Forced Distribution (Bell Curving Performance Appraisals)
A question that often arises during performance appraisal time is whether to use a "bell curve" or "forced distribution" of employees' performance results. My view is to tread very carefully with this methodology. In working with one client a few years ago, I wrote the following case study for them on the pros and cons and what options they may wish to take in lieu of bell curving their staff's performance appraisals. By reproducing the document here, it is my hope that this will add to your own internal discussions on whether to use forced distribution or not.
Whether to adopt a forced distribution (bell curve) methodology for performance appraisal grading for the COMPANY XYZ for:
• SENIOR MANAGEMENT, and/or;
• Directors and Executive Directors, Managers, and/or
• Unionized staff, and/or non-unionized staff;
• International staff.
Performance appraisal ratings for 2011 have yielded the following results:
Did Not Meet (DNM) Expectations = 1 (Location X 0, International 1)
Met Most Expectations (MME) = 4 (Location X 0, International 4)
Met Expectations = 29 (Location X 3, International 26)
Exceeded Expectations = 21 (Location X 11, International 10)
Based on these results the question has arisen as to whether these results accurately reflect reality or whether there has been a leniency factor when it comes to appraisals at the COMPANY XYZ that has allowed a high preponderance of superior evaluations.
Forced distribution systems have been around for decades, but have been gaining somewhat more currency recently by larger corporations in order to instill more rigour and discipline into their organizations’ performance appraisal ratings. According to Workforce Magazine’s July 2003 edition it is a “performance tool used by up to 1 in 5 [20%] of Fortune 500 companies.” It also goes by many names such as “Forced Ranking”, “Vitality Curve”, “Differentiation”, and “Rank and Yank”. However there are essentially three variations under the Forced Distribution heading and briefly they are:
The Totem Pole. Individuals are ranked from one downward to include all people within that group or organization.
Quartiles. Four cells are defined and people are force ranked (25% per cell) into cells one through four and then ranked further within each cell.
Forced Distribution. Employees are forced into the bell curve of a normal distribution and designated by the percentage group that they represent, e.g. top 10%, middle 80% and bottom 10%.
Perhaps the greatest apostle for the Forced Distribution system has been Jack Welch, former President and CEO of General Electric (GE) who has championed the idea. At GE, they use this “performance management tool to eliminate the bottom 10% of performers each year.” At GE the forced distribution curve is represented as follows:
“Top 10%, Strong 15%, Highly Valued 50%, Borderline 15%, and Least Effective 10%.” At Sun Micro Systems the format is top ranked staff 20%, full contributor 70%, and bottom 10%. Organizations using Forced Distribution use variations of these quotients depending on their appraisal philosophy. A 2002 study by Deloitte and Touche found that the average percentage of employees required to be ranked in the lowest performance category was 5.5% and that 10.7% of staff had to be ranked in the highest category.
Whatever the distribution, business leaders who employ this methodology see it as a handy grading tool for creating a high performance culture. Proponents see it as addressing two key issues that drive corporate performance. First it encourages management to identify and remove poor performers and advocates point out that Forced Distribution compensates for the “leniency effect” in many companies that allows poor performers to continually receive satisfactory ratings because their managers do not have the wherewithal to rate them truthfully. This is not an unusual syndrome as noted performance appraisal authority Dick Grote has stated, “Dealing with poor performers is probably the most difficult job that anybody with supervisory responsibility has. The hardest thing to do is to look a person in the eye and tell them that they’re not good enough.” Being lenient is seen as being kind to the employee, but in reality is neither honest nor kind to anyone, including the underachieving performer. It can also create problems for star performers who see management “reward” poor performers by neglecting to hold them accountable for their unsatisfactory performance. Consequently, by adopting a Forced Distribution system, a company effectively “forces managers to make tough decisions that they would not otherwise wouldn’t or couldn’t make about their employees.” Second, it allows a predetermined compensation distribution curve that controls costs while at the same time allows the company to handsomely reward top performers.
With the advantages seemingly inherent in the Forced Distribution system, the questions begs, why are just 20% of Fortune 500 companies using it, and according to the Conference Board of Canada, why are only 4% of other organizations considering using it?
The answer to the question is multi-faceted, and includes the emotional reaction that employees have to such a system and commensurate impact on morale, the questionable empirical reliability of using a bell curve in a workplace that does not have “random” group of people, but rather a selected cadre of individuals, as well as other factors that will be canvassed below.
