The State of Performance Management 2018

Gleaning new insights on best practices


An effective performance management process is indispensable for organizations. Although it is difficult to run an effective performance management (PM) process, some organizations are up to the challenge.

To understand why, HR.com conducted this study with two primary goals in mind:

  • To discover what most organizations are doing around performance management
  • To discover what particularly successful organizations are doing differently

Key Findings

  • Performance management is only working well in a small proportion of organizations.
  • Only 21% of organizations have managers who are skilled at PM.
  • Some organizations are moving toward frequent ongoing career conversations.
  • Organizations with more effective PM practices are considerably more likely than other organizations to make performance management a year-round process.
  • Organizations with less effective PM practices are more likely to use PM to help employees learn and grow.
  • Those with effective performance management practices have managers who are far more likely to see performance management as crucial for business.
  • Over two-thirds of effective PM organizations use performance management technology.
  • For some, the future of performance management looks bright.

How Common is Performance Management?

Since performance management is a core HR process, you might expect it to exist in all organizations—that’s not quite true. Among all respondents, 11% did not have a PM process.

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How Well Is Performance Management Working?

The bulk of organizations with performance management rate their PM processes as slightly or moderately effective (63%). A further 15% pull no punches and rate their processes as ineffective. This leaves a mere 23% with effective or highly effective processes.

In this report, we look at two cohorts.

  • Effective PM organizations: Organizations in which respondents rate their performance management processes as effective or highly effective.
  • Less effective PM organizations: Organizations in which respondents rate their performance management processes as moderately effective, slightly effective or ineffective.

It’s odd that performance management processes do not, in most organizations, improve employee performance very effectively. It’s an alarming sign that rather few organizations (25%) had managers who were satisfied with the PM process.

What Role Do Managers Play?

The success of a PM process largely hinges on how well managers execute the process. Unfortunately, in most organizations managers are not good at performance management, with only 21% of respondents reporting their managers were skilled at the process.

But where exactly are their skills deficits? Having performance-focused conversations is definitely one problematic area. Just 24% of managers are good at this. The numbers look a little better if we consider goal setting on its own; 30% of managers are good at goal setting.

Some of the blame may be on HR. One of the reasons managers might lack skills in this area is because only 33% of respondents say their organizations provide sufficient training.

If PM programs are generally ineffective, it may also be partly because top management doesn’t view it as important. Only 24% of respondents believe that top leaders view PM as crucial for business performance, far less than the 42% who see it as a necessary evil.

Slightly fewer than half of the respondents said their PM process was easy to understand. The other features measured—ease of use, effect on relationships, and accuracy—got even lower scores. However, what’s most concerning is that few respondents believe the performance management accurately portrays employee performance!

What Is Performance Management Focusing On?

Goal setting sits at the heart of most PM systems. Nearly 80% of respondents included it as a feature of their system. Positive/constructive feedback and ratings were each used in over 70% of firms.

The two least common features were continuous feedback (40%) and forced rankings (18%).

Two-thirds say that the goal of performance management is to improve overall performance. On one hand, this is obviously the goal of PM, by virtue of its name alone. On the other hand, this study clearly shows that most organizations are doing a poor job of meeting this goal.

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To have a successful management process, managers typically need to be held accountable. The vast majority of study participants, however, say their organizations (79%) do nothing more than track whether managers have done the formal appraisals. This low level of accountability allows managers to turn the process into a tick-the-box exercise.

Some organizations (20% or less) put more teeth into managerial accountability by doing things such as tying compensation to how well they do their job, tracking the ongoing coaching conversations (not just the once a year formal appraisal) or having employees rate managers on how well they manage performance (for example, as part of a 360-degree assessment or engagement survey).

Is Ongoing Performance Management Being Adopted?

Performance management has traditionally been an annual process and still is for almost 70% of organizations. However, a significant number of respondents have taken the step of going to twice-a-year reviews. Only 10% have moved further towards making formal reviews a more continuous process by having four or more of them a year.

The Role of Technology

These days there are affordable SaaS (that is, software as a service) solutions for just about any HR process you can think of, and performance management is no exception. Most organizations (57%) now do have performance management technology, a percentage that rises to 63% for organizations with 100+ employees, 75% for those with 1000+ employees, and 82% for those with 10,000+ employees.

It’s common for HR technology suites—whether core HRIS/HRMS systems or more specialized Talent Management Suites—to include a module for PM. Even if this module doesn’t do everything HR would like, it may well be good enough that the system is adopted by 61% of organizations. That number climbs to 75% for organizations with 10,000 or more employees.

Factors Linked to Effective Performance Management

It is good management practice to hold people accountable for outcomes the organization wants to achieve. In the area of PM, one relatively light touch of accountability is simply to track whether or not managers are having coaching conversations.

Another type of accountability is to have employees rate managers at least in part on how well they manage performance (typically via a 360-degree assessment or engagement survey). This type of accountability technique almost never occurs in less effective PM organizations (3%), but it is found in 25% of effective PM organizations.

There are interesting differences between the goals that effective and less effective PM organizations set for performance management.

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In effective PM organizations, the performance management process usually builds trust (69%), whereas in less effective ones it almost never does (10%).

Another key difference was in the accuracy of how performance is assessed. It is commonly—though not always—accurate in effective PM organizations (56%) and very rarely in less effective PM organizations (8%).

Both effective and less effective PM organizations commonly use PM technology, but it’s notably more prevalent in effective PM organizations (over two-thirds) than in less effective ones (slightly less than half).

The Future of Performance Management

While there has already been quite a bit of change in PM recently, much more is still to come. Almost half of organizations (45%) expect to change their PM system to a high or very high extent in the next two years.

We know that companies are experimenting with changing PM, but what kinds of changes can we expect to see? The most common answer to this question (half of respondents) was a greater emphasis on conversations and a lower emphasis on rating. Another finding is that nearly a third of respondents (30%) said that performance management will become more objective.

Effective PM organizations are more likely to believe the process will get even better, while less effective PM organizations are twice as likely as their more effective peers to believe it will disappear.

To learn more and to take home key tactical and strategic takeaways, we invite you to download and read the complete research report here:

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With permission from: : HR.com
Magazine Name : Talent Management Excellence
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