For Whom the Bell Curve Tolls
Every company would love to have a workforce in which all employees – like the children of Garrison Keillor's fictional Lake Wobegon – are "above average." Of course, according to the bell curve theory, that's statistically impossible. In a normal situation, only a few individuals would be exceptional, most would be average and a few would be very poor. This is known as "normal distribution" and refers to the way that natural phenomena commonly arrange themselves. It is also the basis for an increasing number of appraisal systems being implemented by U.S. companies – grading systems, sometimes known as forced rankings or distribution systems, that require managers to rank employees from best to worst on a fairly fixed scale. But as they've become more common, these systems have also become more controversial.
The New York Times reports that companies such as General Electric (GE), Cisco Systems, Hewlett-Packard, Microsoft, Ford Motor Co. and Conoco are currently using versions of these ranking systems. GE, for example, reportedly requires its managers to annually identify the top 20% and bottom 10% of their managerial and professional employees.
There are various reasons for adopting such appraisal methods. Many companies have implemented them to prevent "evaluation inflation" and to ensure that managers make clearer distinctions among workers for compensation, promotion and termination decisions. Reylito Elbo, director of the Kaizen Institute and managing advisor of Kairos Management Technologies, believes that using the bell curve theory "is the only way to determine if your line supervisors and managers are deeply inhibited by emotional and political issues that may prevent them from making a true assessment of one's work performance."
Some companies that are planning layoffs, such as Cisco Systems, are using these systems to determine which employees will be let go. The Detroit News reports that Ford implemented rankings, in part, to change its corporate culture from one of entitlement to one where job security and rewards are earned through achievement and productivity. GE's CEO Jack Welch sums up the opinion of many corporate managers: "A company that bets its future on its people must remove that lower ten percent, and keep removing it every year – always raising the bar of performance and increasing the quality of its leadership."
But one downside is that such ranking systems can spawn employee anger and lawsuits. General Motors Corp., for example, decided to reject its forced ranking system after it was hit with a class-action age discrimination suit. "My recollection is [the system] created ten problems for every one it solved," says F. Alan Smith, head of HR for GM at the time. Now, Microsoft, Conoco and Ford Motor Co. also are facing lawsuits. Over the last year, employees from all three companies have filed suits alleging that the rating systems are unfair because they favor some groups of employees over others, reports the New York Times.
Another potential downside is that forced ranking systems may become less effective over time. After companies eliminate the poorest performers for a few years, "just how meaningful do the distinctions between 'superb' and 'outstanding' become?" asks Michael Schrage in Fortune magazine. "Beyond a certain point," he writes, "diminishing returns set in."
A related argument against ranking systems is that a normal distribution curve assumes that there's a very large group of randomly selected individuals, not a relatively small group of recruited and selected employees. Critics say that workers who belong to a particularly talented unit will suffer if only a certain percentage of that group can be rated as top performers and another percentage of employees must be given low grades. "You end up with dysfunctional results," says Edward E. Lawler III, a business professor at the University of Southern California.
But spokespeople for Microsoft, GE and Ford state that, contrary to some reports, they do not rigidly prescribe the number of employees who can receive exceptional ratings. "Our appraisal system is flexible enough to ensure that truly outstanding employees are recognized appropriately," says a GE spokesperson. And Deborah Willingham, Microsoft's senior vice-president for HR, says that her company does not rank employees on a prescribed bell curve. "We don't force that curve to look any certain way," she states.
Will a growing number of companies adopt such systems, especially if most court challenges fail? Kenneth Kovach, professor of employee relations at Virginia's George Mason University, believes that employee acceptance will grow over time as people recognize the virtues of a system that enhances company competitiveness. But Schrage, co-director of the MIT Media Lab's e-markets initiative, argues just the opposite: that over time, high performers will increasingly compete with one another for performance ratings and that this will result in the kind of internal discord that destroys camaraderie and fosters mistrust. The outcome of this debate may have a large impact on how performance appraisal systems look in the future.
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Some articles used to write this TrendWatcher include:
Abelson, Reed. "Companies Turn to Grades, and Employees Go to Court." New York Times, March 19, 2001.
