While the concept of the bell curve is widely known and accepted, it
promotes falsehoods that may actually inhibit motivation and
performance:
The Myth of the Bell Curve
There is a long standing belief in business that people performance follows the
Bell Curve (also called the
Normal Distribution).
This belief has been embedded in many business practices: performance
appraisals, compensation models, and even how we get graded in school.
(Remember "grading by the curve?")
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 happiness.
Witness
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.
I recently talked with the HR leader of a well known public company and
she told me her engineer-CEO insists on implementing a forced ranking
system. I explained the statistical models to her and it really helped
him think differently.
Does human performance follow the bell curve? Research says no.
Let's look at the characteristics of the Bell Curve, and I think you'll quickly understand why the model doesn't fit.
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).
As
you can see from the curve, in the area of people management the model
essentially says that "we will have a small number of very high
performers and an equivalent number of very low performers" with the
bulk of our people clustered near the average. So if your "average sales
per employee" was $1M per year, you could plot your sales force and it
would spread out like the blue curve above.
In the area of
performance management, this curve results in what we call "rank and
yank." We force the company to distribute raises and performance ratings
by this curve (which essentially assumes that real performance is
distributed this way). To avoid "grade inflation" companies force
managers to have a certain percentage at the top, certain percentage at
the bottom, and a large swath in the middle.
This practice creates the following outcomes:
- First, we ration the number of "high performance ratings." If you
use a five point scale (similar to grades), many companies say that "no
more than 10% of the population gets a rating of 1" and "10% of the
population must be rated a 5."
- Second, we force the bottom 10% to get a low rating, creating
"losers" in the group. So if your team is all high performers, someone
is still at the bottom. (The "idea" behind this is that we'll
continuously improve by lopping off the bottom.)
- Third, most of the people are always in the middle - rated more or
less "average." And implicit in this last assumption is the idea that
most of the money and rewards go to the middle of the curve.
Does the World Really Work This Way?
The answer is no.
Research conducted in 2011 and 2012 by Ernest O’Boyle Jr. and Herman Aguinis (633,263 researchers, entertainers, politicians, and athletes in a total of 198 samples). found that performance in
94 percent of these groups did not follow a normal distribution. Rather these groups fall into what is called a "Power Law" distribution.
A
"Power Law" distribution is also known as a "long tail." It indicates
that people are not "normally distributed." In this statistical model
there are a small number of people who are "hyper high performers," a
broad swath of people who are "good performers" and a smaller number of
people who are "low performers." It essentially accounts for a much
wider variation in performance among the sample.
It has
very different characteristics from the Bell Curve. In the Power Curve most people fall
below the mean
(slightly). Roughly 10-15% of the population are above the average
(often far above the average), a large population are slightly below
average, and a small group are far below average. So the concept of
"average" becomes meaningless.
In fact the implication is that
comparing to "average" isn't very useful at all, because the small
number of people who are "hyper-performers" accommodate for a very high
percentage of the total business value.
(Bill Gates used to
say that there were a handful of people at Microsoft who "made" the
company and if they left there would be no Microsoft.)
Why We Have Hyper-Performers
If you think about your own work experience you'll probably agree that this makes sense.
Think
about how people perform in creative, service, and intellectual
property businesses (where all businesses are going). There are
superstars in every group. Some software engineers are 10X more
productive than the average; some sales people deliver 2-3X their peers;
certain athletes far outperform their peers; musicians, artists, and
even leaders are the same.
These "hyper performers" are people you
want to attract, retain, and empower. These are the people who start
companies, develop new products, create amazing advertising copy, write
award winning books and articles, or set an example for your sales
force. They are often gifted in a certain way (often a combination of
skill, passion, drive, and energy) and they actually do drive orders of
magnitude more value than many of their peers.
If we're lucky we
can attract a lot of these people - and when we do we should pay them
very well, give them freedom to perform and help others, and take
advantage of the work they do. Investment banks understand this - that's
why certain people earn 10-fold more than others.
Today's
businesses drive most of their value through service, intellectual
property, innovation, and creativity. Even if you're a manufacturer,
your ability to sell, serve, and support your product (and the design
itself) is more important than the ability to manufacture. So each year a
higher and higher percentage of your work is dependent on the roles
which have "hyper performer" distributions.
(I would argue that every job in business follows this model.)
What About Everyone Else?
The
power law distribution (also called a Paretian Distribution) shows that
there are many levels of high performance, and the population of people
below the "hyper performers" is distributed among "near
hyper-performers" all the way down to "low performers."
As you can
see from the example above (and this chart varies depending on
population) you still have a large variation in people and there will be
a large group of "high-potentials," a group of people who are
"potential high-potentials," and a small group who just don't fit at
all.
The distribution reflects the idea that "we want everyone to
become a hyper-performer" if they can find the right role, and that we
don't limit people at the top of the curve - we try to build more of
them.
Companies that understand this model focus very heavily on
collaboration, professional development, coaching, and empowering people
to do great things. In retail, for example, companies like Costco give
their people "slack time" to clean up, fix things, and rearrange the
store to continuously improve the customer experience.
