Performance management has undergone what was hailed as a revolution over the past decade, with leading organizations promoting radical reinventions of the performance appraisal process. Major academic and professional publications lauded the changes designed to eliminate the elements of the annual process that managers and employees alike found impersonal, intimidating, demoralizing, time-sucking, ineffective, and ultimately unfair. These changes, though not yet fully realized, hold the potential to inspire hope for a more effective and fair performance management system. At the same time, improving performance management has been shown to drive enhanced talent results and business outcomes.

However, many organizations have failed to introduce the most fundamental aspects that were supposed to shift the focus and trauma from the process and transform it into a more humanistic, equitable, reliable, and constructive method for providing objective feedback and fostering employee growth. The promised changes seem to have been adopted only by the more advanced or mature organizations, with limited managerial adoption and poorly executed follow-through. Improving performance management can start with small, but significant shifts that lead to much larger returns.

Performance management defined

Performance management is the process by which employees’ contributions, capabilities, efforts, and outputs are assessed against preset criteria. It is essential to understand that performance “evaluation” or “appraisal” alludes to the documentation and discussion of performance standards and feedback. In contrast, “performance management” refers to the broader strategy (and associated processes) of planning and managing employee performance, growth, rewards, and recognition.

SHRM suggests that the purpose of the evaluation process at the individual level of execution includes:

• Setting performance expectations
• Establishing accountability
• Focusing team members on organizational mission priorities
• Defining and developing team members' skills and capabilities
• Soliciting feedback and documenting the discussion

Performance management, at a more comprehensive level, also involves articulating a formal performance philosophy and strategy, a business-aligned goal-setting process, performance and behavioral (e.g., competencies) standards, objective and equitable assessment practices, career and skill development processes, and integration with pay-for-performance and contribution strategies. Improving performance management starts with understanding its common weaknesses in design and execution.

The current state of performance management (PM)

Despite the amount of press and popularity that proposed changes to make the process more constructive have received, organizational research suggests that the efforts have not borne fruit. For example, 61% of employees state that the process is outdated, supported by the finding that 46% of executives report using "hard copy" or paper forms for providing feedback. 62% of employees complain that they receive feedback that is either incomplete or too generic (22%). This lack of positive effect that creates a focus on opportunities for improving performance management likely relates to several key trends:

Ineffective performance management processes continue to abound

LinkedIn found, for example, that 77% of HR leaders feel that performance evaluations do not accurately reflect employee performance. SHRM found that only 26% of companies felt that their PM systems were adequate. Gallup reports that only 2% of CHROs from Fortune 500 companies think their performance management system “works.” Yet another study found that only 6% of companies feel their processes are effective, and 40% of managers say they don’t have enough data to understand what engages and motivates their employees. Perhaps the most harmful finding comes from academic research demonstrating that review and feedback approaches led to worse individual performance 33% of the time. Organizations are not addressing widely reported concerns voiced by leaders and employees.

Employee feedback is equally dismal

Given that the primary purpose of performance management is to communicate expectations and drive and improve employee performance, the available data suggests that the value of planning and providing feedback falls short of that goal. For example, Gallup reports that only 14% of employees “strongly agree” that their reviews inspire improvement. It further found that only 22% of workers consider their performance evaluation process fair and transparent. Perhaps more concerning is the finding that less than half (47%) of employees strongly agree they know what is expected of them at work. The most notorious complaints from employees include the 62% who report being “blindsided” by performance feedback and the 75% of millennials who are left unsure of the true level of their job performance. Minimizing such employee concerns should be a core element of improving performance management.

Performance management processes seem to be anchored in past practices

A reported 58% of organizations continue to use spreadsheets to “track and monitor” employee performance. Another 57% are not taking steps to reduce bias because they overrely on a manager’s perception of the employee's contributions, whether or not they directly observe the employee performing the work. Given the range of available HR technologies that collect and report on employee contributions through peer, project manager, or skip-level recognition, collaboration, goal-setting, feedback, and performance platforms, it is surprising that reliance on manual processes and direct supervisor observation persists.

