Choosing the Right Performance Appraisal Method for a 200-Employee Company: MBO vs. Bell Curve?

Hi!

Please advise on the best method of Performance Appraisal for an organization of 200 employees. Currently, we are using MBO, but we have plans to shift to the Bell curve.

So, please advise on the best tool for PMS as per the tools used in your organizations.

Thank you.

Liz

Hi Liz,

Please refer to my post on the Bell Curve. Follow the link to download the documents: https://www.citehr.com/88087-force-r...ell-curve.html

Post 4

If you have any further doubts, please post them.

Regards,
AJ

Dear AJ,

I have already referred to your posts, but my query is how do you do it in any organization... theoretically I know, but how to do it practically where there are almost 200 employees comprising of the following:

- HR Department
- Finance and Accounts
- Sales
- Marketing
- Credit Control
- Sales Administration
- Other Administrative Staff

Please provide a sample format on how to do the questionnaire, how to allot marks, and how to create the bell curve in Excel. If you have any format examples, please share them, but no theories, please.

If possible, kindly upload here or email to me at [Login to view].

Thank you,
Liz

Dear Liz,

There is no theory here!!

MBO, or Management by Objectives, is all about setting goals, KRAs, KPAs, and assigning percentages. It is more about target setting and is actually a process before the appraisal is done. One can use MBO, simple target setting, or the Balanced Scorecard method.

Example from an organization where I used BSC

A General Manager's KRAs for a particular year based on BSC:

1. Volume of Business - 50% (for that year it was considered crucial)
2. Profitability - 10% (Growth was considered more crucial than profits)
3. Systems - 30% (It was considered much more important than profit as in Growth mode, systems are critical for the future)
4. Training - 10%

This is how practically we assigned targets and standards to the Top Team.

Having done this, at the year-end, it was easy to assess the individual against these standards and in this case, this particular individual got a score of 85.

MBO or Balanced Scorecard stop with this.

The bell curve starts here. We had all GMs falling under the rating between 85 and 90 based on this scale. The theory of the Bell Curve is uniform distribution. The Top Management sat on this and categorized these individuals into A, B, C based on certain parameters.

How do you go about this is your question.

At the outset, it will appear all these General Managers were excellent as they have scored more than 85.

Now rank them.

First rank was 90, second was 88, third was 87, and the rating A goes to 90, B goes to 87, and C goes to 87.

Well, the point I was trying to highlight here from this real example was that MBO is different and it helps in setting targets, and the Bell curve is different as it helps in making finer distinctions.

One is critical in the pre-appraisal stage, and the other is critical in the post-appraisal stage.

Siva

Dear Liza,

I have worked on Balanced Scorecard (BSC) for individual Key Result Areas (KRAs). I do have some, but ethically I cannot share. I will send the BSC after making some modifications and individual KRAs for that year to your email id.

I do not have any data with me right now. Whatever I did on Bell Curve, I personally did for 300 employees. But you can check with Murugappa Group of Companies. They have been following this for so many years. In fact, I learned this there when I was working there 20 years back. They have improvised and have a good system. TCS has a reasonably good Bell Curve technique.

Siva

Dear AJ or Siva,

I was trying to figure out how to create a bell curve in a chart since the results we get may be based on grades or figures. However, is it necessary for it to resemble a bell curve? Moreover, in order to ensure it is a proper bell curve, do we need to calculate the mean and standard deviations? If so, could you please clarify this for me?

In one thread, I read that the distribution for a bell curve is 20% - 70% - 20%, and then we simply place the results within the curve to give the appearance of a bell curve. Could you provide some guidance on this matter?

Thank you all in advance.

Liz

Hi Liz,

I am glad you are almost through with your project.

The Bell Curve is a percentage-wise calculation. Hence, the post you read indicates 10% (Superior Performers), 70% (Average Performers), and 20% (Non-Performers). Within these percentages, the 70% can be considered assets, and the 20% liabilities.

To calculate the Bell Curve, you will need the average (mean), standard deviation of the original data, and the lower and upper limits.

To fill in the formulas and values, please refer to the Word document attached previously by me. It is a guide by Microsoft to create a bell curve. Instead of using random numbers, utilize the existing data. Insert the mentioned formulas from the document to generate your bell curve. By opting for three deviations in the formula, a bell curve is assured.

