Performance appraisal based on a forced distribution system: its drawbacks and remedies

Purpose - Performance appraisal based on a forced distribution system (FDS) is widely used in large corporate sectors around the globe. Though many researchers have pointed out several drawbacks in FDS, due to the absence of any suitable alternative, it has been (and continues to be) adopted by many industries over a long period of time. The purpose of this paper is to point out some serious limitations of this system and propose a simple modification to overcome these limitations. Design/methodology/approach - FDS determines the relative positions of the employees involved in similar work by comparing them against one another, and based on their performance, the employees receive different grades. Here the authors use the Likert's scaling method to convert these grades into numerical scores, then these scores are used to estimate the average performance of each group of employees, which is referred to as the group index. Taking these group indices into consideration, the authors propose a modified performance score of each employee for their final evaluation. Efficiencies of the existing FDS and the proposed modified version are compared using a simple measure of rank correlation known as the Kendall's tau‐statistic. Findings - Extensive simulation studies show that the modified algorithm is uniformly better than the existing one over different schemes for allocations of employees to different projects, and depending on the allocation scheme, it can lead to substantial improvement. Originality/value - This paper can be considered as the first to mathematically demonstrate the problems lying in the appraisal system based on a forced distribution and the first that provides a simple but effective solution which can be adopted by the organizations using FDS for performance appraisal.