Frequent performance interactions are still novel

The heavily promoted concept of regular (e.g., weekly, biweekly, or monthly) check-ins is considered the current standard, yet it seems overstated. One study reports that almost 70% of companies use annual or semi-annual review cycles. Another study found that 51% of organizations offer annual or semiannual reviews. Such an infrequent schedule fails to meet employees' expectations and preferences: over 50% want them at least monthly, and 94% prefer in-the-moment corrections and coaching. Improving performance management can start with more frequent engagement between employees and managers.

Goal-setting practices still represent a process weakness

Gartner found that only 52% of surveyed organizations have an annual goal-setting process, while another 19% have no formal policy or process. Gallup reports that while managers prioritize team and customer goals as crucial for business success, 58% of employee goals are individually based, and only 36% are team- and 19% customer-based. Furthermore, how can employees and managers understand their progress without ongoing review? The finding that only 56% formally review their performance goals with their manager once a year or less suggests that the lack of progress check-ins signals a lack of concern or prioritization on the part of managers.

Why improving performance management should be a priority

Aside from the (hopefully obvious) outcomes of employee work alignment with enterprise goals, targeted coaching and guidance from more expert managers, employee capability expansion and growth, and higher levels of engagement, enhanced PM processes and practices have been demonstrated to drive significant talent and business gains at the individual and organizational levels.

For example, McKinsey found that 60% of employees were more likely to view the process as fair and, as a result, more effective when 1) their goals were closely linked to business objectives, 2) their managers were effective as coaches, and 3) the best contributors got better pay and rewards. 84% of those companies' executives viewed the PM system as equally effective.

Significantly enhanced business results tend to follow those perceptions, with those companies being twelve times (12X) more likely to report positive business results than companies not applying the more effective performance management practices. Furthermore, companies with a targeted, disciplined focus on employee performance are 4.2X more likely to outperform their competitors, generating 30% higher revenue growth and 5% lower turnover rates. The linkages between improved performance management and higher employee engagement have shown the daisy-chain effect of 21% higher profitability and profit growth levels three times (3X) higher than those of lower engagement organizations.

Creating a more effective, responsive, and impactful performance management ecosystem

Opportunities for improving performance management abound, but the key is to clarify and get alignment and agreement from leaders and managers around the philosophy and purpose of PM in the organization. Developing a shared understanding of how performance management should support the company’s mission, culture, and core values is essential to determining the appropriate design for the processes, policies, and practices that support it. Once those are established, many leading practices can be woven together into a robust driver and supporter of heightened managerial actions, employee performance, and contributions. 

While a comprehensive set of practices and approaches is outlined at Wowledge.com, primary considerations for upgrading a PM process and program include the following:

1. Leverage design thinking to improve employee experience (EX)

Solicit input from those closest to the process. Collect insights into the pain points, preferences, and needs of managers and employees from and within the current process. Seek to understand where administrative steps are creating unnecessary barriers to quality coaching, where technologies are not adding value to the process, how goal-setting practices are generating less meaningful linkages to larger corporate objectives, and how managers’ lack of direct performance observation is generating less accurate appraisals of employee performance and contributions. Design thinking methodologies bring perceptions and experiences into the open, enabling the identification of opportunities to improve performance management processes and the development of solutions. A simplified, less burdensome process can substantially improve manager and employee perceptions of (and productivity from) enhanced process usefulness and satisfaction.

2. Implement continuous feedback

The number one opportunity to improve performance management is increasing the frequency of performance feedback. Companies with continuous performance feedback are 39% better at attracting talent and 44% more effective at employee retention than their competitors. Workers receiving weekly feedback are more than five times (5X) more likely to consider their feedback as “meaningful” and four times (4X) more likely to be engaged. Similarly, Gallup reports that weekly feedback makes employees 3.2X more likely to be motivated to do outstanding work. The relationship building and trust generated by these frequent discussions overcomes one of the primary issues that leads to employee disengagement, lowered productivity, and turnover: the relationship with their manager.

3. Train and guide managers and employees

One of the most common barriers to successful performance conversations is the skills and motivation of managers and employees alike. Many managers resist weekly, bi-weekly, or monthly discussions due to discomfort with how to conduct those and the perceived pressure to prepare appropriately. Equally, Neuroleadership research explains that employees often find getting feedback psychologically threatening. By simplifying the process, providing questions for managers to ask, and giving employees guidance on what information to provide and request, the meetings can be more accessible and less intimidating to plan and conduct. Measuring the occurrence and outcomes of each session (through pulse surveys) can also hold both parties accountable, provide feedback on their quality, and alert upper management to those whose skills require intervention.

