For whom the Bell tolls: is "stack ranking" or the Bell Curve useful to measure performance?
Performance review time is often a stressful one, for those doing the assessing as well as those being assessed.
One additional source of tension is the use of Bell Curves, or "stack ranking", essentially grading on a curve.
'Bell Curving' your workforce can have its uses as a tool in terms of evaluating how they are performing in relation to each other.
According to Forbes, stack-ranking was a somewhat effective tool at GE under Jack Welch, who called the system "Rank and Yank". When he assumed the CEO position, the company was bloated, and Welch was looking to make cuts, so a rating system in which 20% received top ratings, 70% were mediocre, and 10% got fired served his goal. ("Rank and Yank" has since been phased out).
Robert Sher, writing in Forbes, explains that in his experience, too much mediocrity is tolerated in middle-level companies. Some managers will rate different performing employees similarly and give them the same raise. A "stack-ranking" process can force the manager to think about who is really performing and who is not.
However, in other companies such as Microsoft, it is reported to have had a disastrous effect on morale, performance, and innovation, reports Kurt Eichenwald in "How Microsoft Lost Its Mojo." His article in the August 2012 Vanity Fair describes a system in which managers are permitted to give only a few employees top reviews, while the majority receive mediocre reviews, and a few receive poor ratings.
This structure allegedly sets up a competition among employees and fosters an environment in which it is not enough to do outstanding work, but also to make sure that you outshine your co-workers. Said one former Microsoft engineer, "...people do everything they can to stay out of the bottom bucket, [including] openly sabotaging other people's efforts.... I learned  to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn't get ahead of me in rankings." This zero-sum thinking undermines collaboration at all levels. Particularly in an industry in which engineers must collaborate to create innovative products and teams must pull together to meet aggressive timelines, fostering competition between teammates is toxic.
In addition to back-stabbing within teams, there arose a highly politicised and inefficient environment of competition among teams in the same group, because the curve applied to the whole group, not just individual teams. So at every six-month review, managers would engage in horse-trading among themselves to achieve the bell curve. This meant that it was not enough to look good to your own manager, but also to make sure you were visible to other supervisors within your group. Ultimately, employees said that their reviews often focused more on playing the political game than on their performance.
Maybe the goal should be attracting and retaining top talent. Steve Jobs insisted that he wanted all "A" players on his team. You can't expect to grade such people on a curve and have them stick around.
What would be a preferable system? According to US-based Beacon Coaching and Consulting , if you want to attract and retain great people and want to foster team collaboration, accountability, and innovation, then your review process must reflect these values. High performance must always be recognised, and not just in relative terms. There must also be a place for honesty with under-performing employees and constructive evaluation of their performance. And while interpersonal interactions and relationships are rightly to be included in reviews, they should emphasise and recognise collaboration, teamwork, and constructive communication rather than "playing politics."
iHR Australia stresses that leadership and performance management are crucial ingredients in a successful business and that the performance review process must involve genuine manager-employee engagement with an accurate, constructive and preferably mutually agreed evaluation of performance. iHR Australia provides leadership and management training including our New and Emerging Managers program and Managing Everyday Performance.