Bell Curve Performance Management

Tyler Orr
Tyler Orr
How is your performance management system working? Is it fair? Does it determine raises and promotions? Does it encourage employees to collaborate? Traditional concepts such as bell curve (or “forced ranking”) performance management have been accused of treating employees unfairly and too harshly, but some companies struggle to identify a realistic and effective alternative. Read on for help in evaluating your system and considering potential options.

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What Is Bell Curve Performance Management?

Often referred to as “forced ranking,” bell curve performance management refers to corporate rating systems that require leaders to annually rank their employees from top to bottom and assign predetermined percentages of excellent, acceptable, and bad ratings (or equivalent labels).

For example, one of the most common setups is to label approximately the top 20% of employees excellent performers, the middle 70% acceptable or good performers, and the bottom 10% as underperformers. This is called a bell curve, in reference to a statistical concept where the majority of data falls somewhere in the middle, with smaller amounts on the high and low ends of the spectrum.

This style of performance management used to be one of the most common systems, particularly in large corporations. It reached its peak in popularity during the 1980s and 1990s, in part due to the success of General Electric. GE was one of the most valuable companies in the United States at the time, and was famous for its “rank and yank” system, where the bottom 10% of employees each year were fired. In the years since, bell curve performance management has largely fallen from favor, and many Fortune 500 companies (including GE) have moved away from it—even eliminating ratings entirely, in some cases.

Pros of Managing Performance on a Bell Curve

Despite the movement away from this style of performance management, there are legitimate reasons it was such a popular system for so long.

Transparency for Employees

While forced ranking systems have been described as “brutal,” the flip side of that opinion is that they leave little room for misunderstanding. Employees know where they stand, and it is clear when improvement is required. In some less structured performance management systems, employees may not have a clear understanding of their status with the company. Plenty of research shows that employees want to receive feedback on their status, and these ratings definitely provide clarity.

Effective Management

This transparency applies to leadership behaviors as well. The ratings require managers to be clear with their employees and resolve issues that, without a forced rating system or some other kind of clear accountability, they might be tempted to ignore or sweep under the rug to avoid difficult conversations.

Productivity

When employees know they will be evaluated on their performance and that there could be serious consequences for being placed at the bottom, they are likely to work hard to try and avoid it. This can especially be true for employees in functions that tend to be highly competitive, such as sales.

Cons of Managing Performance on a Bell Curve

There are a variety of reasons these rating systems have fallen from favor.

Overly Rigid

Likely the most commonly cited concern is the possibility of employees being wedged into categories that don’t accurately reflect their performance. A low-performing group of employees could have too many that get bumped up to an excellent or acceptable rating. Of course, the employee population would prefer that over the alternative—that a relatively high-performing group of employees may see too many labeled as average or low performers.

Either way, forced-ranking performance management systems risk sliding employees into inaccurate categories and potentially driving away great performers who are not being rated and rewarded.

Not Development-focused

Forced ranking systems are typically more about rewarding or punishing past performance than about improving and developing employees. Many organizations today prefer to be future-focused, and spend more time considering how to improve performance than on managing a bell curve performance management system.

Less Teamwork

There are potential cultural risks associated with forced ranking, including employees struggling to work together effectively due to the increased competition that comes when they know they will be ranked against one another. With the emphasis on working collaboratively in today’s workplace, this is usually not helpful.

Potential Discrimination

In recent years, Facebook, Yahoo, and Uber have all dealt with lawsuits and other employee backlash related to forced ranking systems. Employees and former employees have claimed that each company’s systems led to discrimination of various kinds. This included unconscious bias against women when leaders were forced to choose which employees to rank higher than others, even when their actual performance was largely similar.

There was even a suit claiming discrimination against men, when a former Yahoo employee said that their “rank and yank”-style bell curve system was being used to expel male workers specifically to be replaced with new female employees.

Cadence

In a fast-moving marketplace and business environment, the traditional, cumbersome, annual bell-curve performance-rating process does not seem nimble or flexible enough to provide the kind of continual and regular feedback required for many businesses to operate and to manage employees effectively.

