Organizations can achieve greater productivity and employee engagement with improved performance management, new research finds

Core Insights - Nearly half of organizations believe that optimizing performance management could boost productivity by at least 10% [2] - A significant number of organizations are integrating AI and skills into their performance management processes to enhance effectiveness [4][5] Performance Management Optimization - 39% of organizations report that their performance management processes effectively meet employee expectations for clear goals, regular feedback, and fair ratings [2] - Only 20% of organizations find managers effective in providing coaching and feedback, highlighting a gap in managerial capabilities [3] AI Integration - 37% of organizations are currently using AI in performance management, with goal setting (44%) and development plans (40%) being the most common applications [4] - A similar percentage of organizations are considering the adoption of AI to improve performance management processes [4] Skills Integration - 54% of organizations have incorporated skills into their performance management, primarily for learning and development (78%) and goal setting (40%) [5] - Only 18% of organizations utilize skills for pay decisions, indicating a potential area for growth [5] Performance Ratings - Approximately 45% of organizations use a five-point rating scale, with over half either having changed or considering changes to their rating scales [6] - Organizations are seeking simplification and fairness in performance ratings to enhance differentiation [6] Pay for Performance - High-performing employees receive merit increases that are more than twice as large compared to average performers at one-third of organizations [8] - The primary reasons for implementing pay for performance include rewarding high performers (68%) and motivating employees (53%) [8] Research Methodology - The findings are based on the 2025 Performance Management and Pay for Performance Virtual Focus Groups, which included 280 registrants for performance management and 208 for pay for performance [10]