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It’s Time to Accept the Truth that Most People Are Below Average (Part 2)

Note: This is Part 2 of a 3-part series on rethinking performance in organizations. If you haven’t read Part 1, I suggest that you read that first. Subscribe to our newsletter at the bottom of the post to get Part 3 delivered to your inbox.
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Sad, but true: employee performance is not normally distributed
 

In Part 1, we discussed how employee performance is best represented by a power distribution, resulting in two general groups: a small number of hyperperformers, and everyone else. However, most companies are still treating employee performance as if it’s normally distributed, and applying some version of Jack Welch’s famous forced rankings performance management system.

In Part 2, we’ll discuss some of the implications of applying a performance management strategy based on the assumption of normal distribution on an employee population whose performance actually follows a power law distribution.


  Why It Matters How We Conceptualize Performance  

Let’s take a look at some of the strategies that managers employ when they assume that performance is normally distributed, and see how they hold up in a power distribution:

 

Strategy: Cater to the Middle

Normal Distribution

Power Distribution

Under a normal distribution, 68% of the people fall within one standard deviation of the mean. In other words, more than two-thirds of your workforce is normal, average, or pretty close. It makes sense to cater to this crowd rather than top performers or underperformers, since they are the bulk of the employee population. So, we’ll cater our performance management systems, compensation, hiring practices, etc. to please and benefit this group.   In a power distribution, catering to the middle means focusing on 80% of people, but it also means focusing on the group that produces only 20% of the results. When we cater to this group by designing policies and structures that appeal to this group, we’re actually rewarding mediocre, below average performers.  
 

A common example of catering to the bottom 80% is rewarding employees for their seniority. School teachers and other unionized employees often get pay raises based on their tenure. Even non-unionized employees are often given preference based on their seniority for things like promotions or scheduling vacations. High performers are demotivated and frustrated by systems that don’t recognize their contributions.

Catering to the bottom 80% also means investing resources like training and coaching in people who are performing below or at standard. There is often an assumption that the high performers are smart enough to figure things out on their own, and besides, it’s not fair to give a leg up to those who are already doing so well by providing additional support and resources. However, from an organizational standpoint, this is a poor allocation of resources. Companies get a better return on their investment when they further develop “A” players over the “C” players.

 

Strategy: “Rank and Yank”

Normal Distribution

Power Distribution

Let’s identify the underperformers and get rid of them. They are a drag on organizational resources and clearly not pulling their weight.   In a power distribution, the majority of employees are “C” players. If the majority of employees are underperforming, it’s harder to figure out who should get the boot. It often ends up to be a political decision.  
 

Forced rankings, where employees’ performance is rated and the bottom 10% must shape up or ship out, is a very difficult strategy to apply in a power distribution because the bottom 10% is often indistinguishable from the bottom 80% or so. Even in jobs in which performance is easy to measure, (for example, sales numbers for salespeople), the difference between the bottom 10% and the next 10% is often so small it’s hard to tell if it is due to real performance differences, or just chance.

It becomes even more problematic to use forced rankings when jobs have more ambiguous standards for performance. It’s easy for the trampoline park to say “performance is defined by getting more memberships” but for more complex jobs, it’s not so easy to define good performance.

Without objective performance criteria, managers end up relying on their “gut feeling” when rating workers, which often doesn’t turn out to be representative of an individual’s performance. And where there’s “gut” decisions in HR, you can be sure there will be lawsuits to follow – a $10.5 million-lesson that Ford Motor Company learned when they settled a class-action lawsuit alleging age discrimination using the forced ranking system.

 

Strategy: Leave the High Performers Alone

Normal Distribution

Power Distribution

Under a normal distribution, hyperperformers are considered outliers, instead of normal, predictable outcomes. The trampoline park employee calls his hyperperforming coworker “a freak of nature,” rather than investigating what she might be doing differently that makes her productivity so much higher than everyone else. She’s effectively written off.     Managers often spend most of their time and energy on problem employees and mediocre performers. Managers tend to be reactive, and these are the squeaky wheels. As a result, they often don’t have time to invest in the high performers. Sometimes, managers don’t even notice very high performers, because things are always running smoothly when they are around.
 

Ever heard the phrase, “it’s lonely at the top?” Hyperperformers at companies that view performance as a normal distribution probably feel this way. They likely receive little to no attention and support from their managers, and may be frustrated that their contributions don’t seem to be recognized, let alone rewarded.    

Clearly, when we assume that performance is normally distributed, it causes problems. Mediocrity is rewarded, some individuals are targeted for political, or at best, arbitrary reasons, and top performers are lonely and frustrated. All in all, it’s a recipe for poor organizational performance.  

In Part 3 we will discuss what to do about it – how to manage performance under a power distribution. Subscribe to the newsletter below to get it delivered to your inbox.  

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