Its Problem & Solution
Performance appraisal is an important managerial instrument to clarify performance criteria and enhance future employee performance. It provides a justification for human resource decision such as rewards, career planning, transfers, training, counselling, mentoring, termination etc. Basic purpose of performance appraisal is to identify the relative worth or ability of an individual employee in performing his tasks. If objectively done, the appraisal can to differentiate between high and low performer.
For differentiating between performers, broadly we can categorize performance evaluation system in two ways: absolute grading and relative grading. In absolute grading system individual performance is compared with a pre-determine standard, whereas a relative grading system determines relative position of an employee by comparing them against each other. Bell shaped curve is considered as one of the forced distribution methods based on relative grading system. This system was introduced by Jack Welch in the beginning of his tenure at General Electric (GE) under the name of “Vitality Curve”. Welch introduced this system to develop an objective measure to discriminate between high and low performer; so that the culture of ‘rewarding doers’ can be established, which in turn can be helpful for ‘building muscle’ of the organization. GE and many other organizations consider bell shaped curve for evaluating employee’s performance as a developmental instrument of achieving a performance oriented culture.
Bell shaped curve system rates the entire workforce by comparing the performance of those engaged in similar activities and ranking them on the basis of their performances. As a result, the entire workforce is segregated into different groups. For instance, the employees of an organization can be classified into three groups labelled as top performers, medium performers and poor performers. The number of groups and the proportions of employees in different groups vary according to the company policy. Employees belonging to the higher grades (labelled as top performers) are supposed to have significant contribution to the companies. They are showered with rewards, which acts as a continuous source of motivation to them. The numbers of employees in the middle group are usually higher. They are supposed to be weaker in certain areas which may be improved through appropriate training. The performances of the employees belonging to lower grades are considered to be unsatisfactory. For them, performance appraisal works as a warning bell and it reminds them about their poor ranking (in terms of performance) compared to their colleagues involved in the same types of activities.
In India, we have already observed the wide use of bell shaped curve in IT sectors to categorize employee’s performance in different levels and accordingly determine the future course of action. For Indian public sector undertaking companies like ONGC, BCCL, HCL, CIL, SAIL etc. where large number of employees are involved, it is highly important to adapt such type of forced distribution system that can categorize the performers in different levels. This process may be extremely helpful for managing and retaining talented employees as well as setting up a performance oriented culture in Indian public sector undertaking companies.
Though Bell Curve system of performance appraisal provides the momentum to employee to move forward and aiming high, still many researchers and practitioners have identified some major drawbacks in this method of appraisal. According to their opinions, as the Bell curve is applicable to individual department or team or function, there is a high chance that low performing member in the high performing group may be better than the best performer in the average performing group. Because of the rigidity of this appraisal system, companies are ringing their warning bell to all bottom performers of each and every group. As a result, some potential performers are leaving the organization either voluntarily (due to dissatisfaction) or involuntarily which may not be always beneficial from organizational point of view.
Moreover, it is assumed that the bottom performers are replaced every year on account of their unsatisfactory performance by fresh talent who can add up to the output of the organization, here we may argue that the likelihood of presence of poor performers amongst the new addition is another possibility which can adversely affect the system. Moreover, from the financial point of view, replacement of the employee with the fresh talent is also a costly affair.
In our research on forced distribution system, we have mathematically demonstrated serious limitations of the method and proposed a simple modification to overcome these limitations. Instead of using the grades directly as a performance evaluation indicator, we have converted the grades into scores in each group by using Likert’s scaling method. Then, these scores are used to estimate the average performance of each group of employees, which we termed as group index. Taking these group indices into consideration, we have proposed a modified performance score for each employee. To explore the properties of the proposed model, we have carried out extensive simulation studies for different types of allocations of employees in different projects. For judging the efficiency of the new model, we have calculated employee’s performance by using existing method and the proposed method and compared them by using an appropriate statistical technique. Results indicate that our model works significantly better in all types of employee-allocation.
To set up a performance oriented culture, it is highly important to use any type of forced distribution system for ultimate categorization of employee’s performance. But due to some negative consequences in forced distribution system, many organizations are not very proactive to adapt this method. Our proposed modification will definitely provide a solution to this problem and help the organizations to adapt this system for managing employee’s performance.
Dr. Rachana Chattopadhyay
For research details, see the following article:
R. Chattopadhyay and A. K. Ghosh (2012). “Performance appraisal based on a forced distribution system: its drawbacks and remedies”. International Journal of Productivity and Performance Management, 61(8), 881-896.