In today’s business and economic environment, establishing an effective performance management approach is a major challenge for most organizations. This issue is compounded by talent scarcity (externally and internally) for capabilities that organizations need.
These challenges, along with recent headlines of global household names making key design changes to performance management, have elevated the question of “what do we do with performance management?” to the C-suite.
So what are organizations to do? Examining multiple Mercer studies, client engagements and global trends leads us to four principles that are necessary to maximize the impact of performance management.
For more than a decade, Mercer’s performance management research consistently has found that the number one driver of performance management effectiveness is manager skill. Our most recent global performance management study reveals HR leaders perceive that having candid dialogue has the biggest impact on the overall success of performance management. With this finding, it is not surprising that recent headlines on talent practices have emphasized design changes that favor more frequent discussions between managers and employees.
Though the importance of candid dialogue is often highlighted in best-practice research, Mercer’s statistical analyses provide new insights. Manager capability in two areas — setting goals and creating development plans — is actually even more important than having candid dialogue. In practice, a company’s performance culture should dictate the level of effort and time spent on goals, development, or both.
In weaker or developing performance cultures, effort should be placed first on establishing meaningful goals before focusing on development. If goals are not set on the right things, then development planning will likely take employees in the wrong direction. Job- and team-specific goals set the foundation for how employees contribute to business objectives, as well as for how employees can be deployed in the organization. In high-performing organizations, where there is an instinctive knowledge of what good performance looks like and goals are well defined, dialogue is of the most value when it focuses on the future and how the employee fits into that vision.