Case Study: A multinational giant ABC Ltd has implemented bell curve in their performance management system towards their aim of being a performance centric organization. However, after implementing bell curve they found out:
- 20% employees are high performer – for whom they decided promotion / role upgradation with higher responsibility with a compensation level increment in the range of 20 % to 25%.
- 60% employees are solid performers. This band includes average and above average performers. — They implemented 8% to 13% compensation level increment with no promotion / gradation change towards higher side.
- Remaining 20% segment includes (a) below average performers and (b) non-performers. The company asked the non-performers to go.
Because of above actions:
A. Huge employee resentment was created – mainly in above average performers. They got a feeling of injustice.
B. Also, average n below average employees are now bearing a feeling of job insecurity in their mind.
According to you, what should the company have done to avoid such consequences? And, as the damage already happened, what sort of damage-repairing can be done?
What is Bell Curve System in PMS?
This system of performance appraisal is a forced ranking system, which segregates the employees into the categories of best, mediocre and worst according to their performance. The rationale is that the organizations nurture their best employees and discard the worst employees. Bell curve implies managers to take a decisive stand in ranking their employees and putting them into a definite performance slot. However, this is a controversial matter; because, it compels a manager to use forced rating instead of a fair one in most of the cases.
Universal Ratio: The universal ratio for this bifurcation is (a) Top 20, (b) Mid 70 and (c) bottom 10.
The Generic negative consequences of the system: When an organization makes decisions on the basis of numbers and models, there are fair possibilities of leading to an unholistic result. The model has many loop holes as an instance, with regard to the parameters deciding the quotient of performance – who decides the quotient and on what basis, variables were taken in account. Distrust and insecurity makes the company sets it performance and at almost the rock-bottom level. It’s not only the people who are shown doors, but even those – who exist – will be subconsciously turmoiled at every incident related to their performance.
Analysis and Proposed Solutions:
- Has the ‘Universal Rule’ been followed? Basis above definition, it is seen that the mentioned organization did not follow the universal rule of bifurcation. It deviated to a significant extent – mainly towards the bottom split (20% actual whereas 10% as per universal rule).
- More customization in Universal practice: It is also wise to segregate the mid 70% level. Grossly, it can consist of an upper layer of 30% and lower layer of 40%. The upper layer is to be made with ‘above average performers’ and the lower layer is with ‘below average performers’.
- Leadership Skill Assessment (LSA): Moreover, while establishing the rewards, increments or promotions, a leadership skill assessment (LSA) is also required to identify the leadership potential in a person being evaluated. It is a 360 degree assessment; not just a mere performance review/ appraisal. We need to understand that not every good performer can be a good leader; not every good programmer becomes a good project manager as well; not the best performer of the team should always become the captain of the team. We have plethora of instances as live examples in its favour. Top performers can be rewarded with greater monetary and non-monetary benefits, but not always to be made captains of the ship. Leadership is more about character than being a great performer.
- Open & Transparent Communication while implementing the system: Before applying the rule, all care and efforts must be taken to communicate well to all the employees concerned and catering to the organization. An absolute transparency has to be set in, in this regard. The performance expectations to be well conveyed to every single employee. And, before setting such expectations, their concerns and requirements to achieve the target to be well taken care of – to be very precise, target needs to be realistic and achievable. The bottom split i.e. the non-performers cannot be directly asked to go. People come in the bottom slot mainly because of two reasons :
- Either they are exceptionally lazy.
- Or, they are put in the inappropriate job without assessing their true potential.
If the second instance (which is putting a person in an inappropriate role) is true, then here ‘Management’ is at fault. There are multiple options available to assess the true potential of employees and ‘Management’ can make the best use of the available options. These employees can be shifted to the roles where their potential can be adequately realized. In that way, the organization as well as the non-performer employees can have a symbiotic bonding – a win-win situation. However, for the other option – which is, certain employees are lazy – and the other team members know that ‘Management’ had done enough to improve their performance and still nothing worked out, then they will never go against ‘Management’ and no resentment / job insecurity will creep in their mind.
- Performance Feedback: A well formulated process for periodical performance feedback sets in the clarity, transparency as well as empathy for the employees. This process needs to be an optimum blend of performance centrism and employee welfare. Regular long term appraisal – at least on a quarterly basis if not on a monthly basis – will help employees to get a fix on their standing.
- Educating the Managers to be a good ‘Performance Appraiser’: The management should have conducted training & counseling session with all line/functional HODs/Managers as to how the performance to be evaluated. They would in turn educate their respective teams.
- Root Cause Analysis of Ineffective Result: Investigating the root cause of poor performance would be of utmost importance. It may not be the employees, but other internal or external reasons responsible for their poor performance. This is very predominant in ‘Sales & Marketing’ as well as in other functions which are directly-n-indirectly correlated to revenue earning.
Course Correction when the ‘Damage’ has already been taken place:
In this scenario, the company should look at a short-term and long-term strategy.
As an immediate short-term strategy:
It should take care of the concerns of above-average and below-average employees. The company may reverse the decision to lay off the people, who are non-performers. They may decide to retain the employees who have moved to non-performers category for the first time.
