Kissing Good-Bye to Bell Curve based Performance Reviews – What does it really mean?
There are several articles like the above on the net. Most of these articles elaborate the challenges on the annual cycles, bell curve, etc. We wanted to understand the solution these companies (companies from the articles mentioned above) have put together to abolish performance appraisals and still focus on rewarding performance and do “objective based” salary revision.
We have done an analysis, interacted with HR leaders like Mr Mali Mahalingam and come up with the following understanding:
- Companies are moving away from annual performance appraisal sessions.
- They prefer to have periodic reviews (which is a good step) or sessions between managers and their team members to discuss about the performance, what is going well and what is to be improved. They focus on real-time, ongoing, constructive feedback sessions.
- Managers are allowed to rate (if the rating system exists) and use guidelines to come up with the rating in each session. They don’t go with any forced ranking and allow the bell curve flow freely. It will still be subjective, but, it is perfectly fine. If it results in skewed curve, it is perfectly fine.
- Salary revisions -> performance is one of the inputs while doing salary revisions. And, salary revisions are NOT ONLY based on performance. There are other factors which decide salary revisions. So, there exists two bell curves – one for performance, one for salary revisions.
Now, let us delve into details.
Periodic Reviews (also called as Check-ins, feedback sessions, etc.)
Organizations are moving towards periodic reviews between managers and their team members. They are mandating minimally one session every month between manager and their team member.
– Monthly reviews
– Quarterly reviews
– Anytime reviews (eg. End of assignment reviews, change of manager reviews)
– Continuous Feedback
These frequent conversations and reviews help in higher collaboration and trust between managers and their team members. Managers would be able to look into the performance and assist their team member wherever required. Fine tune the goals and their approach. They take their eyes “off” from rating. Managers become coaches.
Culminate short-term reviews into an annual review session. Manager does a formal one-on-one session to discuss 4 quarterly reviews and arrive at a final annual rating. When this happens, it will automatically lead to some form of curve. Companies may not like to use “rating” as terminology. But, will rely on some mechanism to group people into few buckets.
Key difference from the traditional model is that the organizations let the curve flow naturally. Certain managers may rate everyone in his or her team as “Excellent”. In this case, the curve for this manager will be a straight line. As long as it is natural and manager really “rates” all his/her team members as “excellent”, let it go as a straight line. And, don’t force fit to be a bell curve.
When managers do frequent conversations with their team members, annual cycle would become a non-issue- no surprise element on the rating for the team members. Stress-free appraisals.
Salary revisions are important and there should be a mechanism for the revisions. Mechanism should be transparent and objective. Following components typically influence the salary revision %:
– Progression into the band’s salary bracket
– Performance of the organization
– Performance of the business unit / project team
Performance: Naturally – anybody would expect that performance should be rewarded and should reflect in higher pay rise, higher responsibilities, etc. While higher level of performance would result in higher level responsibilities and wider acceptance within the organization, it may not necessarily reflect into higher salary revisions.
Progression into the band’s salary bracket: This does play a key role in % revisions. Think of a scenario – where a senior engineer band is between 4L to 7L. Now, if a senior engineer is already at 6.5L, whatever is his/her performance, it may not result into higher salary revision (unless the senior engineer is promoted to the next level). It is important to take this into account while computing the salary revisions.
Performance of the organization: This influences the overall salary revision % that the organization can overall afford.
Performance of the project unit / business unit: This also influences the salary revision % for the team members of this business unit / project unit.
Organizations will have fixed budget for the revisions and this needs to be split among employees. To be realistic, very few organizations will have unlimited salary budget. So, it is natural that a fixed budget will have to be divided among all the employees.
And, split will naturally result into 4 or 5 groups:
|Higher % revision||Group A|
|Med-High % revision||Group B|
|Med-Low % revision||Group C|
|Low % revision||Group D|
(I am trying to avoid the term – excellent performer and instead using Group A mainly to indicate that revision % would depend on parameters other than performance).
When this split happens, naturally, organizations will end up in some form of bell curve from salary revisions perspective. It will be organization’s call whether to keep the salary curve in line with performance curve (or) keep it different. But, some form of bell curve (skewed/non-skewed) at salary level will bound to happen. No escape from this.
So, when organizations are saying ‘good-bye’ to bell curve, it generally means that they are moving away from ‘forced ranking’ and NOT from performance reviews/appraisals. They are moving towards having “frequent” conversations between their managers and team members. And, this will help in increasing the accountability of managers, increasing the trust between managers and their team members and result in business excellence. And, this will result in increased employee happiness and reduced attrition.