Forced bell-curve ratings aren't appropriate because they assume managers aren't counseling poor-performing employees the rest of the year
I am the CEO of a small company, and I'm creating our organization's first performance-review system (BusinessWeek, 01/17/07). I often end up handling tasks that would be overseen by an HR person in a larger company. We have already identified five "buckets" for employee performance: Needs Improvement, Fair, Good, Very Good, and Excellent. My question is this: Do you recommend that I set up the performance-review program so that employees are slotted into a bell curve, where 20% of the staff must fall into the Needs Improvement category, another 20% into the next category, and so on, up to the top 20% of employees in the Excellent category? I have heard that larger organizations use this type of system, but I don't know that it makes sense for a company of our size. I don't want to artificially downgrade anyone on the team, but I don't want my supervisors to rate everyone as Excellent, either. Any suggestions?
In my view, forced-bell-curve rating systems (BusinessWeek, 01/17/07) (they're actually ranking systems, if you think about it) aren't appropriate in any size of organization, because they fall victim to a dangerous fallacy. Namely, they assume that managers aren't doing their jobs during the rest of the year: counseling and if necessary dismissing employees who aren't performing up to snuff. Therefore, a forced bell-curve performance review scheme ensures that at least once a year, the company's employees are slotted into a "normal" distribution.
Perhaps you can see the logical problem here. If managers aren't managing all along and only do so once a year when forced to for performance-review purposes, why should we assume that they're competent to manage, much less make distinctions regarding the best and worst of their performers? In well-run organizations where expectations are high, people continually are moved out for performance reasons (or moved into less-demanding roles) so that there is no one in the "Needs Improvement" category when review time rolls around.
We can pretend that our employees belong in that bucket to meet the demands of the top-down review system, but your employees will see right through the ruse. In general, one-size-fits-all review schemes tend to drive out the top performers. They don't have to tolerate such nonsense, as their skills are marketable in many places. Instead of the forced bell-curve concept, I encourage you to adopt a performance review system that lays out an employee's annual, previously agreed-upon goals and evaluates his or her performance relative to those. Your best-to-worst categories are fine, but you don't need to force a certain number of staff members into any given category. If you find that your supervisors are "easy graders," you can work with them to help them set the bar higher. No sense adding big-company bureaucracy to your small, nimble organization before you need to. And with luck, that day will never come.