ARLINGTON, VA, December 9, 2015 — Despite dissatisfaction with their performance management programs and attention-grabbing headlines, most North American employers have no intention of eliminating their use of performance ratings. Instead, many are making significant changes to fix the overall process, such as replacing annual performance review cycles with more frequent employee and manager interactions, applying a more future-oriented definition of performance and potential, and implementing new technology, according to a survey by global professional services company Towers Watson (NASDAQ: TW).

The Towers Watson survey found that less than four in 10 (37%) North American companies say their performance management programs are effective. Additionally, only a quarter (26%) say their managers and employees are satisfied with the process. Half of the respondents agree that employees and managers just don’t spend enough time on performance management.

“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,” said 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.”

Indeed, only 8% of respondents have eliminated performance ratings, although 29% are either planning to or are considering eliminating them. Half of respondents (50%) said they have either changed or eliminated the annual performance review cycle in favor of more frequent interactions between employees and managers, or are planning or considering this change. Nearly three-quarters (72%) have implemented new performance management technology, plan to, or will consider doing so. Only 18% of organizations indicated they are making or considering these changes in response to a change in their business model or business strategy. The most frequently cited reasons are feedback from managers (77%) or employees (61%), and the need to increase the frequency of employee and manager touch points (60%).

Other survey findings indicate that many companies are rethinking the purpose and business alignment of performance management altogether. Nearly a fourth of companies are taking a more future-oriented approach, changing the focus to include performance achievement and future potential.

“While too many organizations are still spending an inordinate amount of time making marginal improvements in the effectiveness and efficiency of their core performance management processes, the most progressive organizations are taking more of a forward-looking approach by including the possession of skills needed for future business success in both the performance management process and in pay decisions to increase the impact of performance management on the execution of their business models,” said Ravin Jesuthasan, managing director and global leader of Talent Management at Towers Watson.

Barriers to Effective Performance Management

The survey also identified several barriers contributing to ineffective performance management programs. Almost two-thirds (64%) of respondents don’t believe their managers and supervisors have the necessary skills, while just over a half (56%) say there is a lack of effective feedback. One half (51%) think managers don’t have the time to do performance management well.

“While most organizations are good at planning the strategy and design of their performance management programs, they are falling woefully short when it comes to executing on and delivering these programs,” said Jesuthasan. “We know from our research and consulting that a key element to effective performance management is having managers devote sufficient time and skill to the process. Unfortunately, managers who are pressed for time tend to give performance management a backseat and view it more as a compliance exercise. In part, this is a reflection of HR’s focus on measuring compliance rather than the quality of goals set or whether feedback and coaching are happening throughout the cycle.”

According to the survey, 81% of employers say managers spend too little time in ongoing conversations with employees about their performance. More than six in 10 (62%) also say that managers spend insufficient time helping employees set goals. Interestingly, 63% of employers say their managers spend four hours or less per employee on performance management each year.

“Getting performance management right shouldn’t be that difficult. Every organization can make its performance management program better and make it matter. But that will require companies to focus on how to best align their performance management process to the organization’s business strategy, while at the same time enhancing the key drivers of an effective program — manager effectiveness, process, communication, measurement and technology,” concluded Sejen.

About the Survey

The Towers Watson Talent Management and Rewards Pulse Survey was conducted in October and November 2015. A total of 169 large and midsize U.S. and Canadian employers representing a cross section of industries participated. Respondents were primarily HR executives.

About Towers Watson

Towers Watson (NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 16,000 associates around the world, the company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at towerswatson.com.