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The Facts About Performance Management

Good performance management is critical to maximizing employee engagement and productivity. Studies of performance management show clear benefits for both employees and employers when feedback is handled well.

For example, companies see 14.9% lower turnover rates for employees who receive regular feedback than for employees who do not. Even better, Gallup has found that units with managers who received good feedback had 8.9% greater profitability than units with managers who did not.

But it’s also clear that most organizations struggle in this domain. Overwhelming numbers of managers and employees are skeptical about the effectiveness of their current performance management processes. Deloitte says that only 8% of companies believe their performance management process to be highly effective in driving value. Meanwhile, fully 95% of managers say they are “unhappy” with how their organizations handle performance management.

One clear area where there’s room for improvement: feedback needs to be about more than just criticism. Positive recognition of employee performance has a strong relationship with employee happiness, engagement, and loyalty. Over two-thirds (69%) of employees report that they would work harder if only their work was better recognized.

Another area for improvement: everyone dreads annual performance reviews. Managers spend endless hours working on these, and employees would rather be sick than undergo their performance review (in fact, 22% of employees have actually called in sick rather than face a review).

So, what can organizations do?

1. Any performance management activity – whether it’s a formal review or informal, off-the-cuff feedback – needs to be timely and ongoing. Waiting means it’s too late to do any good.

2. Performance management needs to address both successes and failures. Without speaking to the employee’s weaknesses, he or she will never grow and improve. However, if that’s the entire focus of the feedback, the employee may come to feel resentful and undervalued. Positive reinforcement and recognition are just as critical as constructive criticism.

3. Objectivity is also important. One study found that an average of 62% of a rater’s score on a performance review had more to do with their own personal idiosyncrasies than the employee’s work. And employees know when that’s the case, which may be why 51% of employees believe annual reviews are inaccurate. And if employees don’t believe their reviews are correct, nothing will improve.


CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about our ability to create a strategic HR function in your business that drives business growth potential, contact us today.

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