Upfront: Performance Management Programs Fall Short

Even companies that adopted best practices in employee performance management fail in some areas.

Even companies that have adopted some best practices in employee performance management fail in certain critical areas, according to a recent survey of large U.S. companies across all industries conducted by Watson Wyatt Worldwide and WorldatWork. Even though 98 percent of respondents provide a formal yearly review and 96 percent have helped poor performers improve through such techniques as coaching and providing feedback, they have been less successful in aligning compensation with corporate goals. For example, 92 percent of programs are designed to link pay to performance, but only 79 percent of employers say that managers at their organization are moderately or greatly effective at making this connection. Employees see even more room for improvement; only 52 percent indicate that their managers tie pay to performance.

"Without improving the implementation of their programs, employers will have difficulties with aligning the performance of their workforce with business results," says Laura Sejen, director of strategic rewards consulting at New York City-based Watson Wyatt Worldwide. But she notes that "companies with strong performance management programs post significantly better financial results than those with weak programs."

Managers also struggle with providing formal career development and planning for their employees. Although the vast majority (82 percent) of performance management programs are designed to include career development, only 37 percent of employers say that managers at their organization are at least moderately effective at providing it. And only 31 percent of employees say that their companies offer career development.

A key weakness is lack of manager training at responding companies. Only 36 percent of organizations have a formal training program to enhance managers' ability to manage rewards. However, managers at companies that offer such a program are more effective at providing coaching and feedback, conducting formal periodic performance discussions and helping poor performers improve.

The survey also showed that:

• Providing formal goal-setting linked to business objectives is a design component of most performance management programs (91 percent), but only 74 percent of companies say that their managers are moderately or greatly effective at establishing such goals. Additionally, only 48 percent of employees report that a link to business objectives is provided.
• Slightly fewer than six in 10 employers think that managers at their organization are moderately or greatly effective at providing coaching and feedback to employees throughout the year; 48 percent of employees report that this is the case.