Wednesday, February 26, 2014

Evaluating Your People: The Bell Curve Does Not Apply

Josh Bersin has written a fascinating article for Forbes about measuring the performance of your people.   He argues that many performance appraisal systems are flawed because they presume that performance follows a Bell Curve (normal) distribution.   However, Bersin points out some new research that suggests that a Bell Curve does not apply.  He states, "Research conducted in 2011 and 2012 by Ernest O’Boyle Jr. and Herman Aguinis (633,263 researchers, entertainers, politicians, and athletes in a total of 198 samples). found that performance in 94 percent of these groups did not follow a normal distribution. Rather these groups fall into what is called a “Power Law” distribution."  

What does that mean?  A "Power Law" distribution has a very small number of exceptional performers, a wide swath of people who are solid, but not great, performers and a few folks who are substantial underperformers.   The high performers are so exceptional that they drag the mean up quite significantly.  In other words, it's a skewed distribution.   The median falls below the mean.   Put another way, most people fall below the mean.   

You can see the problem with performance appraisal systems, particularly those "rank and yank" systems that assume a normal distribution.  You can also see why some factors other than public policy may be driving income inequality.   In many industries, these "hyperperformers" get paid extremely high sums of money.  Finally, Bersin offers some thoughts on how we think about the large number of people "in the middle" of the distribution:

The power law distribution (also called a Paretian Distribution) shows that there are many levels of high performance, and the population of people below the “hyper performers” is distributed among “near hyper-performers” all the way down to “low performers.” [] You still have a large variation in people and there will be a large group of “high-potentials,” a group of people who are “potential high-potentials,” and a small group who just don’t fit at all.  The distribution reflects the idea that “we want everyone to become a hyper-performer” if they can find the right role, and that we don’t limit people at the top of the curve – we try to build more of them.


Unknown said...

very interesting....I am thinking of how in school we always thought of grading using the bell curve idea - doesn't not apply there either. Keeping this in mind as school board work continues.

Unknown said...

Great blog, Mike. Lots of organizations have put a halt to the rank and yank system because they knew intuitively that it is not accurate. The power curve makes lots of sense and reminds me of some older research on employees categorized as "super y's" in McGregor terms. Thanks.