Performance Management Takes Precedence

Managing and improving performance management is a fundamental pursuit in modern business. Although the effectiveness of performance management systems is increasingly questioned as to whether they deliver what they promise, under the right conditions and conditions they can bring about significant results in improving the performance of employees and the company as a whole.

Today, performance management is often a source of dissatisfaction for many companies. In a recent McKinsey survey, large percentages of respondents said that companies’ current performance management systems and practices have no impact – or may even have a negative impact – on performance. Furthermore, most of the survey participants do not see a positive return on the investment and time spent on performance management.


Nevertheless, the findings of the same research show that when performed correctly, performance management has a positive impact on improving the performance of employees and consequently the organization as a whole.

Research shows that the key to getting positive business results from performance management is creating a system that both employees and leaders will see as fair. As noted in the book “Leading Organisations: Ten Timeless Truths”, by Scott Keller and Mary Meaney, “People are not averse to being evaluated, and in fact, they want to know where they stand. They just want the process to be fair. They want a process that is differentiated without inaccuracies, looks forward and backward, occurs more often than once a year (but at the same time not so often that it becomes tedious), involves honest two-way discussions, is based on more data than just the opinion of supervisor,


To ensure this perception of fairness, managers at every level must learn to be excellent at connecting each employee’s goals to company priorities, effective coaching, and differentiating rewards across levels. performance.


The above is, after all, the basic demands and trends in terms of performance management. As stated by Kostas Zoulias, Director, Human Capital Consulting, ICAP People Solutions, “the main new trends in performance management systems are: the emphasis more on the development of the employee and less on grading and observing the Gaussian distribution, digitization that offers large process control and reporting possibilities, the simplification of the criteria and the shortening, so as to reduce the bureaucratic time of those involved, the assessment by more partners of the assessee with the 360° feedback logic, the shortening of the cycle to shorter periods, e.g. . 6 months, 3 months, so that the evaluation is current, the increase of accessibility using mobile devices, and the use of technology in general. Finally, some large companies have announced abandoning the system and replacing it with other much lighter procedures, e.g. short feedback discussions, supervisor check-ins, etc.’



In general, employees often express doubt that current performance management systems foster high performance. In fact, more than half of McKinsey survey participants believe that performance management has not had a positive impact on employee or company performance (Chart 1).


Consequently, many respondents report that their companies are making changes. More specifically, two thirds of the participants report the implementation of at least one substantial configuration of performance management systems in the last 18 months. These results also show that companies are making a wide variety of changes. No more than a third of respondents report that their company is implementing at least one of the three most common changes – simplifying appraisals, streamlining formal review processes and separating performance from pay discussions (Chart 2). .



From the findings of the research, three practices emerge that are more closely related to the main factor that judges the effectiveness of performance management: the perception by employees that the system is fair. These practices are linking performance goals to business priorities, effective coaching from managers, and differentiating pay based on performance.


Moreover, these practices are mutually reinforcing: the correct implementation of one practice can have a positive effect on the effectiveness of the others, which leads to more effective performance management overall. In fact, among participants who believe that their companies are implementing all three of these practices correctly, 84% report that they have a positive impact on performance management. Furthermore, they are twelve times more likely to report that their company has effective performance management systems than participants who state that their company does not implement any of these three practices.


Linking performance goals to business priorities:

The first of the three practices, linking individual employee performance goals to business priorities, is not only associated with enhancing perceptions of performance management fairness, but also helps companies achieve their strategic goals. Where employee goals are aligned with business priorities, 46% of respondents report that they consider performance management in their company to be effective, compared to 16% in companies that do not follow this practice.


Manager coaching:

The analysis of the research results shows that effective coaching is not only the most basic factor for a performance management system to be considered fair, but also that there is a direct relationship between the effectiveness of managers and the effectiveness of the system. When leaders effectively coach and develop their employees—a practice reported by fewer than 30% of respondents—74% of employees report that performance management systems are effective, while 62% say that company efficiency is better than that of competitors. Among companies where respondents do not see leaders as effective coaches,


Differentiation of fees:

The third practice has to do with meaningfully differentiating pay between low, average, and excellent performers. Fewer than half of survey participants report that at their companies, employee compensation varies significantly in relation to performance levels – and the results clearly show that this practice is strongly linked to overperformance. Of respondents who report clear pay differentiation, 54% rate their performance management systems as effective, compared to 16% in companies where there is no clear pay differentiation. At the same time, among those who follow this practice, 52% state that their company’s performance has exceeded that of competitors in recent years

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