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Few Organizations Have Confidence in the Effectiveness of Performance Management Programs

By: Mercer Consulting

Despite an understanding that talent is a source of competitive advantage, establishing effective performance management programs remains a challenge for most organizations. According to Mercer’s 2013 Global Performance Management Survey, just 3% of organizations worldwide report their overall performance management system provides exceptional value.

“In today’s challenging business and economic environment, companies are struggling to achieve important outcomes—like focusing employees on the ‘right’ things and driving them to perform at higher levels—with their current performance management programs,” said Colleen O’Neill, Senior Partner at Mercer. “And even though there is a lot of talk about workforce segmentation and innovative performance management practices, few effectively support dynamic performance and career development processes, and a minority of companies has made revisions to their practices in the last few years.”

Mercer’s Global Performance Management Survey includes responses from performance management leaders at more than 1,050 organizations representing 53 countries around the globe. The organizations surveyed varied in size from fewer than 1,000 to more than 10,000 employees, and included a wide range of industries..

Critical Drivers of Performance Management
In addition to some commonalities in performance management programs, such as setting employee goals, conducting formal year-end review discussions, and using performance ratings, Mercer’s statistical analysis identified key drivers of successful performance management. The key drivers include manager skills, executive commitment, calibration, and technology. Topping the list is the skills of managers, specifically how well they set employee goals, provide feedback, evaluate performance, and link performance to critical talent management decisions such as compensation, development, and careers. According to Mercer’s survey, roughly one in three organizations around the world say improving managers’ ability to have candid dialogue with employees has the greatest impact on overall company performance. Mercer’s analysis revealed that the two components of manager skills that matter the most are linking performance to career development and setting SMART goals (specific, measurable, ambitious but achievable, relevant, and time-bound).

Alongside the contribution of managers, organizations with higher levels of executive commitment are more likely to have effective performance management programs. One-on-one performance discussions, formal performance planning, and team accountability are some of the more common practices executives are implementing to direct their teams and achieve desired business results.

Calibration and technology are two additional drivers of successful performance management. Mercer’s survey reveals that organizations that practice calibration have more skilled managers, and thus, are better at determining accurate performance rating decisions, increasing talent awareness, and identifying individual employee development opportunities. More than half of organizations around the globe use calibration processes to differentiate between performance levels. And while technology (used by 40% of organizations) alone does not ensure performance management success, it allows for ready access to accurate data and actionable insights to all stakeholders.

Best Practices by Region
According to Mercer’s survey, no region or country leads the world in performance management best practices. In general, organizations in Asia Pacific are more likely to have tools, guidelines, and metrics in place compared to those in Europe that typically place more emphasis on career development in their pay-for-performance value propositions.

While more than half of organizations worldwide cascade goal setting to the business unit, it is more common in Asia Pacific and Eastern Europe, noted by about three-quarters of organizations. Goal setting at the country level occurs most often in South Korea and India, and least often in the United States and Canada.

Organizations in India, Singapore, Japan, and Eastern Europe are more likely to demonstrate higher levels of executive commitment to performance management while organizations in Latin America, Italy, and Spain are least likely. And although the top practice of performance management programs worldwide is linking performance to pay increases, organizations in India track performance management metrics significantly more than all other countries.

Similar to the research Mercer conducted in 2008 in the U.S., the global survey identifies people management skills as a key driver of successful performance management. It also shows that within people management, setting SMART goals and linking performance to development planning are the most important skills for managers to “get right.” Within these areas, US organizations indicate room for improvement. Less than half (44%) say their managers are moderately proficient at development planning (only 2% say highly proficient). And 64% say their managers are moderately proficient at setting SMART goals (just 4% say highly proficient).

"By focusing and investing in developing managers' skills, particularly in goal setting and development, employees will enhance individual capabilities and be stronger contributors to the company's overall success," said Lori Holsinger, Ph.D., Principal in Mercer’s Atlanta office.

About the Author(s)

Mercer Consulting is a global leader in talent, health, retirement, and investments. Mercer helps clients around the world advance the health, wealth, and performance of their most vital asset—their people. Mercer's more than 20,000 employees are based in 42 countries, and the firm operates in over 140 countries.