Perhaps the first and most readily apparent disadvantage that a Forced Distribution system has is the visceral reaction all levels of employees have to the system. Who thinks of himself or herself as “average” or worse, an under-performer? Business authority and consultant Tom Peters commented on this by saying, “There should be a small number of performance categories and no forced ranking. There is simply nothing dumber (and more debilitating) than labeling your people as losers, which is exactly what virtually all forced ranking systems do. This is not a plea to go easy on your ‘problem’ people. But forced ranking does not help you go after those who need serious help and its unintended fallout creates large numbers of unnecessarily disaffected employees.”
The reaction from employees is not just internalized, but is manifested externally through behaviours that are counter-productive to corporate goals. For example, in a study conducted in the U.S. Airforce, it found that the use of Forced Distribution created “decreased motivation as well as increased turnover, competition among subordinates, and conflict between subordinates and supervisors.” This same finding has been noted by Professor Judy Olian, a leading expert in strategic human resources, who has found that Forced Distribution systems may “foster a ‘me against them’ mentality since all performance judgments are relative, and each employee clamours to make it into the higher performance categories. There are also instances of significant deal making among managers of work units, each bargaining over employees who will be ‘sacrificed’ into the next lowest category.” Negotiations between managers are commonplace and this practice leads to employee anxiety over the integrity of the system and whether his/her manager has enough influence to secure a high ranking for him or her. Consequently, the performance of the employee can become secondary to the manager’s ability to negotiate and advocate on behalf of the employee with other managers, thus undermining the intent of the performance management system as a whole.
The late W. Edward Deming also noted the potentially counterproductive effects of the Forced Distribution system. In particular, it can have the unintended effect of causing an otherwise satisfactory performer to be graded lower in order to fit into the established distribution scheme. “Achieving the top or bottom percent label depends, always, on the caliber of the other people on the team. A top 10% performer in a mediocre group will become an average performer in a strong group. If organizational selection systems are well implemented, the lowest 10 percent of the organization could still be acceptable. Forcing such people out of the organization [or labeling them as non-contributors] may be perceived as unnecessary and draconian, with debilitating morale consequences.” Observations from those involved with the study of Forced Distribution systems have noted a common theme of pitting one employee against another and reducing teamwork. Employees hoard information from one another so as not to give advantage to others who they are competing against for space with on the distribution bell curve. As one employee observed, “teamwork went out the window. Some people would not help anyone else. They figured, ‘If they’re rated and ranked above me, then I’ll get terminated.’” At another firm who also uses forced ranking, their HR executive noted, “It makes it very difficult for people to collaborate knowing that if they help this other person they are lowering their chances at the end of the year.”
However the challenges to implementing a Forced Distribution system can also include the sample size of the organization. The Forced Distribution methodology assumes that there is a “normal distribution” of skills within an organization based on a random group of people, but even Forced Distribution advocate Dick Grote confirms that “performance in organizations is not random.” While the Forced Distribution system achieves a statistically balanced outcome, it “applies only to large, randomly selected populations, not the carefully selected populations” that have been subject to pre-employment screening, training and development, and experiential growth, all of which can skew a normal distribution curve. “This approach is based on the rather questionable assumption that all groups of employees will have the same distribution of excellent, average, and poor performers.” “For instance, in some smaller departments (with a population of less than 100) it is impossible to apply a normal distribution.” Given the relative small size of the COMPANY XYZ, applying a Forced Distribution scheme to the management ranks is likely not to withstand the challenge that it is not a large enough pool to representative a cross section of a normal distribution curve. This may undermine the intent of the Forced Distribution strategy before it is even launched. It may also expose the COMPANY XYZ to potential lawsuits.
In the United States in the past few years, there have been a number of high profile lawsuits against Ford, Conoco, Microsoft and Goodyear alleging discrimination as a result of the application of the Forced Distribution system. (With respect to Canada and other international locations, we have not as yet found information concerning the practice, legality or cultural acceptance of Forced Distribution) In Ford’s case it settled out of court for $10.5 million and abandoned its system. It is important to note that Forced Distribution systems are not illegal, but they do create extra challenges, at least in an American context, for “inviting disparate impact litigation if not implemented properly.” General Motors used a forced ranking system in the late 1980’s, and like Ford, was the subject of a class action age discrimination lawsuit. GM also abandoned the system. The former head of Human Resources for GM said of the Forced Distribution system, “My recollection is that it created 10 problems for every one it solved. It was just a mess so we dropped it.”
Forced Distribution brings:
• Discipline and rigour into the performance management process.
• Forces managers to confront under performing employees and be honest with their staff.
• Rewards high performing staff.
• Removes the leniency bias that so many companies face within their performance programs.
• Provides cost containment for salaries and bonuses and has been used with success in companies such as GE, which has a high performance culture.
