trainees below average. Humiliated, these 40 put in their papers even before their training period expired.
The above bizarre case is the result of rank and yank method, which is the coolest thing in performance appraisal system these days. Under this method, employees are rated against one another on a subjective scale of 1 to 10. This concept of forced ranking, a tough minded approach, also entails that bottom dwellers get pushed out of the organization, if their relative positioning on the curve does not improve in the three consecutive years.
Strong Back
The Bell Curve system was pioneered by the leader of the century, Jack Welch early in his tenure at General Electric under the name "Vitality Curve". At present, 20 percent of the large corporates follow the 'Bell Curve Rating Method', the most prominent being Conoco, Hewlett-Packard, Microsoft, Ford Motors and notoriously Enron!
Explaining the term and the system, T. N. Hari, Director, Performance Management and Benefits, Daksh e-Services, says, "Call it by any name, 'Rank and Yank' strategy, 'up or out' policy, 'bell-curve' rating, or Jack Welch's 'vitality curve', what it actually implies is that at least ten percent of the company's strength has to be replaced every year. The system though controversial is fairly popular in HR circles abroad."
There is no single way of implementing this rating process - the concept encompasses any system in which individuals are rated against one another. The most common is where 20 percent are rated as 'excellent', 70 percent as the unspectacular but necessary back bone of the company, and the rest 10 percent as bottom-feeders, who are too poor in the performance to ever be trained, so the solution is to cut 10 percent of this superfluous flab every year.
Some companies rank their employees on a totem pole, one above the other, while others divide their staff into quartiles as done by Polaris. According to R. Shekhar, Senior VP and Head of HR, Corporate Strategy and Business Excellence, Polaris, "Performance at Polaris is categorized into four levels - Premium, Outstanding, Competent and Learning. These are indexed to 90th, 50th and 25th percentile. The Premium performers are at the top end of the industry, and that is consistent with our policy of institutionalizing meritocracy at all levels of the company."
According to Gautam Sinha, CEO, TVA Infotech, a recruitment agency, "The system is based on the normal distribution of employees on a bell-shaped curve. Companies use it to temper their appraisal processes order to correct managers who tend to overrate their people, as statistics prove that in any company only 20 percent of the total population can really be considered exceptional."
The normal distribution of employees in a bell shaped curve is shown in Figure 1:
Figure 1: Normal Distribution of Employees
Pitfalls
Although Forced Distribution Method is quite popular in western countries, it does not ensure its success in our country. It is severely criticized for being unethical, subjective, and unsuitable for small teams and creating a dysfunctional work environment. These pitfalls far out the way its contribution in terms of minimizing the errors of central tendency and facilitating comparative ranking.
Unethical
Bell Curve Method is in fact the most unethical form of performance appraisal system currently used. According to Praneet Mehrish, Country Human Resource Director, ST Microelectronics Ltd., "You cannot forcibly retire a certain section of your staff, every year. This would be unethical."
Further, according to Pradeep Nevatia, Vice President (Operations) & Country, Vetri Software India Ltd., "Such a concept may be working fine in the west but it is not certainly suitable for Indian companies. Here, if a person is asked to leave, other issues crop, such as who will feed his family, what happenS to his self-esteem, who will arrange for his re-engagement, etc."
Subjective
Bell curve method is highly subjective. As put by Madhukar Shukla, Professor, OB & Strategic Management, XLRI, Jamshedpur, "Since the bell curve is applied, not across all the employees, but to individual department / team / function, there is a good chance that the worst in the high performing group may be better than the best in an average performing group. Finally, the company may be left with low performers, while losing some good ones."
Further, applying this method year after year may result in erroneous results. The first time you may be cutting the obvious fat. But the second time you are cutting the interstitial fat. And the third time, you are only getting down to the muscle and the bone.
According to Hari Mohan Jha, VP (HR), ITC Welcome Group Hotels, "The highly subjective nature of this evaluation system often results in making people angry or ambivalent. The message that goes out to employees is that an overabundance of people cannot be allowed to perform at an optimum level, because this would skew the 'curve'."
Not Compatible for Small Teams
The biggest hurdle comes when bell curve has to be applied to smaller teams. According to Madhukar Shukla, "Since the model is based on the statistical characteristics of large groups of at least 30 people, it cannot be a valid differentiator if applied to, say, a group of 7-10 employees."
In smaller teams, there is so much proximity that it only leads to hoarding of knowledge and customers, because the last thing an employee wants to do is to share information with the people he or she is competing with.
Logically too, such a model cannot work for a very small group of extremely high or low performers for the simple reason that it force-fits them into predefined compartments. If it works, it can work only for a large, randomly selected sample.
Suren Singh Rasaily, Head-NIIT (Planetworkz), Head-HR Strategy Group of ITES-BPO Forum at NASSCOM, says, "Forced ranking can indeed be a complex issue. Suppose a company was asked to pick the best talent from amongst it various departments to comprise a task force, these would necessarily be the best performers. At the end of the year, under the "Rank and Yank" system, the manager would be asked to rank his teammates.
