Performance management programs must be more relevant

It has almost been a default position for organizations to use a five point rating scale to measure performance that results in a bell curve. Employees hated it, and there were many instances, especially in the US, where employees even took their employers to court on the unfairness of it all. Employers have found it difficult to reliably defend the bell curve.

Nicholas Taleb in his book, “Fooled by Randomness” had an entire chapter titled “The Bell Curve, calling it intellectual fraud.” A large body of research suggests that it is usually the ‘long tail’ that companies experience. In the most general terms, it means that top performers are even rarer than we have assumed and the bulk of the employees are below the mean of the performance threshold. Like many other things, performance patterns in the organization fit better with the Pareto principle (the 80-20 distribution) rather than a bell curve, and even here, it has a fractal nature. In a class of 100 students, 20 will be top performers. Even within the 20 there will be 4 who can be called hyper performers. In general, any organization will have a small segment whose performance is radically ahead of the rest and the rest of the organization will follow a pattern whose performance cannot be very clearly distinguished.

Businesses in industries which are less hierarchical, such as IT, are more likely to abolish the bell curve sooner than other industries. Moving out of the bell curve is not an easy transition, especially for large organizations. A good way to think about performance distribution in such organizations is to continue using the ratings but radically revisiting the distribution. A very small percentage of the population falls into the hyper performance bracket as most of the remaining population should be rated as meeting objectives. 

Performance in the modern organization will depend largely on five key factors. The first factor is the quality of its managerial infrastructure. If managers are developed, empowered and equipped with the right tools, most of the people management issues are addressed. The second step is to revisit the performance distribution and identify the best distribution framework relevant to a job family. For example, account managers and new business developers will have very different performance curves. Third, the company needs to have compelling framework for distributing rewards and incentives. One-size-fits-all approach does not work and companies need to work harder to make their programs more relevant. It is also important for the organization to build careers for employees so that individual aspirations can be aligned with business goals to create sustainable performance. The fifth crucial component is the effective deployment of its top talent into pivotal roles.