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Performance, Pay, Incentives and the All Mighty Bell Curve: But What’s the Big Elephant in the Room

February 22, 2014

Josh Bersin published an article on LinkedIn titled, The Myth of the Bell Curve, that is receiving many comments. I’ve used the main point of his article to go a step further and make the case that poor selection strategies are the root cause of forced ranking systems and address why state-of-the-art selection strategies (talent acquisition) that result in hiring more “A” players destroys a bell curve and related force ranking systems.

Bersin states there is a long standing belief in organizations that you can expect a people performance Bell Curve (also called the Normal Distribution). This belief has been embedded in many business practices including performance appraisals and compensation models. Research shows that this statistical model, while easy to understand, does not accurately reflect the way people perform. As a result, HR departments and business leaders inadvertently create agonizing problems with employee performance and engagement.

The Bell Curve represents what statisticians call a “normal distribution.” A normal distribution is a sample with an arithmetic average and an equal distribution above and below average like the curve below. This model assumes we have an 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 (mean).

Bell Curve

Most employees are rarely upset by a compensation system if they perceive their own compensation to be fair in the marketplace. Dan Pink makes a great point about this in his book, Drive, The Surprising Truth About What Motivates Us. The book is summarized in the animation below:

So HR, in an attempt to justify their existence or to please the high-analytic Controller/CFO, launches the dreaded performance review and ranking process each year – resulting in one score that says it all about what your manager and the company thinks of you. The fact: A very real 85% of your employees are annually pissed off by this performance rating and forced ranking strategy. Employee engagement drops for the next 60 days while everyone updates their resume and checks the job posting sites for something better at another company. The amount of hours allocated to this flawed process is incredible. Any value of time, considering the managers time to write the performance review, conduct the review with the employee, and deal with any fall out, adds up to millions of dollars in lost productivity for larger employers. Small businesses simply can’t afford this archaic process.

Bersin points out Microsoft’s recent decision to disband its performance management process – after decades of use the company realized it was encouraging many of its top people to leave!

[Side note, many years ago I was given a phone interview by a Microsoft recruiter for an HR management position. I was asked about my experience with performance management and compensation and how I thought performance “measurement” needed to be conducted. I briefly explained my past experience designing and implementing a performance review and compensation management process at my then-current employer (oil and gas exploration and production) that used a market-based compensation system (pay bands) with performance ratings to drive compensation. Two people with the same performance rating could get two different increase amounts based on where they were in the market. I stated I had concerns for the performance rating even though my design was considered a “best practice” that was appreciated by managers and employees for minimizing subjectivity.  I explained further that a forced ranking system was flawed and needed to be eliminated and replaced with an individualized development process. I stated that retaining  and developing top talent was the business need and that I had concerns with a subjective annual performance rating approach getting in the way of that. For some reason, I didn’t get to the next stage of interviews. It is nice to know things can change.]

This bell curve issue and its negative impact on performance and compensation management points to the systemic issue that is the big elephant in the room: Selection.

Hiring in most companies remains a subjective, non-scientific speed-dating exercise based on behavioral preferences (manager biases) which can be observed in the applicant. Assessing applicants has been an exercise that for many years couldn’t prove a decent ROI. The main reason has been the use of one science that measured behavioral style or “how” you do what you do. Frankly, who needs an assessment that assesses behavioral style when it is very easy to observe and gauge? Today, we use a multi-science work-related talent assessment approach to examining a person’s talent profile in 3-D. Behavioral style is part of the talent picture but so are motivators, soft skill competencies, problem solving acumen and EQ.

If your company is like most, according to many studies, you have an “unwanted turnover rate” and an actual performance distribution that says you aren’t doing any better than 50% success in your selection – and that success isn’t defined as “hiring ‘A’ players”. Success is being defined as retaining the person for more than two years.

Let’s pretend for just a minute that you were hiring all “A” players, defined as high performers that were contributing to achieving goals and delivering on their key accountabilities with better than expected results on a consistent basis. Would you want to use a bell curve for performance management? Would managers allow you to dictate a forced-ranking system be used? I don’t think so. The conclusion is that the better your selection system, the less valid and useful a forced performance distribution system is for performance and compensation management. So if you are justifying a forced ranking system, you are saying your selection and hiring system is seriously flawed and behind the times.

Selection is no longer an art. With the right tools, assessment and selection is a science and a very effective science. However, it doesn’t take decision-making away from the hiring manager. The tools we use today help the hiring manager to narrow the talent pool to the best of the bunch based on the job’s talent requirements (a job benchmark) and provides laser-focused interview questions to help validate the person’s strengths and weaknesses.

People Performance Bell Curve

Cost of Turnover. A discussion of the cost of turnover has been avoided for reasons I can’t explain. Perhaps most CEOs don’t feel comfortable asking for HR data that they don’t have confidence in. Our Offer to you: As a reader of the Talent Management Strategies blog, if you are interested in receiving a professional cost of turnover analysis for your company please complete the form below. This is a no-cost, no obligation offer. We’ll send you via e-mail instructions for inputting a few metrics into an online worksheet. Once you’ve entered the necessary data, you’ll receive a professional analysis via e-mail. No sales calls from us. But if you would like to discuss the report we’d be glad to schedule a conference call.

Performance Management and the 9-box Grid. In coaching, succession planning and talent management, the 9-box grid (Potential and Performance as X and Y axis) is used to identify needs for coaching or change in job or responsibilities. The nine “boxes” are not used in the performance review form due to the “Potential” category and its subjectivity. For example, if an employee is placed in the “Low Performing/Low Potential” box,  it may not be valuable to the organization to spend time and effort attempting to salvage an individual. According to a SHRM whitepaper, “when used correctly, the 9-box grid can be both a versatile and a valuable tool for an organization.” The author goes on to say, “Like any tool, it can be damaging to the organization if used incorrectly.” I’ve used this very effectively in my past HR roles to enable management teams to develop succession plans and use those succession plans to ensure people in larger organizations are being moved for development purposes in a timely manner. The huge benefit to using this is the ability to “promote from within” 95% of the time.

Quality of Hiring Measure: Use the diagram below as a scatter plot to chart your “one-year” hires. Where do they land? If they don’t all fall into the blue area (top right three boxes), your selection system isn’t working as well as it can.

9-box grid

A Better Solution based on a different view? What would happen if you implemented a selection strategy that included an incredibly genius talent assessment that revealed the talent of the individual and the fit to the job you have in mind. And, if the position is a key development position that leads to higher level and larger scope responsibilities, the assessment identified the candidate’s potential for the bigger picture. What if you could compare your top five candidates to determine who to invest more time in before you go to the expense of flying them in or having your staff spend a full day with them. We are successfully assessing and identifying the talent of candidates for clients across diverse industries throughout the country. We use a combination of sciences that makes sense for the job. This maximizes your ROI.

Instead of performance ratings, what if the following “evaluation ratings” were used:

1 – Ready for Move: Contributing to achieving goals and delivering on key accountabilities with better than expected results on a consistent basis

2 – Developing/Contributing Effectively: Good fit to the job and contributing effectively

3 – Poor fit to the job: Effectiveness and delivery on key accountabilities is hindered; other positions or types of work may be a better fit

Using the three feedback ratings independently of compensation management and salary budgeting based on a market-based pay matrix avoids the subjective. Compensation management is independent of current performance. This approach also supports and promotes a continuous improvement culture.

Your Assignment. Ask us for a complimentary Cost of Turnover Analysis. And while your at it, request a complimentary assessment. 

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