Bell Curve is a waste when grading performers

There is a long standing belief in business that people performance follows the Bell Curve.This belief drives several business practices like performance appraisals, compensation models etc.  There is just one problem — It does not accurately reflect the way people perform.

Does human performance follow the bell curve? Research says no.

Bell Curve follows Normal Distribution. A normal distribution is a sample with an arithmetic average and an equal distribution above and below average. So the assumption is there are equivalent number of people above and below average, and that there will be a very small number of people two standard deviations above and below the average (statistically speaking mean).

Now in corporate world in order to distribute raises and performance ratings by this curve and avoid “Grade Inflation” companies forces a small percentage of High Performers, a similar percentage of low and a huge number in  “Average Performers”.

In general there should be 10% of high as well as low performers are rest 80% goes to Average. But the world does not work this way. A research conducted by Ernest O’Boyle Jr. and Herman Aguinis in 2011 & 2012.

http://www.bchrma.org/wp-content/uploads/2012/11/rb-the-best-and-the-rest.pdf

The research says that 94% of the subject groups formed did not adhere to Bell Curve. Instead they followed a POWER LAW, distribution also known as Long Tail.  This law describes aptly what is happening in industry at present. Very small number of people called High Performer, Large number of people called Good/As-per-expectation performer and a still good number of Low performer. So the concept of average becomes meaningless here.

Why it is a waste to rate performance on so called Bell Curve?

Firstly, I don’t want to be rated on a scale of 5, it hinders my improvement. Speaking specifically for the people who get the average rating, the generally get happy with status quo and realize that the number of high performer is reserved. So they never strive to improve.

Secondly, If you’re performing well but you don’t score the highest rating you’ll probably feel under-appreciated and hence you’ll probably conclude that the highest ratings are reserved for those who are politically well connected. And this encourages people to leave their organization.

Thirdly, People often believe the bell curve is “fair.” There are an equal number of people above and below the average. And fairness is very important. But fairness does not mean “equality” or “equivalent rewards for all.” High performing companies have very wide variations in compensation, reflecting the fact that some people really do drive far more value than others.

So the time has come for organizations to re-engineer their Performance Model.   Microsoft took a step in the same direction because they realized with current model they were only encouraging their top performers to leave.
http://management.fortune.cnn.com/2013/11/18/microsoft-ge-ranking-employees/

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