What does the future of performance management look like?

Being successful in your role as a HR leader is a great feeling.

When your company has an infectious culture and your people are thriving, it’s like flying.

But managing high performing teams doesn’t happen by accident. It takes laser focus, great teamwork, grit, and empathy. It also means defining what success looks like and empowering your people to reach that.

That’s where the importance of great performance management strategies come in.

So, Sage set out to conduct a true 360-degree view on performance management today. How is it faring? Is it meeting its goals? What is the feedback from HR and business leaders?

The results were intriguing. We feature some of them in this article.

Here’s what we cover:

• The future of performance management: A summary of the top findings
• About the research
• Performance management today
• The future of performance management
• Solving performance management challenges: What companies need to do to get ahead

The future of performance management: A summary of the top findings

More than half of HR and business leaders (58%) think that performance management is important now more than ever, with as many as 74% saying they find it more difficult due to hybrid working.

However, 75% believe their performance management processes are out of date.

Respondents also told us that:

• 61% of HR leaders say their current performance management approaches aren’t an efficient use of their HR team and managers’ time.
• 59% told us they don’t use performance indicators to manage succession planning.
• 59% aren’t using data to inform performance conversations.
• 57% say their current approach isn’t equitable.
• More than half (55%) can’t spot high and low performers.
• Three quarters think the annual appraisal process is outdated.

In the future, HR leaders told us they believe the focus will be less on hours worked, and more on business impact (86%), and goals will be more intrinsically linked to diversity, equity and inclusion (DEI) strategies (84%).

69% of HR leaders think that performance ratings should be abolished, and 71% think that the nine-box grid will become obsolete.

About the research

We spoke to more than 1,000 HR and business leaders from small and medium organisations across the world to get under the skin of how they measure performance in their companies, what’s important to them and how they see the future.

Specifically, the research focuses on:

• Performance management today: what current processes look like
• What the future holds for performance management: what HR and business leaders want for the future
• Solving HR challenges: what companies need to do to get ahead.

The respondents’ answers provide a full 360-degree view of the good, the bad and the ugly of performance management, and what a future with data and technology could hold.

Performance management today

It’s unfair

Just 26% of companies admit to having a company-wide consistent approach to performance management. Only 41% of respondents said their performance management system was effective at promoting equity.

More than half of HR and business leaders (59%) said they’re not using data to inform performance conversations and over half (55%) can’t spot high and low performers.

A misalignment of company goals

Moreover, while businesses spend a lot of time devising business strategies, only 29% are linking individuals’ performances to their goals and values.

In fact, only 40% of HR and business leaders say that clear expectations are currently set in performance management discussions.

HR leaders are not fans of performance ratings either, with 69% saying they should be abolished.

Lack of clarity in employee objectives

As one CFO said, we need to “set clear expectations for behaviour and performance and explain how success will be measured”.

Only 7% of companies said they currently provide ongoing reviews for pay and promotions, while 52% said their performance management processes aren’t valuable in assessing an individual’s performance, and only 44% are using their systems to identify skills gaps in their organisations.

In fact, with reviews only happening yearly, employees aren’t being given constructive feedback throughout the year.

Only 27% of HR leaders say ongoing feedback is collected continuously.

A waste of time?

Furthermore, HR leaders admitted that current performance management strategies are unnecessarily time consuming.

Only 39% say their current performance management systems are efficient for HR and managers’ time.

The future of performance management

The future lies in tech

HR and business leaders are unanimous when it comes to tech. 95% believe technology will enable successful performance management in the future.

“Technology toolkits are imperative, there is no alternative, not just to execute the performance management programmes, but also generate data that is precise and intelligent,” says one HR leader.

This is vital considering fewer than 60% (59%) of HR leaders today aren’t using data to inform performance conversations.

An equitable system

By having accurate visibility of the workforce, companies will be better placed to make decisions in promotion, compensation, succession planning, learning and development and closing skills gaps.

A staggering 89% of HR leaders said more and better data will be used to inform performance management in the future.

More than 80% say goals will be fairer across the board and compensation will be timelier e.g., delivered at project completion, instead of at the end of the year.

Currently, only a quarter (26%) of HR leaders say they currently have a company-wide consistent approach.

Aligning company goals

86% of HR leaders believe the focus will be less on hours worked and more on business output, and 84% believe goals will be more intrinsically linked to DEI in the future.

Over 70% of HR leaders believe the rigid nine-box grid to assess performance will become obsolete as companies become more flexible in their performance management.

In the future, 83% of companies will make their goals personal as well as professional.

The end of the annual review

In today’s fast-paced world, employees need constant monitoring, constructive feedback, open dialogue, and targeted training to ensure they’re hitting their goals and developing more quickly.

82% of HR leaders say continuous conversations will have replaced annual appraisals in the future and 83% say feedback will be automated.

Saving HR time

63% of HR leaders think they’ll spend significantly less time on performance management in the future, as the entire process becomes automated, freeing up valuable time for them to focus on employee experiences.

In fact, more than 80% of HR and business leaders told us that employee experiences and satisfaction will become even more of a focus as the HR function moves away from admin towards a more strategic and people-focussed role.

Solving performance management challenges: What companies need to do to get ahead

So, what does the data mean for HR leaders? What should be on HR’s agenda today?

First, automate performance management processes. 89% of HR leaders believe they will be fully automated in the future, freeing up HR’s time from admin.

Second, use insights to make fair and data-driven decisions. 86% of HR leaders believe performance management will be more objective in the future, reducing bias and inaccuracies.

Next, put feedback at the heart of what you do. Fewer than 30% of HR leaders say performance management is based on employee and manager feedback.

Make performance management more equitable. Just 43% of HR leaders say their current approach today is equitable. Without a fair and just system, it’s impossible to get the best out of your people.

Empower managers, too.

Fewer than 30% of companies say their performance management system is designed with input from employees and managers. Support your managers so they can continually have conversations and set clear expectations for employees.

Finally, bake performance into succession planning.

Just 37% of companies are using performance indicators to manage succession planning today and fewer than half combine succession planning with recruitment data to proactively highlight gaps.

Having accurate real-time data will enable HR and business leaders to plan more effectively.

With these steps, you can ensure you’re putting your employees at the heart of what you do, and truly listening to what they need.