How Do You Create a Bell Curve for Performance Management?

Though we recommend using alternatives in most scenarios, if you feel that a bell curve performance management system is appropriate for your organization, here are a few steps to setting it up.

Define the Appropriate Distribution and Criteria

The first thing to determine is how many different performance levels you want in your system and what proportion of employees you plan to assign to each level. Many companies have either three or five “buckets” to place employees in (ranging from “unacceptable performance” or “not meeting expectations,” etc. to “exceptional performance” or “exceeds expectations,” etc.).

Most place between 10-20% of employees in the above average buckets, around 70% in the average bucket, and between 5-15% in the below average buckets. Along with determining the buckets themselves, you must also define the criteria for placement in each bucket to help make the process as objective as you can.

Determine Results of Ratings

Once you know the buckets and approximate distribution of employees you plan to have in each, decide what the outcomes or next steps will be once ratings are assigned.

We do not recommend a hard-and-fast “rank and yank” rule in which the bottom group is automatically terminated, but there are likely some extra developmental steps that may be in order for that population. That could include termination for employees who are found to be a detriment to the organization (though ideally, it should not take a formal performance rating for your managers to know that someone is not working out). The top group, on the other hand, may merit a different kind of extra developmental investment to help groom them into leaders or otherwise prepare them for promotion and other opportunities.

You will also need to determine if you want to directly tie compensation, both base salary and annual bonus, to assigned ratings.

Determine How to Manage the System

This step could come in part before any of the other pieces, or it could be decided when everything else is already set up. There are a number of software platforms that offer performance management tools, some of which are more flexible than others. If you are strongly committed to your design, build your plan and then find a platform or tool that can align with it.

If you are more flexible on the details of your proposed bell curve system, consider identifying a tool that you can build around. Just ensure that whatever system you create, managers are able to select ratings, you have an efficient way to communicate with both managers and employees about results and provide feedback to employees, and you have a way to store historical data so you can track employee performance over time.

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Questions You’ve Asked Us About Bell Curve Performance Management

Is using a bell curve for performance management an outdated method?
It depends on the organization and the culture your leadership prefers to create. However, many companies are moving away from it in favor of more flexible, developmental, and consistent options with fewer cultural risks. We do not recommend implementing the bell curve in most situations; the only possible exceptions might be in organizations or teams where there is very little teamwork and your goal is to motivate the highest performance possible from a group of very individual, siloed contributors.
What is an alternative to bell curve performance management?
Some companies have made drastic changes to their performance management systems to eliminate ratings entirely and simply hold several “check-in” periods each year for managers to more regularly provide feedback to employees and discuss their development. These check-ins often include a requirement for leaders to answer a small number of future-focused questions about how they would develop the employee, whether they think each employee is ready for promotion or not, and others. One note of interest if you are leaning this direction: some companies that abolished rating systems ended up bringing them back in some form or fashion after a few years because they needed a way to determine eligibility for promotions, pay raises, bonuses, and special development opportunities. If you do decide to move away from ratings, do all you can to have an alternative in place that still allows you to make crucial HR decisions. That said, moving away from bell curve performance management does not necessarily mean abandoning ratings entirely. Companies that keep ratings without requiring that certain percentages of employees be pushed into certain buckets often find that they need to make their rating system more objective and clear on exactly what types of behaviors should lead to someone being placed in each category.
Tyler Orr
Tyler Orr

Tyler worked for 2+ years in HR at USAA, a Fortune 100 company, primarily in their HR Career Development Program. Through several rotations, he gained experience in a number of HR functions, including talent management, succession planning, HR project management, intern recruitment, and people analytics. Tyler recently transitioned into a career services role at the University of Tennessee, where he is helping students kick off their careers (often by working closely with HR professionals). He has a masters degree in HR, as well as an MBA, and previously worked for an HR technology firm where he provided consulting services for 60+ companies.

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