It's the end of the year, when many companies start thinking about annual performance reviews. And, to go along with this, Marissa Mayer is in the news again because of a new Yahoo policy requiring employees to be rated on a bell curve. Bloomberg calls this "Yahoo's Latest HR Disaster."

Personally, I'd be curious to know how Bloomberg does employee reviews themselves, because the "forced ratings distribution" is not at all uncommon and there is a lot of logic to it. If you're not familiar with it, here's how it generally works.

1. A scale is given, usually 1-4, 1-5, or even straight percentages.

2. A certain number of people must be assigned to each slot. For example:

  • 5 Percent 1 (should be terminated)
  • 10 Percent 2 (below expectations)
  • 35 Percent 3 (meets expectations)
  • 35 Percent 4 (exceeds expectations)
  • 15 Percent 5 (greatly exceeds expectations)

3. If a manager has too many 4s, or too few 1s, they are "forced" to change someone's evaluation in order to meet this distribution.

There are huge problems with this system--what if you happen to have a truly spectacular set of employees? How honest are performance reviews if they have to be "adjusted" to reach a pre-determined number? And managers hate ranking their employees almost as much as the employees hate to be ranked.

Are thoughtful annual reviews pipe dreams?

The system preferred by people who live in clouds and who ride unicorns to work is one which every manager thoughtfully writes an annual appraisal using hard data as well as personal impressions, and then documents the strengths and weaknesses of each employee.

This magical manager has, of course, been faithfully meeting regularly with each of her employees every other week all year, and has given meaningful feedback as well as developmental projects that coincide with the goals set at the beginning of the year. The process, conveniently, takes less than 15 minutes per employee and is accompanied by candles and soft music.

Real feedback is too often just a downer.

In the real world, most managers stink at giving feedback, and they especially hate to give bad feedback. Sure, some managers will yell and scream and tell their employees that they are idiots. (Those people are bad managers.) But equally bad are managers who quietly clean up their employees' errors, ignore bad behavior, and fail to make hard decisions. These sorts of managers are far more common.

What the forced rankings (or bell curve, as Yahoo is doing) does is force managers to think about their employees, and sincerely evaluate them. It forces them out of the Lake Wobegon trap (but all my employees are above average) and makes them face the reality that not everyone contributes at the same level.

This is actually good for business because you want to reward your top performers and eliminate your lowest performers. I'm not a huge fan of the "fire the bottom 5 percent" plan, but sometimes people actually should be fired. Not because they are bad people, but because they aren't right for the job.

When are forced rankings good for your company?

This only works for large companies. When you have 25 employees, it's ridiculous to force them into a distribution. But when you have 1,000 employees, it makes sense.

This change at Yahoo is another sign that Mayer is trying to clean up past sloppy management. When she canceled telecommuting, it was because too many employees said they were working while not producing quality work. Adding forced rankings indicates that there are employees that need to go, whose managers aren't being tough enough to take care of the problem. It's estimated that 500 employees might be impacted by this new ranking scheme.

No matter what size you are, write thoughtful reviews.

Do write formal employee reviews that include areas for improvement and praise for jobs well done. Why? Because it's decent. From a practical perspective, it also creates a paper trail when someone accurately accuses you of firing them for the wrong reasons. If you document performance, it will be clear what the scope of the problem has been in the past, and how it has persisted.

Don't forget your best performers. Documenting their achievements is key because without doing so you have nothing to show how and why they are, in fact, heads and tails above the others.