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Large companies often use a rating distribution curve process to prevent inflation of ratings between different managers and business units, and to make sure employees are scored in a consistent and equitable manner across all of the organization's business units.
The ratings curve encourages good management practices by requiring managers to objectively evaluate each employee's performance in relation to peers in similar job functions, and to distinguish individual performance achievers within a team.
The organization can use the ratings distribution process as a tool to determine how proposed merit, bonus and stock distribution recommendations support the organization's total compensation strategy, and how the proposed company-wide compensation package compares to findings within a competitive labor market.
Table 5 shows an example that defines each rating category and its ratings distribution percentage.
As Table 5 shows, scores of 4 and 5 are used to differentiate those relative few employees who consistently exceed their objectives. A rating in the 3 range, which 50% of employees receive, means that the employees successfully met performance objectives. A score of 2 indicates that the employee must develop some areas of performance to become more successful, or that the employee is new to the job role. A score of 1.0-1.9 is limited to approximately 5% of employees who do not meet performance expectations. In this example, a ratings tolerance of 5% is specified for each ratings category. Using Siebel Tools, you can modify these values to build a specific rating distribution guideline for your organization.
The overall curve is typically managed at the senior executive level, with each business unit meeting the distribution guidelines during review periods. Groups with less than 50 employees may not be able to meet the distribution curve. In these cases, distribution targets are typically met at the next management level within the department. Managers with larger groups must attempt to meet the curve requirements to maintain integrity during the roll up of ratings that join the curve at the next business unit level. A typically rollup scenario might include first line managers setting ratings, and submitting the ratings to the next-level manager. The next-level manager modifies and consolidates the ratings into a broader (regional) distribution, and then submits the distribution to an executive level manager, such as a vice president.
As a best practice, managers are advised not to assign a rating that is inconsistent with performance simply to meet a distribution curve. To reinforce this guideline, managers are required to justify the ratings assigned to their direct reports so that the organization's executive staff can make appropriate ratings decisions when managing the curve rollup in a hierarchical manner at the organization level.
The ratings distribution curve process can be administered separately from the compensation process. For example, a company might rate its employees twice a year, and only provide performance-based compensation annually. At the midpoint of the year, managers assign ratings based on the distribution curve in a process that is not tied to a compensation budget. During annual reviews, the ratings for the 6-month and 12-month reviews are averaged and associated with a budgeted compensation plan.
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