- Employees to be allowed to talk about their fears and concerns openly and without any hesitation.
- Empathy towards the employees: the organization should focus on the positives of the employees. This will help employees to remain motivated and confident.
As a long-term strategy:
It is the time for the organization to revisit their performance and reward system. The organization may consider to retooling their entire Performance Management System (PMS).
Implementation of 5 Rating Bands: They may consider implementing this system to make a performance differentiation in a focused way. This process breaks down the organizational vision, mission, strategy and business goals into divisional, departmental and individual KRA level. The distribution percentage should also undergo a change.
- 15% for extra-ordinary level achievement.
- 25% for superior performance
- 30% for effective performance
- 20% for standard performance
- 10% for ineffective performance
Attention to be paid to a few important pointers:
- Descriptors for 5-Rating scale should be clearly communicated to all the employees.
- Conscious attempts should be made to minimize the difference in rewards and bonuses between different rating bands( within Reward Budget)
- Potential assessment should be done while taking decision on promotions. It should not be merely based on performance criteria.
- Till the time the performance & reward system is revamped, management may think of giving some interim rewards to employees, if budget permits.
Measures other than 5 Rating Bands:
- Supervisory Committee Set-Up: A committee can be set up to make a process for non-performers, which includes their improvement initiatives too. Committee members should be from across all the hierarchical levels in the organization – not only from the CXO groups.
- A ‘Performance Improvement Plan (PIP)’ can be implemented for these non-performers for next 3 to 6 months and the situation can be reviewed accordingly.
- Company should promote the empowerment, control and autonomy in their employees.
- Mentoring and performance improvement system (both in paper as well as in practice) would be of great help.
- The organization can reward, recognize and appreciate the effort of non-performers in their PIP process. Expectations can thus be set up and basis that, employees can be rewarded. This will help to get the non-performers back on the track of better performance.
- Setting up an outplacement system will also show necessary care and concern of the organization towards their employees.
Task Orientation – action from the end of HR & LnD:
One of the unnoticed yet concerned areas is piled up tasks due to employee worn-out. Temporarily, those excess tasks can be handed over to the happy employees who are in the top band of PMS, to manage the crisis situation. As a long term policy, HR team has to be proactive to keep a talent pool with reserve potential ready and to hire from there. The L&D team should be fast enough for the induction of the new joiners and further training to the remaining existing employees about crisis management and change management making them understand the weight of the extra load and added load of the next year.
Alternative of Bell Curve in PMS:
The ‘Bell Curve’ has outlived its purpose with maturity cycles of business expansions. Organizations used the bell curve more to operate from Distribution of Poverty (DoP) rather than Distribution of Abundance (DoA). Bell curve appraisals are gradually becoming irrelevant to many parts of the world. In Indian context, it is very different. We cannot categorically state that we can replace bell curve only with high achievers, 360 degree or balance score card at all levels across industries and across geographies in India. The composition of population in manufacturing industry is very different from the other industries. Therefore, generic benchmarking is a challenge. High performers in knowledge industry are different breed compared to high performers in skill intense environment. Each industry has to set up their performance Management System according to their nature and composition of the workforce – skill or knowledge or a combination of the both. Each individual methodology has its own advantage as well as limitation. Open transparent communication and giving employees a feeling of importance are the keys to success. An approach for blue collared worker is based on Long term Settlement (LTS) and is generally not based on performance, even though they are called PMS. The difference of payout marginally changes for workers. The respective ‘Learning & Development Team’ and ‘Human Resource’ team have to customize appraisals to the one which is robust, dynamic and unique to the organization basis the social and economic composition of the talent pool.
Concept: Mr. Surya Prakash Mohapatra – Founder of L&D Global Community, which has a presence across the nation , as well as abroad.
Moderator – cum – consolidator of the online panel discussion : Jayati Mukherjee – an LnD Enthusiast & Content Writer
Sincere Thanks to dignitaries of L&D Global Forum across the nation, in acknowledgement of their invaluable perspectives:
- Mr. Surya Prakash Mohapatra
- Mr. Vikas Singh
- Ms. Shreyashi
- Mr. Debabrata Dash
- Ms. Urmi Gupta
- Ms. Shilpi Khandelwal
- Mr. Keashav M
- Ms. Kalpana
- Mr. Subir Verma
- Mr. Rajaram Thorve
- Mr. Janak Shah
- Mr. Venkat Raman
- Mr. Pramod Sadarjoshi
- Ms. Payal Nikumbh
- Mr. Dipanjan Palchaudhuri
- Mr. Mukesh Dev
- Mr. Shajman
- Mr. Jayanth Jayaprakash
- Mr. Rupinder Singh
- Mr. Khaja Ram Bhaduri
- Mr. Amit Dua
- Mr. Kumar Saurabh
- Mr. Debashish Biswas
- Mr. Ayan Banerji
- Mr. Mohit Gupta
- Ms. Divya Nambiar
Excellent solutions….very practical. Congrats Jàyati!