Please note that individual values must be inserted to determine where each personnel is placed. The chart serves a demonstration purpose, showing the company's progress concerning your initial bell curve. By analyzing the data, individual performances can be evaluated.

Regards,

AJ

Dear AJ and Siva,

I tried to follow the instructions you mentioned on how to create a bell curve, but on my PC, there are no Excel add-ins. Unfortunately, I was not successful. Can you please explain if the parameters are as follows:
- 5% Outstanding
- 20% Very Good
- 50% Good
- 20% Fair
- 5% Poor

Additionally, the scores in the performance appraisal for 10 employees are as follows:
- 50
- 45
- 60
- 44
- 40
- 60
- 65
- 50
- 56
- 70

The standard deviation is 10, and the mean is 20. Now, how should I proceed further? How can I draw the bell curve? Which is the x-axis and y-axis?

Is it possible, as Siva mentioned, to determine individual percentages based on the KRA score per employee? For example, if it's 85%, can I simply plot it on the chart? Even if that's the case, how do I draw the bell curve?

Thank you in anticipation.

Warm regards,
Liz

Hi Liz & AJ,

Very good exchange. AJ, it was refreshing to read your suggestions. Practical and scientific. The bell curve is very good to adopt as it helps to categorize according to ratings as mentioned by AJ. In some cases, though, it tends to overlook/generalize specific individual achievements. This is not a negative point. Just that it's important to know the objective of using the bell curve and not to use it to just label an employee at a certain rank. It's quite common that Line Managers remember and refer to bell curve ratings and, at times, overlook individual capabilities/talents which he/she can exploit in a particular project. It will be fruitful to brief managers on this aspect at the time of a bell curve awareness program.

Hope this helps.

Cheers & best wishes,
Saurav

Dear Liza,

I have tried to work out your details in an Excel sheet. I have also shown the graph as it is, then applied the Uniform distribution logic to create a bell curve. This may be of some help to you to start with. It is easy to work on small numbers in Excel sheets. For larger organizations with 10,000 employees, you need proper tools such as Minitab or other statistical tools which are available. The latest HR packages also come with these tools.

Please see whether this is of some use to you.

Siva

Hi AJ and Siva,

Thanks for the awareness you guys have created for freshers like us. Now I am able to understand that organizations follow MBO/BSC and Bell curve for their performance appraisal. I have a few queries: How does an organization fix up the objectives for its employees? Is it just based on organizational objectives or are there any other aspects added to it? Why do organizations follow a graphic rating scale (0 to 10) and not any other performance appraisal methods? Please explain with an example so that it will help me connect to a real situation.

Hope to hear from you soon.

Thanks,
AJITHAA HASAN

Leaders,

Some information on:

- Bell Curve
- 360 Degree Appraisal
- Balanced Scorecard
- Performance Appraisal Handbook

Hope this is helpful in some way or another :)

Regards,
roulette

MBO and bell curve are two separate issues. Use MBO to decide goals and measure performance against them. Then measure performance as meets expectations, exceeds expectations, etc.

The bell curve is forced normalization to redo the ratings of the people and can be done based on the MBO ratings. The number-crunching part is easy, but I do not agree with the bell curve in principle.

Any statistical measure requires large samples and careful analysis of variances, of the significance of differences. In the bell curve applied to PMS, you require all this and also need a rational system of goal setting and objective appraisal. With due respect, these conditions are rarely present in reality.

Bell curves can be demotivating and frustrating. If there are three people and they have achieved 105%, 110%, and 115% of their respective targets, just to suit some HR manager's "system," the first fellow will be labeled as C. The fellow will either quit or will not perform in the next cycle due to demotivation. If he quits, HR guys are happy because he was a low performer anyways, despite the fact that he exceeded your targets.

Don't go blindly into something. Understand what you are doing and the implications of it.

Hope this helps.

Regards,

Rajendra D. Aphale
B. Tech., MMS, AICWA, LL.B.
For Holistic Business Transformation
+91-98690 71521
Skype: rajendra.aphale
Linkedin: http://www.linkedin.com/in/rajendraaphale

Dear Liz,

Have you ever tried a mix of competency-based performance appraisal and the normal technical performance appraisal or MBO in the HR lingo? Today, most HR professionals are shifting to competency-based appraisals, as this gives the employee the opportunity to:

1. Understand where he currently stands.
2. Understand where he needs to improve to get better appraised.

Thus, from an organizational context, you will see a dramatic rise in performance, and employees will feel a sense of belonging to the organization.

