Performance Management Research Review of Best Practices

It is widely accepted that performance management has been a key component of human capital solutions for decades. With increasing use of technology, organizations around the world are embracing change, improving their human capital by deploying robust talent management software solutions.
Performance management software, typically a module within a larger talent management software suite, is an enabler - a catalyst propelling change. But what transformations are occuring in the larger picture of “performance management?” And, more importantly, which of these human capital solutions are working?
The following research review provides the answers, consolidating best practices being reported around the world in organizations successfully revamping their performance management strategies.

Performance Management – Stronger in High Performing Companies

It is no surprise that companies with strong business performance are also companies with strong employee performance management programs. This finding was recently reported by the 2007 State of Performance Study condulted conducted by WorldatWork and Sibson Consulting which surveyed more than 550 HR professionals.

The study found that

• Performance management techniques for both the effective and less effective organizations are not very different. The greatest difference is the level of active leadership support and championing of the process.

The study revealed that “The organizations getting the most impact from performance management are those that have strong leadership support and that execute well in differentiating performance and giving performance messages.”

Another study, the 2007 Towers Perrin Reward Challenges and Changes Survey which collected data from over 600 companies in 21 countries, reports that effective performance management is fully aligned with business strategy. Although this was reported, as many as

• 43% of respondents stated their performance management systems did not effectively link to business needs

The study cautioned that “these are critical strategic gaps that will ultimately derail the very purpose of performance management.” Best in class companies are paying attention to this critical linkage.

Performance Management - Best Practices

Research from the Institute for Corporate Productivity (i4cp, formerly the Human Resource Institute) indicates that there are several well-defined steps that can make performance management an effective process in any organization. Their study, Finding the Keys to Performance Management: A Study of Current Trends and Future Possibilities surveyed more than 1,000 HR professionals representing various industries and company sizes.

Nine key practices for effective performance management were found, and are listed below:

• The performance management process includes developmental plans for the future.
• Training is provided to managers on how to conduct a performance evaluation meeting.
• The quality of performance appraisals is measured.
• There is a system in place to address and resolve poor performance.
• The performance appraisal includes information other than that based on the judgment of managers.
• The performance review process is consistent across the organization.
• Employees can expect feedback on their performance more than once a year.
• 360 reviews are used to support the performance evaluation process.
• The performance management process includes ongoing goal review and feedback from managers.

According to the research team, it is not necessary to have all nine key practices, however the more practices an organization implements, the more effective the program. It doesn't matter which of the nine practices are implemented as much as how many are implemented. Additionally, the order of implementation does not have any significant impact.

Research by Hay Group Reports that the “Most Admired Companies” have created performance management systems that take a well rounded approach to measuring performance. Such measurements include teamwork, long-term thinking, building human capital, developing and managing talent, and customer loyalty. This is compared to Average Companies which have performance management systems focusing on easily quantifiable measures that impact the bottom line: profits, growth and operational excellence.

Additionally, the Most Admired Companies have an approach to managing performance that:

• excels at driving accountability right through their organizations – they are clear about an individual’s accountabilities for a particular role and they consistently hold people accountable for the delivery of these;
• ensures the functions required to execute the strategy are in place – their organization design is fit for purpose and employees at all levels, understand the three of four key priorities the organization has to get right and their contribution towards these;
• aligns pay to performance, and in turn performance to strategy – they encourage executives to maximize their personal pay packets by delivering on activities that are of strategic importance to the organization, reinforcing the message that delivering what we believe is important will lead to the largest compensation;
• prioritizes people development as a core accountability for line managers with greater use of planned career assignments, one-to-one coaching and competency models.

The research above is clear. It provides a comprehensive snapshot of performance management trends underway in thousands of “high performing,” “most admired,” and “best in class” companies around the world. Such top companies are using technology to drive these changes. Many are using the easily customizable Insala Solution Suite which allows organizations to provide integrated tools and resources to deliver on human capital strategic objectives. Request a live demo to learn more.