Death of Bell curve- New Age Performance Management systems

With TCS moving away from bell curve and other companies following suit; the discussion has been rekindled again

With Death Knell for Bell curve; this article explores:

• What Performance management tools do companies follow now?
• How are increments, variable pay decided?
• How does one identify Hyper performers and Poor performers?
• Challenges in implementation of the new age performance management systems

It looked like Bell curve has been there since the beginning of time; What happened then?

The stakeholders of the process felt that

• Lot of time is invested in this process and doesn’t help in improving the performance or keeping employees engaged 
• There is a need for making it more real-time and continuous which actually helps in taking performance to the next level. It shouldn’t be about rating on the basis of past performance. Lot of times, managers have to look into the past  year; meanwhile, objectives, targets of the company would have changed
• Rating/ranking just becomes a formality without objectivity. Research increasingly showed that forced distribution seeks to foster competition among employees
• It becomes difficult to fit people in a distribution curve for small teams or high performing teams. With force fitting it sometimes doesn’t reflect actual performance of a person

What are new performance management systems based on:

• Continuous process instead of annual event
• Process which helps in development of an individual and not just tool which is used to classify people

What Performance management tool do companies follow now?

Deloitte has changed its performance management system recently where they encourage regular feedback to be given to reportees. Performance at the individual level, is not about the skills of each team member brings to the table but about their own future actions with respect to that person.

For instance questions asked to managers to judge performance are like

• Is this person is ready for promotion today ?
• Given what you know of this person’s performance, would you always want him or her in your team?

These kind of  questions coupled with regular feedbacks help in providing course correction, clarity of what's required and what great work looks like

Google follows the Objective Key results model where Objectives are set and reviewed once in quarter, with a continuous feedback. OKRs are a generally set in such a way, where it is tough to achieve 100%, but it helps the employee to push the bar higher. Increments and promotions are delinked with OKR discussion.

Companies like  GE, Adobe, Cargill foods also changed to continuous feedback as principle and some of them have come up with Apps to make it easier to record on the go and frequently .

Do they identify Hyper performers and poor performers?

These new age performance management systems also lay emphasis on identifying hyper and poor performers . For instance Adobe requires executives and managers to have regular ‘tough discussions’ with employees who are struggling with performance issues—rather than putting them off until the next performance review cycle comes around.

While some of the companies look at 360 degree feedback, peer reviews, potential, how well employee gels with the team, alignment with culture etc to be a major part of performance assessment .

To better understand

Netflix, believes in continuous feedback , but as a philosophy they believe in disproportionately rewarding hyper performers and weeding out poor performers. Their philosophy can very well be summarized in couple of statements

Sustained A- Level performance despite minimal effort is rewarded with more responsibility and great pay

Sustained B-Level performance, despite A effort generates a generous severence package, with respect

How is the allocation of increments, variable done in the new age performance management systems?

In bell curve kind of a system; there needed to be a particular percentage of people in each bracket . This didn’t give the managers flexibility.  Such flexibility is required in teams which have few members, high performing teams ; this is deemed to be one of the major drawbacks of bell curve based PMS. 

How does new age systems work?

In few companies; for instance Microsoft- managers are free to allocate compensation as they see fit within their budgets; while there are general guidelines on the identification of hyper-performers, average and low performers.

Then there are companies who believe in market parity, look at compa-ratios seriously. They also believe in skill based and market demand based pay; almost delinking increments with performance. They believe in keeping the best and paying them according to the demand and value addition.

Atlassian is one such early adopter of continuous feedback mechanism and they believe that there is no direct relation between salary and people's ratings. Other factors such as market salary movements, internal and external salary benchmark data, years in the job and skill-set all help determine salary growth.

Recently companies such as Siemens, M&M, master card also have delineated performance assessment and salary decisions. Variable pay could still be related to performance in a particular year but increment and movement to higher levels are decoupled from performance. For progression & increments other factors such as ability to move up the hierarchy, competencies and alignment to culture are looked at.

What could be the possible challenges in new age performance management systems?

There are inherent disadvantages with force fitting employees in a bell curve. However, implementation is comparatively easier. Once people are bucketed in a bell curve it is easier to allocate increments, give promotions and bonus.

• Biases will need to be challenged to ensure a consistent way of looking at performance. One such bias being Calibration Bias i.e the problem of extremely critical supervisor rating the employee vs lenient supervisor
• There may lay challenge of quantitatively and qualitatively measuring the impact of these processes. Effective communication and need for change also needs to be clearly communicated
• There could also be a problem of rating everyone average within a team. Calibration and involvement of HR/neutral department becomes all the more during over-haul and subsequent implementation.
• If an organisation is not doing well and rewards budget is pre-fixed or low, it may be spread too thin among employees. It will be all the more critical to look at target vs achievement and departmental budgets in the new age systems.

Conclusion:

Companies moving to new age performance management systems is a welcome change ! These new age systems look at performance management as a developmental tool rather than a mere evaluation tool

A major downside of force fitting employees within a particular bucket is resolved with the new age systems. However,its implementation needs to be done in the right spirit . Understanding of Target vs achievements, allocation of budgets and objectivity of performance assessment parameters is critical to its success. Hence, HR department or a neutral party’s involvement in the process becomes all the more important.