As you read about current HR trends for performance, you will see a few key challenges that many organizations are currently facing: Should there be a mandatory annual performance review for all employees or should we not do an annual review? If I do a performance review, should I use ratings or only comments? Should I get rid of the practice of forced distribution of ratings? Today we are going to dive a little more into performance-based calibration and its sidekick – forced distribution.
Calibration of performance in itself seems pretty easy – view completed evaluation scores across the organization to ensure that people receive the right rating. These ratings are then used for compensation decisions. Why then does this process become so complicated and dreaded by many managers and HR professionals? The concept of forced distribution is the answer. This process has been implemented by many companies to try and manage their compensation budget and to curb inflated earnings by their rater population.
Because calibration is typically tied very close to performance evaluations, calibration is the first time that the results of performance ratings provided by managers can be analyzed. The company will have a set compensation budget to allocate merit and promotion information. They need a way to distribute money to each participant and still stay in budget. They use a “forced distribution” of ratings to fit within the necessary compensation budget. This means that regardless of ratings, the population of people being rated will be forced to have a number of people below expectations, meeting expectations and exceeding expectations. Calibration participants must then discuss, “argue”, and fight to get their people to the right spot while still hitting the forced distribution target. This is not an easy task! Managers go into the session feeling one way about their employee’s performance and must shift gears to think about performance based on fitting into a diagram.
Let’s discuss a few reasons why forced distribution may not be the best method to manage performance:
1) Managers feel that there is no need to spend the appropriate time on their evaluation commentary and ratings because it ultimately won’t matter. The process will dictate what the final rating will be and they can’t control it.
2) The process becomes mechanical. Performance management is just as much an art as it is a science. People respond best when they feel there is a vested interest in them, they are being developed and getting the feedback they deserve. It is not typically about the rated number provided to them and especially not the rated number a system mandates.
3) The performance management process is considered dishonest and undervalued. People do the evaluations because they have to do them, not because they believe it will provide any good performance information. The primary goal of a calibration session – fair and equitable ratings of people across the population – becomes lost.
4) Managers become combative – fighting for their people. With only so many spots available in each level, if someone wants their person as meeting expectations, it means another person has to be moved out of that bucket to fit. Rather than bringing everyone together for the good of the company, the process tears them apart to dig in and focus on their own people.
5) People are compared across departments, divisions, and positions without the benefit of having consistent data for comparison purposes. Scores are driven toward a number without information to support or compare the people effectively.
6) Forced distribution assumes that the original rating is a valid rating free from rater bias heading into the process to determine the official rating which is typically not the case in most organizations.
So then if forced distribution is not the answer, how then does an organization manage their compensation budget while managing performance?
Organizations have to look for differentiation in performance ratings based on other processes and criteria. The following items are a few things companies can do to help ensure that an employee receives the correct rating while identifying the strong and weak performers.
1) Create and define a rating scale used across the organization with behavior descriptors to meet that rating. Without common indicators, managers are left to determine what a rating of “meeting expectations” means to them and it will undoubtedly be different than another manager.
2) Review performance based on specific criteria for the job. Identify what is the key performance criteria for each position. Compare actual performance against the performance model using behavior examples to ground the ratings.
3) Provide managers training and support on how to rate their direct reports. Managers need to understand to how to rate people and why they need to have a critical eye on performance. Everyone cannot be a top performer and it is up to the manager to be able to differentiate performance. This will take time. Managers need to not only understand the process, but they have to be comfortable providing positive and negative feedback. Training should focus on providing written evaluations, delivering feedback verbally and identifying performance strengths and weaknesses.
4) Hold calibration sessions for like positions with only people who have valid performance feedback to provide. The facilitator has to be able to control the conversation to search for fair ratings and keep it on documented performance only. General opinions without valid examples and information cannot be allowed.
5) Ensure that managers are evaluated on their ability to evaluate their employees. Managers have to have a vested interest in managing their employees, which includes doing an adequate performance review. High performing managers need to be compensated for their efforts. Underperforming managers need to have the opportunity to be coached to become better managers and if they cannot perform the essential duties, they need to be moved to positions where they are not responsible for managing people. There has to be a clear message set that this is an expectation that is not taken lightly by the organization.
6) Look for performance information from sources other than the manager. Manager feedback is one important look into the person’s performance but it doesn’t paint the entire picture. Information from peers, support personnel, team/project based feedback and if a manager from their direct reports will help ensure the right overall rating is presented.
Companies over the next few years are going to be challenged by all levels of the organization to come up with a better performance management system. Organizations are going to have to find the best solution for their company to drive excellent performance and motivate employees to be the best they can be. It will look different than what the process looks like today. As you consider evaluating your system, take a long and hard look at forced distribution and what its effect is on your organization. Is it doing more harm than good? If so, get rid of it and look for the new way to “differentiate” employees while instilling confidence in the process, the leadership, and the company as a whole.