The study “Employee Performance Management Needs a Promotion,” conducted by Forrester Consulting on behalf of Workday, has surveyed more than 600 employee-performance decision makers in 14 countries, representing North America, Europe, and Asia Pacific. Not surprising to those who have been following the field of employee management, the study found that companies that embrace continuous performance management drive greater business value.
For example, those with monthly or ongoing performance check-ins are up to 1.5 times more effective at engaging and retaining employees than those with an annual process.
Many companies struggle to make major changes because salary and performance evaluations are inextricably linked.
The research and its findings are particularly relevant, given a recent report on the state of the global workforce, which found that 85 percent of employees are neither engaged or actively disengaged at work. Experts claim that the economic consequences of this global passivity are approximately $7 trillion in lost productivity. If only 15 percent of employees worldwide are engaged at work, organizations around the globe must drive employee productivity and motivate a workforce that has increasingly different expectations.
Performance Reviews Intrinsically Linked to Salary
This problem is systemic of traditional approaches to employee performance management, and the survey found that annual or semi-annual performance reviews are still the norm at 65 percent of companies. Many companies struggle to make major changes because salary and performance evaluations are inextricably linked.
“It’s quite clear from the research that there is a disconnect between how performance management is being handled and how people are being developed,” said Mark Judd, vice president of product strategy of EMEA at Workday.
Based on Forrester’s research findings, we identified three key areas around employee performance management that organizations should consider:
- Continuous performance enablement and process improvement drive competitive advantage. In analyzing how frequently employees and managers have a formal review discussion and how frequently business leaders look to fine-tune the process, the study found that companies that embrace continuous performance drive greater business value. Respondents deploying monthly or continuous performance reviews are 1.4x – 1.5x more effective at engaging and retaining employees than those with annual reviews. Technology is an important enabler of best-in-class employee performance management programs, but culture change is an essential parallel effort.
- Evolving employee performance management into a continuous, business-aligned initiative is increasingly a necessity. As companies seek to attract and retain top talent, they must continuously improve employee performance management. To enable this change, more than 75 percent are investing in more continuous, data-driven performance processes.
- While business-aligned metrics are common, most companies fail to embrace continuous performance methods. Enterprises strive to evaluate and incentivize strong performance in ways that are aligned with future business results, team collaboration, and career development. However, with annual or semi-annual performance reviews still the norm, continuous coaching is rare.
“Next-generation employee performance is about being forward-looking, business-aligned, collaborative, continuous, and engaging,” said Judd. “Workers are looking for ongoing dialogue and development with their employers, and a greater focus on building career experiences—elements which are not possible with the traditional annual performance review.”
Europe Leading, Asia Lagging on Continuous Performance Reviews
Interestingly, the research found that Europe is furthest along in the shift towards more frequent communication around performance. While 60 percent of European companies still conduct annual or semi-annual reviews, 39 percent have moved towards quarterly and monthly reviews. This was in direct contrast to Asia Pacific respondents, where performance management objectives were focused on company-wide goals and salary adjustments rather than individual employee development. Nearly seven in 10 Asia Pacific respondents (69 percent) said their company conducts annual or semi-annual performance evaluations.
North American Medium Enterprises Embracing Ongoing Reviews
North America, more than other regions, sees a split in methodology for large and medium enterprises. Large enterprises are more likely to have more traditional performance management processes in place: annual and semi-annual employee reviews that align with cyclical business needs like salary reviews and goal measurement. Meanwhile, quarterly evaluations are more common at medium U.S. enterprises and the top drivers for review cadence include employee development and evaluation of project performance. You can read more on how medium enterprises around the world conduct performance management in the previous blog in this series.
For more on these findings and the full survey results, read “Employee Performance Management Needs A Promotion,” a February 2018 commissioned study conducted by Forrester Consulting on behalf of Workday.
Read the second blog in this series, “Global Study: Medium Enterprises Seek More Agile Performance Management,” to learn how medium enterprises are evolving their approach to employee performance management, and the areas where they fall short.
Want to understand how organizations are transforming the performance review from an annual chore to a more continuous value driver? You can learn more at Workday Rising, where Greg Pryor, SVP People and Performance Evangelist, along with guest speaker David K. Johnson, Principal Analyst, Forrester Research, will be discussing this research.