The Future of Performance Management 2023

Use continuous feedback to nurture a strong manager-employee partnership

Today’s employers have a historic performance management problem. U.S. productivity seldom declines on an annual basis, but in 2022 there was a decline of 1.6%, the largest in half a century.

What’s more, 2023 started off with a first-quarter decline of 2.1%. Amid these trends, businesses are striving to improve their performance management processes, with a renewed emphasis on improving overall performance. As organizations struggle to boost their overall performance—as well as the performance levels of individual employees—they are working to improve their performance structures and systems. To better understand the details of what they’re doing, HR.com's HR Research Institute conducted a study, The Future of Performance Management 2023.

Key Findings

• Most organizations fail to meet important performance management (PM) goals to a high or very high degree, a problem that seems to have grown worse in the last year.
• Over the past two years, performance management has changed in a variety of ways to focus more on the needs of employees.
• Organizations too often lack accurate performance metrics 
• Most managers lack PM-related training and accountability, which could help explain poor performance management skills.
• Although a majority of HR professionals think that top leaders see performance management as useful, many still believe leaders see it in a negative way.
• Most organizations use digital technologies for the purpose of performance management, but the technologies often fall short in certain ways.

The Effectiveness of Performance Management Today

We asked respondents to identify the degree to which their company’s performance management processes bring about ten major PM  outcomes. As shown below, for the last two years, most organizations have not received high and very high degrees of performance
management results.

Further, there has been a considerable decline in those results from 2022 to 2023. Perhaps the most concerning news is that, in 2023, only a third (34%) of organizations’ performance management processes led to the ability to meet all organizational performance management goals” to high and very high degree, as compared to more than two-fifths in 2022 (44%).
 

How Performance Management Has Evolved Recently

How has performance management changed over the last two years?

Generally speaking, we found that organizations are most likely to have increased their focus on interacting with individual employees. In fact, about a third (32%) report their organization is conducting more one-on-ones with their employees, and an equal proportion say they afford employees more opportunities to have greater input into their performance goals.

How Leaders View Performance Management

We asked respondents to pick the one factor that best represents how top leaders view performance management in their organization. Three-fifths indicate that top leaders think performance management is useful in some way (56%), such as aiding employee development (15%), improving engagement (15%), boosting performance (13%), or as an effective way to make employee-related decisions (13%).

However, the remaining 40% view performance management in a negative light. In fact, thirty-four percent say that top leaders view performance management as a “necessary evil,” suggesting that leaders may struggle to understand how to do performance management well.

Further, another 6% say leaders view PM as an “unnecessary waste of time.”

The PM Skill Sets of Today’s Managers

Less than a quarter (23%) of respondents say that managers in their organization are skilled at overall performance management. We find this a very troubling number, especially in light of the fact that a mere 31% say respondents agree or strongly agree that managers in their organization have received sufficient training. After all, HR typically is in charge of learning and development, so in many organizations, it should be able to influence the training and skill sets of managers in this area.

In essence, many HR respondents are admitting that they either lack the power or the ability to hone the capabilities of managers in the area of performance management. HR thinks managers are a little better at helping employees set goals (39%), though just 30% say think managers are good at having conversations about workplace performance and behaviors. So, it’s little wonder that most managers themselves are unsatisfied with performance management (70%).

The Future of Performance Management

Given previous findings in this report, we see it as a positive sign that nearly three-fifths (58%) of respondents foresee more frequent and continuous feedback over the next two years in their organizations. It is also encouraging to find that more than half anticipate greater manager training (55%) as well as more frequent, natural conversations (48%).

We suspect, given our findings, that many managers need training on how to better interact with employees to build rapport. Further, respondents may see value in training to better prepare managers, direct reports and their teams on how to give and accept feedback in a clear, concise and positive way, particularly as it relates to development activities (47%).

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