Vaishnav, Chintan with Ali Khakifirooz and Martine Devos, "Punishing by Rewards: When the Performance Bell-curve Stops Working For You", 2006 July 23-2006 July 27
Many organizations today use a bell-curve for performance evaluation process. They reward a small percentage of top performers, encourage a large majority in the middle to improve, and lay-off the bottom performers. Companies believe that such pay-for-performance system encourages employees to perform better. The question we explore in this paper is: does the system increase the overall performance of the company over time?
We observe that pressure, if maintained below a certain level, can lead to higher performance. However, with lay-offs, constant pressure demoralizes employees, leading to drop in performance. As the company shrinks, the rigid distribution of bell-curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre. Further, managers begin to reward visible performance over the actual. Finally, the erosion of social capital could cripple the company.
We recommend the use of a semi-bell-curve where someone who performers like a top performer is rewarded as one. Further, we recommend balancing pressure and morale. We recognize that such a balance is very difficult to strike, and can be successfully achieved only by decoupling to some extent the performance evaluation process from the issue of lay-offs.
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- 2006 July 23-2006 July 27
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