Even if everybody had done a great job, a few would still be ranked amongst the bottom 10 percent and would have to be retrenched. This can lead to an awkward situation, as the retention of even these ten percent would be sad for the company. So, eventually instead of asking people to go, the company would be compelled to give a zero salary hike to the bottom ten percent and within six months, almost the entire team would leave including the highly rewarded top 20 percent who would quit out of sheer disgust!"
Dysfunctional Work Environment
This method is criticized for creating a dysfunctional work environment and is one of the reasons for the collapse of Enron. Ed Lawler, in 'Treat People Right!' argues that, "Rather than raising the bar for performance inside organizations, forced ranking creates a dysfunctional, hyper-competitive work environment."
When interviewing current and former Enron employees about the company's corporate culture and forced ranking process before its fall from grace, Lawler found that employees refused to collaborate with each other.
While the bell curve method may increase productivity and pave growth opportunities for good performers, it also creates a sense of fear among those who remain behind.
Utilizing Bell Productively
Does the above discussion mean that the "Rank and Yank" method is fit to be junked? Nopes, it does have its strengths like providing a guide to management on how to rate employees, allowing managers to identify the bottom performers in the team. But it needs to be used judiciously and not as a weapon to weed out people whom one does not like.
Look on the following points before you bell the curve.
Before You Bell the Curve
• Use objective parameters for the performance appraisal system.
• Keep HR in the Loop.
• Confront the employee. There could reason for his / her poor performance.
• Shift the onus of improvement onto the employee, bur offer your assistance if needed.
• Follow up frequently.
• Finally, document all performance-related conversations you have had with the employee in order to have important evidence on your side if he or she contests the termination.
The exhibit below presents the case of ABB, which has created a new deviation of Bell Curve Appraisal Method to utilize it productively.
ABB
ABB was formed in India in 1989 as a result of a worldwide merger of two large companies, ASEA Ltd. and Hindustan Brown Boveri Ltd. ABB is a global engineering group comprising a federation of 1,300 companies in about 140 countries. ABB competes in eight business segments - power plants, power transmission, power distribution, transportation, environmental control, financial services, metallurgy and process equipment, and robotics. These eight segments are divided into 65 business areas, which are further divided into 1300 independently incorporate companies.
The main business strategy of ABB all over the world is customer focus. It aims to achieve it through TQM, time-based management and supply management. ABB has four businesssegments in India comprising about 30 independent business areas. Each business area operates like an independent company with its own strategic plans and budgets. Teamwork is central to the achievement of ABB's strategy. Traditionally, ABB's performance appraisal systemfocused on individual performance and results, and its compensation system rewarded high performers. Although eminently logical, this system of appraisal and compensation discouraged teamwork, which was the prime requirement for a customer-focused strategy. ABB has changed its appraisal and compensation system to foster teamwork. There are nine aspects to the current system: -
1. Change of nomenclature: The present system is called the developmental appraisal, not performance appraisal. This emphasizes the role of appraisal in promoting individual learning and development.
2. Planning the job for the following year: This provides role clarity and builds a common understanding between the individual and the team leader.
3. Counseling for development: Counseling is an integral part of the appraisal system emphasizing openness and disclosure.
4. Team performance: The individual's contribution to team performance is of major importance.
5. Process parameters: Process parameters with emphasis on quality, customer focus and systems form the core of the appraisal.
6. Training: The appraisal system is used to identify the training needs for individuals and teams.
7. Focus: The appraisal system has a single focus, namely development of individual and teams.
8. Client-centered: The developmental appraisal system is exclusively client-oriented. There is no complex web of procedures with perforated sheets and flow charts maintained by the human resource department. The forms remain with the team leaders and team members.
9. Label-free ratings: There is no overall rating with labels such as 'outstanding', 'good', and 'average'.
ABB has also developed a system of compensation for its managers that promotes team effort. In ABB, a business area, which is roughly equivalent to a strategic business unit (SBU), is judged on certain performance parameters. Based on the performance of the business area, the team members in that particular business area receive a percentage of the basic pay and allowance as lump-sum payment. All members of the same grade receive exactly the same percentage. Performance parameters include both qualitative and quantitative indicators. Quantitative parameters include orders and profits. Qualitative indicators include factors such as on-time delivery. The company classifies individuals into three categories: -
Group A includes those who perform far below expectations with special counseling being provided to such individuals.
Group B consists of ideal performers with performance exceeding the expectations of the organization. They are given non-financial rewards in addition to flat equal increments.
Group C comprises individuals who perform strictly according to expectations. All of them receive exactly the same amount of bonus and increments.
To conclude, the systems of performance management are not rigid and static. Organizations must continuously try to find new and innovative ways to optimize individual and organizational performance through alternative ways of appraisal.
From India, Coimbatore
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