I will send you an email on the system we deploy for our clients!

Regards,
Ajay Venkatesh

Hi,

Can somebody please help me know details about the induction that is happening in Wipro, Satyam, and IBM? It's very urgent because these are vital inputs for my project titled "Training Benchmarking". If anybody out there could kindly help me, please let me know. My email ids are: kashish_852007@yahoo.com and aparna@dcschool.net.

Thanks,
Regards,
Aparna Nair

As per the bell curve, only 10% are excellent performers, 35% are good performers, 45% are average performers, and the remaining 10% are poor performers. So, if in a department there are 10 people, there would be 1 excellent performer, 3 good performers, 5 average performers, and 1 poor performer. This distribution would be automatically reflected in the curve. Both MBO and the bell curve can be used to arrive at PMS; we use both methods.

Hi Liz,

When implementing the bell curve, you can apply it at both the department and overall company levels. For example, when rating employees as Excellent, Very Good, Good, Average, and Poor, you can distribute them as follows: Excellent category - 10%, Very Good - 20%, Good - 50%, Average - 15%, and Poor - 5%. This distribution can be standardized across sections, departments, and the entire company. Furthermore, rewards such as bonuses and increments can be tied to the merit rating.

Best regards,
Ashraf

Hello Aj,

I was going through your posts... They are very interesting and informative indeed. Thanks for such wonderful posts.

But I am having some difficulty in understanding how to create the Bell Curve Chart in Excel. It would be good if you could explain to me about the statistical logic running in the background of it.

Thanks and regards,
AYona

Hi,

Importance:
It is one of the best practices internationally. You can plan and control MP Cost as you will know the percentage. High-potential people are motivated through better rewards. Clearly differentiate who is achieving the target and exceeding the target.

Implication:
Employees who are motivated are highly skilled people who produce results and get high rewards. Demotivated employees limit the number of people in each category, resulting in little difference in performance. Employees are differentiated and appraised. In my experience, most employees are demotivated and have complained about the bell curve.

Managers are in a fix when trying to differentiate the level, especially if the team is small in numbers. They are forced to do so and end up arguing with employees and blaming HR.

Benefits:
Managers can compare the performance of each staff member with evidence of achievements.

HR:
The role is critical as you have to comply with policies and, at the same time, receive the appraisal with a lot of variations. Clear communication through meetings with LM will reduce our burden.

Management:
Control costs, provide high rewards to a limited number of people, and establish a clear policy on performance appraisals. Fair appraisals will reduce subjectivity.

Best wishes,

Ashraf

Hi,

I have some difference of opinion here with Ashraf. The bell curve has no bearing on cost control; it was not designed for that purpose. It is based on the principle that the world is uniformly distributed with people. Take physical beauty, IQ, or strength, and whatever you call, there is a uniform distribution. If this is true, then performance management will also fall into this theory. Probably, the bell curve is a highly criticized tool in performance management. But is there any other tool to make a distinction between categories of performers? I think it gives reasonable justification when we distinguish people. Cost is not exactly controlled through this tool.

Siva

Dear Shiva,

Hi, I am Pankhuri, Senior HR Executive at HDFC. I am new to this forum. Could you please guide me on HI-POD analysis and other features related to it?

Regards,
Pankhuri Tandon

Could you clarify a doubt before the normalization process? The individual ratings or scores are awarded to employees based on various parameters, judged by their seniors/supervisors. During this process, how is it possible to ensure that the ratings provided across departments are uniform? How can we determine if the awarded rating reflects the actual worth of the employee or is due to the supervisors being stingy in awarding scores?

For example, suppose there are four departments with the best scores being 98, 89, 90, and 75. For the normalization process, these scores are considered to be at the same level and processed. However, how do we ensure that the score of 75 is actually equivalent to a score of 98? It could be that the head of that particular department is stingy in awarding marks, and the best employee score reflects just a 75. Additionally, how can we determine if this score isn't actually just worth 75, indicating that either the employee and/or the department is an underperforming source?

I hope I could explain my query well.

Thanks,
Pankhuri

Hi Pankhuri,

You do have a genuine problem. Over here, you might have to deal with the issue separately, i.e., the normalization has to be done department-wise. The problem with a common rating would always be the same.

Thanks & Regards,
AJ