Elbo, Reylito A.H. "In the Workplace: Revisiting the Bell Curve Theory." BusinessWorld (Philippines). June 21, 2000.
Schrage, Michael. "How the Bell Curve Cheats You." Fortune, February 21, 2000, p. 296.
Truby, Mark. "Forced Ranking Stirs Fierce Debate." Detroit News, April 29, 2001, front section, p. 10.
The New York Times reports that companies such as General Electric (GE), Cisco Systems, Hewlett-Packard, Microsoft, Ford Motor Co. and Conoco are currently using versions of these ranking systems. GE, for example, reportedly requires its managers to annually identify the top 20% and bottom 10% of their managerial and professional employees.
There are various reasons for adopting such appraisal methods. Many companies have implemented them to prevent "evaluation inflation" and to ensure that managers make clearer distinctions among workers for compensation, promotion and termination decisions. Reylito Elbo, director of the Kaizen Institute and managing advisor of Kairos Management Technologies, believes that using the bell curve theory "is the only way to determine if your line supervisors and managers are deeply inhibited by emotional and political issues that may prevent them from making a true assessment of one's work performance."
Some companies that are planning layoffs, such as Cisco Systems, are using these systems to determine which employees will be let go. The Detroit News reports that Ford implemented rankings, in part, to change its corporate culture from one of entitlement to one where job security and rewards are earned through achievement and productivity. GE's CEO Jack Welch sums up the opinion of many corporate managers: "A company that bets its future on its people must remove that lower ten percent, and keep removing it every year – always raising the bar of performance and increasing the quality of its leadership."
But one downside is that such ranking systems can spawn employee anger and lawsuits. General Motors Corp., for example, decided to reject its forced ranking system after it was hit with a class-action age discrimination suit. "My recollection is [the system] created ten problems for every one it solved," says F. Alan Smith, head of HR for GM at the time. Now, Microsoft, Conoco and Ford Motor Co. also are facing lawsuits. Over the last year, employees from all three companies have filed suits alleging that the rating systems are unfair because they favor some groups of employees over others, reports the New York Times.
Another potential downside is that forced ranking systems may become less effective over time. After companies eliminate the poorest performers for a few years, "just how meaningful do the distinctions between 'superb' and 'outstanding' become?" asks Michael Schrage in Fortune magazine. "Beyond a certain point," he writes, "diminishing returns set in."
A related argument against ranking systems is that a normal distribution curve assumes that there's a very large group of randomly selected individuals, not a relatively small group of recruited and selected employees. Critics say that workers who belong to a particularly talented unit will suffer if only a certain percentage of that group can be rated as top performers and another percentage of employees must be given low grades. "You end up with dysfunctional results," says Edward E. Lawler III, a business professor at the University of Southern California.
But spokespeople for Microsoft, GE and Ford state that, contrary to some reports, they do not rigidly prescribe the number of employees who can receive exceptional ratings. "Our appraisal system is flexible enough to ensure that truly outstanding employees are recognized appropriately," says a GE spokesperson. And Deborah Willingham, Microsoft's senior vice-president for HR, says that her company does not rank employees on a prescribed bell curve. "We don't force that curve to look any certain way," she states.
Will a growing number of companies adopt such systems, especially if most court challenges fail? Kenneth Kovach, professor of employee relations at Virginia's George Mason University, believes that employee acceptance will grow over time as people recognize the virtues of a system that enhances company competitiveness. But Schrage, co-director of the MIT Media Lab's e-markets initiative, argues just the opposite: that over time, high performers will increasingly compete with one another for performance ratings and that this will result in the kind of internal discord that destroys camaraderie and fosters mistrust. The outcome of this debate may have a large impact on how performance appraisal systems look in the future.
====================================================
Some articles used to write this TrendWatcher include:
Abelson, Reed. "Companies Turn to Grades, and Employees Go to Court." New York Times, March 19, 2001.
Elbo, Reylito A.H. "In the Workplace: Revisiting the Bell Curve Theory." BusinessWorld (Philippines). June 21, 2000.
Schrage, Michael. "How the Bell Curve Cheats You." Fortune, February 21, 2000, p. 296.
Truby, Mark. "Forced Ranking Stirs Fierce Debate." Detroit News, April 29, 2001, front section, p. 10.