How the Bell Curve Model Hurts Performance
Right
now there is an epidemic of interest in revamping employee performance
management processes, and it's overdue. I just had several of my best
friends (generally in senior positions) tell me how frustrated they are
at their current jobs because their performance appraisals were so
frustrating.
Here are the reasons the current models don't work:
1. No one wants to be rated on a five point scale.
First,
much research
shows that reducing a year of work to a single number is degrading. It
creates a defensive reaction and doesn't encourage people to improve.
Ideally performance evaluation should be "continuous" and focus on
"always being able to improve."
In fact,
David Rock's research
shows that when we receive a "rating" or "appraisal" our brain shifts
into "fear or flight" mode and shifts to our limbic brain. This shift,
which takes place whenever we are threatened, immediately takes us
out of the mode to learn or create, making us defensive.
So the actual act of executing a performance appraisal itself reduces performance. (Read SCARF for more details: Status, Certainty, Autonomy, Relatedness, and Fairness are what create a secure place to perform.)
2. Ultra-high performers are incented to leave and collaboration may be limited.
The
bell curve model limits the quantity of people at the top and also
reduces incentives to the highest rating. Given the arbitrary five-scale
rating and the fact that most people are 2,3,4 rated, most of the money
goes to the middle.
If you're performing well but you only get a
"2" or a "3" you'll probably feel under-appreciated. Your compensation
increase may not be very high (most of the money is held for the middle
of the curve) and you'll probably conclude that the highest ratings are
reserved for those who are politically well connected.
Since the
number of "1's" is limited, you're also likely to say "well I probably
wont get there from here so I'll work someplace where I can really get
ahead."
Also, by the way, you may feel that collaboration and
helping others isn't really in your own self interest - because you are
competing with your team mates for annual reviews.
3. Mid level performers are not highly motivated to improve.
In
the bell curve there are a large number of people rated 2, 3, and 4.
These people are either (A) frustrated high performers who want to
improve, or (B) mid-level performers who are happy to stay where they
are.
If you fall into category (B) you're probably pretty happy
keeping the status quo - you know the number of "1's" is very limited so
you won't even strive to get there. In a sense the model rewards
mediocrity.
4. Compensation is inefficiently distributed.
People
often believe the bell curve is "fair." There are an equal number of
people above and below the average. And fairness is very important. But
fairness does not mean "equality" or "equivalent rewards for all." High
performing companies have very wide variations in compensation,
reflecting the fact that some people really do drive far more value than
others. In a true meritocracy this is a good thing, as long as everyone
has an opportunity to improve, information is transparent, and
management is open and provides feedback.
Many of the companies I
talk with about this suddenly realize the have to rethink their
compensation process - and find ways to create a higher variability in
pay. Just think about paying people based on the value they deliver
(balanced by market wages and scarcity of skills) and you'll probably
conclude that too much of your compensation is based on tenure and
history.
5. Incentives to develop and grow are reduced.
In
a bell curve model you tend to reward and create lots of people in the
"middle." People can "hang out" in the broad 80% segment and rather than
strive to become one of the high-performers, many just "do a good job."
This is fine of course, but I do believe that everyone wants to be
great at something - so why wouldn't we create a system where every
single person has the opportunity to become a star?
If your
company focuses heavily on product design, service, consulting, or
creative work, (and I think nearly every company does), why wouldn't you
want everyone to work harder and harder each day to improve their own
work or find jobs where they can excel?
(By the way, internal
mobility is a critical part of this model. If I find I'm not very good
at the job I'm in now, I would hope my manager will help me move to
assignments or jobs where I can become a superstar. Companies that
simply rate me a 3 may not give me that opportunity. If we create a more
variable and flexible process of evaluation we have to enable people to
move into higher value positions. So having a talent mobility program
is critical to success.)
Time to Re-Engineer Performance Management
As
I go out and talk with HR leaders about this process I'm finding that
almost every major company wants to revamp their current approach. They
want to make it simpler, focused on feedback, and more developmental.
But
in addition to considering these practices, make sure you consider your
performance philosophy. Does your management really believe in the bell
curve? Or do you fundamentally believe there
are
hyper-performers to be developed and rewarded? If you simplify the
process but keep the same distribution of rewards and ratings you may
not see the results you want.
Look at how sports teams drive
results: they hire and build super-stars every single day. And the pay
them richly. If you can build that kind of performance management
process in your team, you'll see amazing results.
Note:
I've received a lot of great comments since this was posted. The really
big difference between the "bell curve" and the "power curve" is that
the power curve reflects the fact that a small number of people deliver
an inordinate amount of contribution - hence the "long tail." This means
that "most people" are below the mean. It does NOT imply that most
people are lower performers, only the fact that the variability of
performance is high and that the curve should not be equal above and
below the mean.
If you think about that one fact, it
helps you understand why the "forced ranking" is such a limiting concept
and why "continuous development" is the model for organizational
success. I personally believe that everyone can be a "hyper-performer"
when the conditions are right.
---
Josh
Bersin writes and researches corporate talent, learning, leadership,
and HR best-practices around the world. He is Principal, Deloitte
Consulting LLP and founder of Bersin by Deloitte. You can follow Josh
here or on twitter
josh_bersin or at
www.bersin.com .
---
Article originally taken from: http://www.linkedin.com
