In a video hangout with Google's John Mueller, John said that even without using the disavow file or removing bad links, it is possible to recover from a Penguin penalty (aka algorithm). Let me say that again... If you are hit by a Penguin issue on your site and you don't want to remove the bad links either manually or by using the disavow file, you can instead try to build up better quality links.

Google's John Mueller said Penguin looks at links at an "aggregated level across everything that we have from your website" and thus, if the algorithm tips in the favor of good links, then you are going to see a recovery. Now, he wouldn't say what the percentage was - because (1) he doesn't likely know and (2) it probably doesn't work on a percentage. But he said it is possible to recover without disavowing or removing links, but he would still recommend you remove bad links.

He said this 33 minutes and 52 seconds into the video, when he was asked this. Here is the transcript from YouTube:

Question: Let's take a hypothetical situation where a webmaster doesn't know about the Webmaster Tools disavow tool, and the majority of his links are directories or websites selling links, and is obviously affected by the Penguin penalty. Meanwhile, he goes ahead and gets some good-quality links, and the percentage of low-quality links changes-- gets smaller. But again, he doesn't use a disavow file or anything else. Would this help him-- so if the majority of the links become the quality links, would this help him remove or would Google robot remove the Penguin penalty?

JOHN MUELLER: That would definitely help. Yeah. So, I mean, we look at it on an aggregated level across everything that we have from your website. And if we see that things are picking up and things are going in the right direction, then that's something our algorithms will be able to take into account. So in the hypothetical situation of someone who doesn't know about any of this and they realized they did something wrong in the past and they're working to improve that in the future, then that's something that our algorithms will pick up on and will be able to use as well. Still, if you're in that situation, it wouldn't be that I'd say you should ignore the disavow tool and just focus on moving forward in a good way, but instead really trying to clean up those old issues as well. And it's not something where we'd say that using the disavow tool is a sign that you're a knowledgeable SEO and that you should know better about these links. It's essentially a technical thing on our side, where we don't take those links into account anymore. It doesn't count negatively for your website if you use a disavow tool. It's not something you should be ashamed of using. If you know about this tool, if you know about problematic links to your site, then I just recommend cleaning that up.

Question: OK. I'm not really in that situation. Again, it was just a hypothetical. I was mainly curious from a technical point of view. I mean, would the penalty actually get removed if the majority of the percentage of low-quality links diminishes? The actual Penguin penalty-- would it be removed?

JOHN MUELLER: Yeah. That's something that our algorithms would take into account-- where if they look at the site overall and they see that this is essentially improving, if it looks like things are headed in the right way and the important links are really good links that are recommendations by other people, then they'll be able to take that into account and modify whatever adjustment there was made with that change there on that website. So they would take that into account. I wouldn't say that you have to have more than 50% and then the algorithm will disappear for your website. Let's say there are lots of shades of gray involved there, where the algorithm could say, well, this is looked really bad in the beginning. They worked a lot to kind of improve things overall. Things were improving significantly across the web with lots of good recommendations for this site. So it's kind of headed in the right direction. So it wouldn't be that it disappears completely, but maybe it'll kind of step-by-step improve.

This was spotted by Whitey in WebmasterWorld.

Forum discussion at WebmasterWorld and Google+.