A new study from WTW finds that while nearly half of organizations believe optimizing performance management could boost productivity by at least 10%, the majority of their programs are failing to meet employee expectations.
Why it matters: The research points to a significant gap between the recognized potential of effective performance management and the reality of its implementation. A key weakness is manager capability, with just 20% of companies reporting their managers are effective at providing coaching and feedback.
The big picture: To address these shortcomings, companies are increasingly turning to technology and new frameworks. More than a third are now using AI in their performance management process, while over half have started integrating skills-based assessments.
* "Managers often lack the training and tools needed to have difficult conversations and deliver honest feedback, which limits the effectiveness of performance management,” said Kristy McClellan, Director, Work and Rewards at WTW.
By the numbers:
- 39% of organizations say their performance management process is effective at delivering clear goals, regular feedback, and fair ratings.
- 37% of companies currently use AI as part of performance management, and a similar number are considering it.
- 54% have incorporated skills into their performance management process, primarily for learning and development (78%) and goal setting (40%).
- 18% of those using skills-based approaches use them to make pay decisions.
Between the lines: The findings suggest a broad move away from traditional annual reviews toward more dynamic systems. More than half (54%) of organizations have either changed their performance rating scales or are considering it, seeking greater simplicity and fairness.
* While companies are confident in using performance ratings to differentiate pay for top performers, the slow adoption of skills-based criteria for compensation shows a persistent challenge in tying new evaluation models directly to rewards.
SOURCE: WTW
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