• Reduces the burden on high performers who often have to “carry” the workload from poor performing staff and may push an organization towards a high performance culture by raising the talent bar higher.
• Instead of negatively affecting morale, it actually can increase it by having staff work with more talented people.
• Encourages open dialogue among managers on how their staff are really doing relative to everyone else.
Forced Distribution also:
• Creates morale and employee relations problems.
• Attracts unwanted legal action through discrimination claims in the USA.
• May cause an organization to inaccurately rate employees based on their performance when compared to their actual performance objectives which can leave staff feeling bitter and cheated.
• May not be statistically sound in a smaller workforce such as COMPANY XYZ’s and the reliability of it may be put into question, thus undermining its use.
• Does not consider or account for the impact of training and development that can push a performance curve to the right.
• Has the potential for undermining teamwork and cooperation as employees try and protect their ranking relative to their peers.
• Companies implementing Forced Distribution must also contend with the cultural shock and acceptance problems that such a program will invoke.
• The Forced Distribution system may “hi-jack” the performance management program by making individual measures against a pre-established performance targets moot, by placing more emphasis and consideration on where to place the employee on the curve relative to another employee.
• Employees with more persuasive managers may be better protected than employees who have less effective managers when it comes to arguing over who has to be placed in the various performance categories, thus resulting in a ranking that has more to do with managerial negotiating skills rather than employee performance.
• Implementing a Forced Distribution can have an impact on employee loyalty and can impact turnover.
1. Given the net result of implementing such a system, and given the small population of COMPANY XYZ, the adoption of a Forced Distribution system is not recommended. However, this would not stop COMPANY XYZ from doing an informal comparison of all employee evaluations and their distribution (see recommendation 2 below).
2. However, rigour is still required, therefore it is recommended that a summary of the results of companywide Performance Management Plans (PMP’s) be presented to the President and SENIOR MANAGEMENT each year for review. In areas where there is a preponderance of either “Did Not Meet Expectations” or “Exceeded Expectations”, those individual PMP’s will be reviewed by the President, the VP of Human Resources, and the VP responsible for the area with the atypical rating profile.
3. In the research literature, there is an emphasis on the importance of managerial training on how to conduct performance appraisal meetings and having productive “difficult conversation” meetings. This training provides managers with the skills and confidence to provide more rigorous and credible evaluations and assist in reducing the leniency factor. Little if any formal managerial/leadership training has ever been done at COMPANY XYZ. It is proposed that mandatory leadership and communications (difficult conversations) training be instituted for all supervisory staff. Locally, at Carleton University there is a continuing education course in the Sprott School of Business based on the Harvard University Negotiations Project book “Difficult Conversations”, and an on-site training course at COMPANY XYZ may prove useful, along with other formal leadership/management training.
4. The completion rate for finalizing 2011 PMP is dismal. This can in part be attributed to a number of different factors (Feedback: “it takes too long because of all the paper – its complicated”, “its not user friendly”, “my boss hasn’t done it, so why should I”, “I’m too busy”, “I forgot”, “will it really matter one way or another”, etc.) In order to alleviate and address some of these concerns it is recommended that the PMP forms be overhauled significantly and that the PMP process be “re-launched” with renewed commitment from senior management. The communications from management should emphasize the integrated nature of the PMP into so many other COMPANY XYZ programs (succession planning, training, staffing, compensation, etc.).
5. Many organizations are moving to a fully automated web-based PMP process. We are currently looking to move the PMP to a fully automated process, and it is recommended that we continue to pursue this opportunity for developing a best practices computerized platform. This will make the production of important reports automatic, will have built-in reminders to staff and managers on the status of their PMP’s, identify late PMP’s and remove the paper process and make it much more user friendly. This automation still requires face-to-face discussions between supervisor and employee.
6. Make talent management a critical part of every manager’s job. It should be in each manager’s PMP.
7. Reward and invest in COMPANY XYZ’s A and B players (for example: accelerated professional development through challenging assignment/special projects; assign mentors to nurture their development and help retain them; encourage their involvement in tasks outside their traditional mandate to give them a broader perspective; special training courses, financial rewards; public recognition and celebration of their achievements, etc.)
8. For the C players, develop action plans for improvement and give them a specified period of time to achieve the goals in the plan. Deal decisively with failure (e.g. moving an employee to a better suited position, if available; or termination).
Herb Kelleher, founder of Southwest Airlines, has proposed from the outset, to hire the very best and train all hires to the fullest extent possible. He believes that he hires only on the "right-side" of the curve, so there is never a need to force rank. It is actually part of the culture of his company has developed, and as a result, the motivation of Southwest’s workforce is higher than most other employers.
Jamieson Human Resource Consulting Ltd.