Performance management (PM) has been a business practice for more than 50 years. The business imperative for performance management is undeniable, yet organizations everywhere seem disenchanted with the effectiveness of their approach. In Brandon Hall Group’s 2014 Performance Management Study, the majority of 223 organizations reported that improving overall business performance is a critical outcome of their performance management; 88 percent have a performance management strategy, yet 71 percent say their current approach to performance management needs improvement, even reinvention.
Even though there is a lot of talk about fresh performance management practices, our study revealed that startling few organizations have made any significant and enhancing changes to the traditional “rank-and-stack” approach.
To help organizations do a better job of managing performance, Brandon Hall Group conducted an online study of current performance management practices, supplemented with interviews with key executives and HR leaders of high-performing organizations. Here are the top findings of the study of more than 200 global survey respondents who play a role in their organization’s performance management function:
1. Performance Management Strategies Widely in Place, but Are Largely Ineffective. Some 88 percent of organizations have a performance management strategy in place, but 71 percent said their current approach to performance management needs to be improved, even re-invented. The dissatisfaction is likely due to a combination of factors:
- Poor linkage between business goals and employee goals
- Managers poorly trained as development coaches
- Continued use of ineffective traditional approaches (e.g., annual performance appraisal discussions, evaluation of employee weaknesses, rating and ranking in the bell curve, top-down feedback only, etc.) in most organizations.
2. Too Little Focus on the Employee, Too Much on the Process. We asked survey respondents to indicate how effective and how frequently they practiced actions oriented around developing employees—such as providing continuous feedback, developing strengths, coaching for strengths development, having career discussions, soliciting performance feedback from multiple sources, and eliminating a rate-and-rank approach. There was a sharp contrast between methods used and perceived effectiveness:
- 41 percent of respondents found in-the-moment feedback between manager and employee highly effective, but only 9 percent said it occurred regularly.
- 30 percent said formal development coaching is highly effective, but only 2 percent said it is done regularly.
- 27 percent said targeted individual development plans are highly effective, but only 8 percent said they are used regularly.
- Only 19 percent said annual performance discussions are highly effective, but 51 percent said they are used regularly.
- 55 percent said that forced ranking distribution does not improve—and even deteriorates performance—but 33 percent said it is used or soon will be used in their organizations.
3. Lack of Executive Engagement. More than half (55 percent) of organizations said their executives are not fully engaged with performance management. When executives and other business leaders are not engaged in performance management, employee goals risk being out of alignment with business goals. And without executive engagement, managers are not held accountable to course-correct the misalignment and to remain committed to developing their employees.
4. In-The-Moment Feedback Improves Performance. Our research shows that 41 percent of respondents believe in-the-moment feedback to employees is highly effective, while only 19 percent believe annual performance discussions are highly effective.
By offering regular and in-the-moment feedback, managers are an essential conduit in helping employees execute on well-aligned goals. Yet, in most organizations, performance feedback still occurs only during the annual formal performance appraisal discussion.
5. Managers Lack Skills as Development Coaches. Some 73 percent of organizations indicated that development of employees’ strengths, rather than evaluating their weaknesses, is critical to effective performance management, and 82 percent said their managers were only somewhat effective, or not at all effective, in strengths-based development planning and feedback.
Regardless of size, industry, or region, organizations have an opportunity to improve performance management effectiveness simply by skilling up their managers to be effective development coaches. In fact, nearly two-thirds (64 percent) of organizations indicated that training managers to be effective coaches was their greatest performance management opportunity and challenge.
6. Most Organizations Enable Performance Management with Technology. When asked if performance management was enabled with technology, 60 percent said yes. They identified performance rating and rating scales, performance appraisal forms, and goal-setting templates as the most frequently used online functions.
However, 30 percent of respondents said their primary tool for managing the performance management process were paper-based forms, spreadsheets, and templates. Managing employee performance without technology to expose talent data across the enterprise, to ensure cascaded goals, and to assist in exposing top performers from others, severely limits the effectiveness of the PM process.
