Employee performance management is clearly becoming a problem for mid-size and larger businesses in the U.S. and Canada.

According to a Towers Watson survey published on December 9th, only 37% of North American companies replied that their performance management programs are effective. Moreover, a mere 26% reported their managers and employees are satisfied with their process. In fact, more than of the respondents said that employees and managers simply do not spend enough time and effort on performance management.

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performance management

That said, the TW survey also made it clear that despite the general dissatisfaction with their performance management programs, the majority of North American employers do not plan to phase out the use of employee performance ratings. Rather, the general consensus is review and revise the process, for example, replacing annual performance reviews with monthly or quarterly employee and manager meetings, redefining performance and potential as forward-looking, and bringing in new technologies to assist with evaluation.

The TW Talent Management and Rewards Pulse Survey was undertaken in October and November of 2015, and involved 169 large and midsize U.S. and Canadian firms representing a broad range of industries.

Statement from Towers Watson Managing Director

“For many organizations, performance management as we know it today is not working. These programs haven’t delivered on their promise to improve performance, and there are widespread signs of frustration among managers and employees,” commented Laura Sejen, a managing director in the Talent and Rewards practice at Towers Watson. “Employers recognize the importance of these programs and that significant changes, not tweaks, are needed. That said, most employers believe scrapping performance management programs, including the use of performance ratings, is not the solution.”

Details from TW performance management survey

Somewhat surprisingly, the survey indicated that only 8% of respondents have fully eliminated performance ratings, although a total of 29% are planning or are considering eliminating employee performance ratings. Exactly 50% of respondents said they have either changed or eliminated the typical annual performance review cycle in favor of more frequent interactions between employees and managers, or are considering it. Just over 72% have implemented new performance management technology, plan to, or are considering doing so. Close to 18% of responding firms said they are making or considering these changes because of changes in their business strategy. The companies that are making these changes say the reasons are are feedback from managers (77%) or employees (61%), and the need for more frequent employee and manager touch points (60%).

The survey also noted that many firms are rethinking the purpose and business alignment of performance management. Around 25% of businesses are moving toward a more future-oriented approach, focusing on employee performance achievement as well as future potential.

Reasons for poor performance management

The firms offered a variety of different reasons for their ineffective performance management programs. A solid 64% of respondents said they don’t believe their supervisors have the requisite skill set, and 56% say there is a lack of effective feedback. Another 51% replied that their managers simply don’t have the time to do a good job with employee performance management.

The TW survey also reported that 81% of employers say managers spend too little time in regular conversations with employees about their performance. Over 62% also say that managers spend insufficient time helping employees set goals. Also keep in mind that 63% of employers report their managers only spend four hours or less annually per employee on performance management.