4. Collect performance data from multiple sources

One of the most prominent barriers to quality performance management is insufficient data for more accurate assessments. Many managers now oversee 8-12 direct reports who may be working with other managers (on projects, as internal clients, or in other locations) or are working remotely. In these cases, the line of sight between a worker’s efforts and outputs and his/her direct supervisor may be minimal. The need for additional insights into individual performance is often substantial, requiring extra legwork and repeated requests for structured feedback. 

Technology can support this with the use of data pulled from collaborative work platforms, brief (e.g., 3-4 question) pulse surveys from a project or onsite manager (and co-workers), peer and manager “thank-you’s” or “kudos” from (internal or customer) recognition platforms, organizational network analysis (ONA), and productivity and remote work tracking systems. The fact that 67% of employees state that their evaluations are based solely on their manager’s observations suggests that a lack of comprehensive data is most likely compromising PM accuracy.

5. Review and update goals regularly

The relevance or priority of any particular goal or objective can change throughout a performance period or year. Having the flexibility to update those as the year progresses is responsive to the pace of change in markets, organizational priorities, and even one’s (management) chain of command. Such updates require managers and employees to remain aware of the goals set at the beginning of the period and can be addressed in regular check-ins. The key to keeping goals meaningful and relevant is to reconsider them in an agile, flexible manner and to provide a formal structure or allowance for managers to make (and document) changes throughout the performance year or period.

6. Tailor performance management processes and standards

While many organizations prefer a one-size-fits-all approach, many actually use separate forms, criteria, processes, and even timeframes for different employee groups. The most prominent examples include those for executive and sales personnel. The needs, expectations, and preferences of hourly manufacturing or manual laborers, whose work is more common in higher-volume settings, may well call for a separate, more tightly structured set of criteria and performance standards than those of white-collar office workers. Examples of differences across roles, functions, and levels might include competency ratings for leaders, blending individual with team performance metrics for project-based workers, or quarterly performance evaluations for sales personnel.

Leading companies also employ committee-based reviews for some employee groups, in which managers of employees in similar roles jointly review and share data and observations on each individual’s goals, performance, contributions, and development or growth, and agree on a rating, development priorities, and advancement opportunities for each. Such “talent reviews” ease the pressure on individual managers to “get it right” and enable employees to receive fairer, more accurate evaluations and future opportunities.

7. Integrate rewards and recognition in a comprehensive manner

The leading practice is to separate performance discussions and decisions from compensation and professional development considerations. Nevertheless, the predominance of performance management as a significant driver of those decisions requires care when determining how best to manage annual merit and development decisions. Compensation growth impacts employees' satisfaction and perception of fairness. Experts point to pay differentiation as a critical element, either through significantly higher raises, bonuses, or stock grants for the very top performers and critical skills employees. Equally valued are recognition incentives, which are typically non-cash rewards such as promotions, developmental transfers or rotational assignments, project leadership with executive sponsor visibility and exposure, and access to leadership coaching and mentoring. Incorporating such decisions and actions into the process can strengthen the benefits of improved performance management.

Relevant Practices & Tools

Core Performance Management Practices to Set Expectations and Provide Effective Feedback. >

Performance management engages employees and their managers in the annual process of planning critical work efforts and developmental activities, evaluating the extent... more »

Providing Frequent Coaching and Feedback to Adapt and Adjust Performance Throughout the Year. >

Coaching & Mentoring is an employee development activity that, in the context of performance management, involves a manager providing feedback and guidance on an ongoing basis... more »

Collecting Robust Performance Feedback for Increased Reliability and Validity. >

While traditional performance reviews rely on the observations of a single functional manager, many other individuals can provide useful insights into an individual’s job performance... more »

Calibrating Goals and Performance to Enhance Group Equity and Fairness of Performance Evaluations. >

Key elements to emerging performance management are the group comparison and alignment of employee goals and performance evaluations... more »

The Goal Setting Template: Create Individual Goals Linked to Roles, Organizational Objectives, or Individual Development Needs. >

A template to draft SMART goals that emphasizes each element of a quality goal, including specificity, measurability, achievability, the relevance of the goal to the individual’s job... more »