7. Performance Management Data Is Still Not Fully Integrated with Other Talent Data. Some 40 percent of organizations said their performance management data was not integrated with the data from that of other talent processes—including workforce planning, competency management, talent acquisition, learning and development, leadership development, career management, succession management, and rewards and recognition.
Of all talent processes, performance data is most integrated with learning and development data. This finding was corroborated in our 2014 Learning & Development Benchmarking Study in which more than 80 percent of the participating companies said some integration existed between PM data and L&D data. However, expanding the integration of talent performance data with talent data beyond L&D data will significantly help organizations to predict future talent capability needs, career aspirations, and proactively mitigate performance risk in critical talent segments and job roles.
8. Executives and Senior Leaders Get More Performance Planning Attention. More than half (56 percent) of organizations reported that 91 to 100 percent of their executives and other senior leaders have written performance goal plans. Slightly less than half (48 percent) of organizations on average have written performance plans for 91 to 100 percent of their managers and professional-level employees. Approximately one-third (33 percent) of organizations on average have written performance goals for 91 to 100 percent of their individual contributors and hourly workers. And less than 10 percent of organizations on average have written performance plans for 91 to 100 percent of their contract and contingent workers.
Choosing to forego performance plans for the hourly and other non-exempt employees sends a clear message about the organization’s philosophy of their diminished value to business results. This message translates quickly to disengagement followed by deterioration of business unit and enterprise goal achievement.
9. Pay-For-Performance Typifies Performance Management for Most. Almost three-quarters (74 percent) of organizations agree or strongly agree that a pay-for-performance approach is very important to their approach to performance management. Interviews with executives and business leaders of select respondent companies revealed that there are arguably some risks (ambiguous minimum/target/maximum levels, poorly set goals, unclear communication about payout standards) in a pay-for-performance approach. However, the leaders felt that more risk existed in not using it. While pay certainly is not the only motivator in employees performing their best, “it would be difficult to envision how employees, companies, and economies would fare better by diminishing or eliminating the role of pay-for-performance,” said the chief human resources officer of a global telecommunications firm.
10. Separate Performance Discussions from Pay Discussions. As shared in qualitative interviews with executives, high-performance organizations are intentional about separating the timing of performance discussions from the timing of salary increase discussions. These high-performance organizations explained that the intentional separation allows managers and employees to focus on discussing the employee’s contributions to business goals, the employee’s achievement or not of individual goals, and the creation of go-forward plans for further development of employee’s strengths and optimizing performance (without the distraction of thinking, “Am I getting a raise?” or “How much will my raise be?”).
Leading Practices of Effective Performance Management
The survey, and additional interviews and conversations with high-performance organizations with sophisticated performance management programs, revealed 10 leading practices for managing performance. Our 10 leading practices are:
- Create the PM strategy in alignment with the business strategy, ensuring cascaded goals.
- Institutionalize PM as an ongoing process—not an annual event with a beginning and an end.
- Focus on developing employees’ strengths, not evaluating their weaknesses, and eliminate the forced distribution system.
- Decouple performance conversations from compensation conversations.
- Engage peers and subordinates in providing performance feedback.
- Review and revise employees’ goals regularly to ensure alignment with changing business priorities.
- Hold managers accountable for acting as coaches to develop employees’ strengths.
- Catch employees performing well (or not so well) and provide regular, immediate, on-the-fly feedback.
- Define and execute on targeted individual development plans (IDPs) enabled with performance support tools.
- Define a select few metrics to measure the business impact of performance management and monitor those metrics regularly for continuous improvement and to create a culture of high performance
Laci Loew is vice president and principal analyst for the Talent Management Practice at Brandon Hall Group, a leading independent HCM analyst firm, with practices in learning and development, talent management, leadership development, talent acquisition, and HR/workforce management.