Although nearly half of organizations say a solid performance management system could significantly increase their productivity, most programs lack clarity and effectiveness, according to an Oct. 29 report from WTW.
Since managers play a major role in this process, they could use support, the report found. Only 20% of organizations said managers effectively provide coaching and feedback, particularly around setting goals and keeping them relevant throughout the year.
“Managers often lack the training and tools needed to have difficult conversations and deliver honest feedback, which limits the effectiveness of performance management,” Kristy McClellan, director of work and rewards at WTW, said in a statement. “Companies are starting to use AI to increase efficiency, improve the quality of outcomes and enhance both the employee and manager experience.”
In discussions with focus groups with nearly 500 participants, 37% said they’re using artificial intelligence tools as part of their performance management process, and a similar number are considering it. In particular, companies use AI for goal setting (44%), development plans (40%), performance reviews (37%) and continuous feedback and coaching (35%).
In addition, 54% of organizations have incorporated skills into their performance management process, including learning and development (78%), goal setting (40%) and promotion decisions (29%).
Beyond that, organizations are seeking simplification, fairness and differentiation around performance ratings, the report found. Nearly half use a five-point rating scale, with the other half using a three- or four-point scale. About half have changed their rating scale already or are considering it.
In 2024, only 2% of Fortune 500 CHROs said their performance management systems work as intended and inspire employees to improve at their jobs, according to a Gallup report. As companies evaluate their systems, HR leaders are discovering the programs don’t “coincide with a disrupted, dynamic and digital business environment,” Gallup said.
As part of this, leaders may give inflated and inaccurate performance feedback to women, especially when concerned about appearing prejudiced, according to a study from Washington State University researchers. Coaching and mentoring opportunities could help normalize mistakes and allow workers and managers to openly address areas for improvement.