The news that HSBC uses a forced distribution method in allocating bands to staff in its performance appraisal process will come as no surprise to people employed in large organisations. According to the CIPD this approach is used in about 10% of companies.
This method is aimed at stopping managers awarding lenient or generous ratings to mediocre and averagely performing staff. However it means you have to allocate, in this case 10%, of your staff to the under-performing or failing band even if you believe they all performed in an exemplary manner.
No manager wants to have under-performing staff and having to rate some of them as basically average can also be a difficult message to sell. So HSBC staff who meet all their objectives will be rated as “performing” and rated in the middle band – which staff will see as average if there are 5 bands – rather than in the “outperforming” or “outstanding” bands.
In the HSBC example the lowest band has no formal label but is known as “car-parking” because that’s where you allegedly get told you are no longer required (can’t have you making a fuss in the office can we?). “Neutron Jack” Welch at GE had a similar system where each year the bottom performing 10% were sacked – no doubt “pour encourager les autres” .
As a business psychologist the idea of distribution curves of human performance is not unreasonable and even economists will quote you the 80:20 rule. So I would expect in any organisation that there would be a percentage of people who don’t want to be and shouldn’t be there and a proportion of staff who need no incentive to perform well and will always be the stars. And in between there will be a majority of people who are “steady Eddies” and will do a good job for the organisation.
A consultant colleague disagrees with me as he believes that no-one goes to work intending to do a bad job. In principle I can agree with that although I believe there will always be a proportion of people who intend to do the least they can and play the system. But even if my colleague’s assertions are true the evidence generally supports my argument so what has happened?
Well according to Deming (in his 1993 book New Economics…) “A manager of people needs to understand that all people are different. This is not ranking people. He needs to understand that the performance of anyone is governed largely by the system that he works in, the responsibility of management.” In other words the system in which you work has more impact on your personal performance than performance appraisal processes acknowledge.
And the line manager has the most impact on performance and morale. If you are head of a small team that has worked its socks off and performed really well as both individuals and as a team – who are you going to single out and rate as failing? And how much responsibility does the manager take for that happening anyway?
This is when performance appraisal can be so demotivating and as HSBC has found their employee engagement score had dropped from 71% in 2009 to 68%. The union Unite isn’t happy about this state of affairs and as they rightly pointed out: if HSBC are recruiting the right staff shouldn’t the failure rate be minimal? And whose fault is it if the right staff aren’t recruited in the first place?
The CEO Stuart Gulliver admitted the system wasn’t perfect and they should be looking for something better but it was probably the “least worst system”.