Employee performance management practices are pivotal in HR’s evolution.
Without very effective performance management processes and reportable data that means something to the business, HR cannot effectively deploy training resources and see who is truly ready for a promotion. They cannot do strategic planning, understand the revenue generated per worker, or guarantee that organizational retention efforts are working to attract, retain, and develop the right talent.
And if the performance management process is flawed or biased, an organization will struggle to meet diversity, equity, inclusion, and belonging (DEIB) goals.
From a worker’s perspective, their overall employee experience is significantly influenced by how their performance is evaluated. From a business lens, the ability to accurately plan for and utilize the necessary skills and talent on a global scale is compromised if there is a lack of understanding about the existing capabilities within the organization.
Our latest research, a component of our newly initiated Adjunct Analyst program, dives into the current state of performance management, HR sentiments, and emerging trends. It explores how performance insights and intelligence, including AI, can shape the future of this field.
Our research reveals several barriers impeding the effectiveness of current programs: data gaps, questions about objectivity, and a weak connection between employee performance management and overall business success. The absence of rigor and the inability to substantiate the “why” behind the performance management process with evidence-based data also diminishes the credibility of these practices.
But first, we want to discuss the initial phase, which involved surveying 241 HR leaders (HR business partners or director-level and above) in North America. Their feedback was eye-opening and supports our (biased) hypothesis: performance management is central to all people management practices, and most HR leaders are happy with the process being “good enough.”
The Initial Finding: “It’s Good Enough”
An overwhelming 78% of the surveyed HR leaders, all holding director-level or higher positions, believe their performance management programs are “Effective” or “Highly Effective.”
It means over three-quarters think their programs aren’t just adequate—they’re fulfilling business needs. You read that right. HR is happy with the current state of performance management.
If you’re like us, you have questions because this perspective does not align with the general sentiment of employees and managers who believe the process, quite frankly, stinks. So, our role as analysts and researchers is to ask: Why is HR so positive about something often regarded as one of the most hated aspects of the workplace?
We tapped into our extensive network of HR leaders and inquired about what’s happening in the workplace.
One HR business partner we spoke with was quick to acknowledge that their performance management program isn’t where it needs to be but argued the ever-pragmatic point that it’s better than nothing: “Is there value in doing the imperfect? You have to work with what you have–and what’s the benefit in doing nothing?”
Another seasoned HR veteran shared that further enhancements are required despite significant financial investment and extensive efforts to improve their program. Unfortunately, they ran out of budget and can’t afford additional upgrades until the next budget cycle—and maybe not even then.
Between these and other conversations with leaders doing their best, we decided to look at the data differently. HR leaders are doing the best they can with what they have, but is there a significant difference between good and great in performance management programs?
A Closer Look: The Gap Between Good and Great
Casual observers of language and data might easily lump the survey respondents rating their overall performance management programs as “Very Effective” and “Effective” together. However, based on our initial interviews with practitioner leads, we are compelled to dig deeper.
Despite the exuberant confidence expressed by many HR leaders, our research reveals a significant gap in the importance and impact of performance management between the 38% who described their programs as “Very Effective” and the 62% of “All Others” who rated the programs as “Effective” or show little confidence in their process.
To understand the differences between these two groups (we call them cohorts), we first reviewed what they’re trying to drive, support, and enable as part of their performance management programs.
The chart below details the priorities of performance management as a “Very Important” driver of success in various HR programs. This breakdown is segmented into two cohorts: those with “Very Effective” performance management programs (in blue) and “All Others” (in orange).
Our original hypothesis–that employee performance management is central to all people management practices and a crucial factor to consider when managing these other HR initiatives independently–plays out quite differently between our two cohorts.
Our data illustrates that companies with “Very Effective” performance management programs are aligned with our hypothesis: performance plays a crucial role in supporting employee career growth, engagement, and retention programs.
When asked about their organization’s performance process and the impact on the business, one HR leader we spoke with said, “I think about performance management and business impact very differently than most people. I want to remove the barriers and enable growth for our people to get on the path they desire. Ultimately, that’s a win for the business.”
Conversely, HR leaders in the “All Others” cohort give less priority to integrating performance management into any of these programs, with the exception of employee retention (62% of respondents in this cohort rated retention as Very Important to performance management).
If an HR department is doing its best, what does it matter? According to our research, integrating performance into other programs (or lack thereof) matters a great deal.
The second chart (below) is one of our favorites because it shows the flip side of this trend: The companies in the “Very Effective” cohort are having way more impact than those in the “All Others” cohort.
Immediately, you can see how the companies who rate themselves as having a “Very Effective” performance management process (in blue) can quantify the impact on other programs like workforce planning, DEIB goals, and employee engagement. “All Others,” on the other hand, have a substantially lower impact rate.
It begs the question: Is there really such a thing as good enough in performance management?
Our Take: You’re Either Very Effective or Not
Our research uncovers a striking disparity within HR organizations’ self-assessment of their performance management programs. The 38% of organizations in the “Very Effective” cohort can demonstrate a significant influence on crucial aspects like employee career growth, engagement, and retention. These organizations stand out for their ability to concretely impact other HR initiatives, such as workforce planning and employee engagement.
In stark contrast, the “All Others” cohort–which, remember, includes the 40% of HR leaders who rated their programs as “Effective”–shows a lack of deliberate integration of performance management into broader HR strategies and has a significantly lower impact as a result.
This dichotomy prompts us to consider rebranding these cohorts: “Very Effective” might well be termed “Great HR,” while “All Others” could fall under the “Good Enough” banner.
As we continue to look at the results, it leads us to a fundamental question: Will anything less than “Very Effective” be tolerated by businesses in 2024 and beyond? Will new program enhancements be readily funded for those without a roadmap to evolve beyond the “Good Enough” label?
The answer is no. The difference between these two cohorts in performance management is not merely semantics but a substantial gap that profoundly affects organizational success. While ‘good enough’ might be an acceptable solution for many business challenges, this distinction separates organizations merely coping in the post-pandemic work environment from those that are flourishing.
At this point in our research, we feel pretty strongly that excellence in performance management is not just beneficial but essential for thriving in today’s business landscape.
What Comes Next
Our comprehensive analysis will be published in our inaugural white paper in December, including survey data and insights from HR leaders and consultants. A follow-up survey in January will focus on the perspectives of managers and business leaders.
Stay tuned for more insightful findings!