I was working on developing a career management system for my company and in that context was critically evaluating the performance appraisal system as well. One of the most debated ways to assess performance in organizations is the dreaded Bell Curve. Forced ranking assesses employee performance relative to peers rather than against predetermined goals. Managers rank employees into three categories: The top 20 percent are the people who will lead the future of the company. They're given raises, stock options, and training. The middle 70 percent are given smaller raises and encouraged to improve. The bottom 10 percent are contribute the least and may be meeting expectations but are simply "good" on a team of "greats." They're given no raises or bonuses and are either offered training, asked if they'd be happier elsewhere, or fired.
I was reading Jack Welch's Winning and came across this passage on forced rating, bell curve and differentiation (For the uninitiated, Jack Welch, retired Chief Executive Officer of General Electric (GE), is most often associated with forced ranking, since GE used this performance management tool to eliminate the bottom ten percent of performers each year.) :
Differentiation starts right from our school days with our grades and play-ground where the best players get picked first and the least athletic ones watch from the stands. Everyone knows where he/she stands. The top kids want desperately to stay there and continue to get the thrill and respect of winning. the kids in the middle work hard to get better and thus bring up the quality of play. And the kids who couldn't make the cut usually found other pursuits, other sports in which they excelled. this is true on the playground and it is true in business.Now, coming to the detractors of forced ranking, I have heard many say that it is not ethical. My view on this is - any system or process is nether ethical or unethical - it is the implementers who make it so. A lot depends on how fairly the system is developed, and how fair the people are who carry it out.
When differentiation is working, people know where they stand. Maybe some information is hard to swallow at first but soon enough, knowledge is liberating because when you know where you stand, you can control your destiny.
Differentiation brings out the positive impact of an open, honest management system built on candid performance assessments and aligned rewards. For the top performers, the very existence of a middle cadre gives them yet another reason to pull out all the stops everyday. They have to keep getting better to have a high standing. For the middle performers, the aspiration to get into the top level makes them work harder, think more creatively, share more ideas and overall, fight the good fight everyday.
Forced Ranking may be hard on the under-performers, people who are not dependable, determined or persistent but truth be told, organizations are not charitable set-ups where they are obligated to carry these non-performers with them, on emotional grounds. And more importantly, a laissez-faire attitude where everybody gets an exceptional / very good rating makes the ranking meaningless to employees. Would that not be the case if everyone in a school stood first?
But, having said that, I definitely feel the emphasis should be on the correct way to implement the process. Clear, transparent and honest communication of process and feedback goes a long way in building credibility of the system and its processes. If the Forced Ranking system is a way to make power centers in the organization where those who fall out of favour with the boss / are not 'Yes-Bosses' are chucked out, such a system is doomed to implode. If you don’t give people what they need to perform well and expect them to succeed, if you set a measure to which people should perform and don’t give them the tools to do it, then it is an unfair process, set up for failure and politics to set in. But if the evaluations are carried out in fair ways, and if people know the grounds or expectations on which they are being evaluated, it could be a reasonable way to reward growth and ability and to cull unpromising or under performing employees.