www.pwc.

nl

The changing
performance
management
paradigm: evolution
or revolution?
Is there a future for
performance management?
October 2015

At PwC in Austria, Belgium, Germany and

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Contents
Introduction

Executive summary

Innovate beyond, as well as within, existing frameworks

Over-service the executive population when setting and drafting goals

13

Drive more effective conversations targeting both managers and employees

15

Go digital to encourage real-time feedback, but with structure

17

Start with the Why connect purpose and performance

19

Snapshot of survey findings

21

Conclusion

23

Survey demographics

24

Read more

25

PwCs Leading People and Organisation practice

26

Contacts

27

Is there a future for performance management? 3

Introduction
Within the context of disruptive
innovations and rapidly changing
business environments, performance
management has recently become one
of the most debated topics with the
HR arena. Some organisations have
thrown their traditional performance
management system out of the window
and have adopted a completely new
approach. Other organisations are
rethinking their current framework,
considering one or more changes. From
our research it appears there is no need
to build the case for change: about
90 per cent of surveyed organisations
made major changes in the past two
years or are planning multiple changes
in the next 12 months.

With all this change occurring, PwC wanted to build a stronger base of evidence on the
state of performance management today. It feels as if everyone is planning some radical
changes. This sentiment, together with common employee frustration with performance
management, is leading to widespread framework reviews. But how much change is really
needed, or occurring as a result?
Based on the recent debate on performance management, you may be inclined to
conclude that (i) performance management systems are completely broken, and (ii)
drastic changes are underway. Either one or both of these statements may hold true for
some organisations abolishing the traditional system may then be the right choice from
a business perspective. However, our survey reveals a somewhat different landscape for
large employers in the Netherlands in line with other international PwC surveys on this
topic:
Firstly, whilst many large listed organisations agree that they could improve the execution
of their performance management system, about two thirds believe their system effectively
contributes to strategic, commercial and operational outcomes.
Secondly, organisations are keeping the existing frameworks but tweaking them to
make them leaner and more impactful, for example by simplifying the mid-year review,
improving the goal setting process and/or introducing more frequent feedback throughout
the performance year. Such changes are also triggered and supported by the increased
technological abilities and digitalisation of the performance management process,
allowing for real-time reviews and a simplified process.
The above leads to the conclusion that in terms of fundamental change to performance
management in the Netherlands, organisations that abandon traditional performance
management approaches are still first movers. In that perspective, we believe innovation
in performance management approaches may be justified, but only if such innovation is
aligned with the organisations business needs and connected with its purpose and values.
Values and value creation as a shared singularity rather than a balancing act. This also
requires companies to embed their performance management approach in the broader HR
agenda. Therefore, in our view the further evolution of performance management requires
the adoption of 3 significant themes:

Connection with the business: The majority of the organisations surveyed perceive
performance management as crucial for, or supportive to, a high-performing organisation.
This is consistent with the research of The Conference Board that high performing
organisations are recognised for excellence in combining strong financial management
with strong people management. Changes to the performance management practices are,
therefore, crucial to the success of the organisation going forward.
Agile processes: With companies making changes to their organisation structures e.g.
working in hubs, tribes, clans to provide for better resource planning and foster more
teamwork and flexibility, there is a need for more real-time, more evidence based and less
top down performance management. This is facilitated by the further digitalisation of HR
management.
Alignment of HR: These developments require the further alignment of the various
HR expert teams in order to deliver a consistent model. Especially further alignment of
reward, performance management and talent management is required to excel in people
management and ensure a continuous connection with the business.
Notwithstanding our above views on the future, this report summarises what most
organisations are actually doing now which is enhancing existing frameworks. We,
therefore, hope that this report will provide comfort that you are not alone in choosing
evolution rather than revolution, but will also give you the confidence to push for a more
radical change in your organisation if your business and culture requires to do so.

Tommes Krullaars
Janet Visbeen

Executive summary
Five themes emerged from both our
research and experience of the most
common issues companies face with their
performance management. We explored
the implications of these themes and what
companies are planning to do, or could do,
to solve their problems. Our key findings
and recommendations in relation to the
five themes are presented below.

Innovate beyond, as well as within,

existing frameworks

Our findings:
The vast majority of survey respondents retain the key
process steps associated with traditional performance
management systems.
Radical change to performance management is
not widely seen yet in large organisations rather
innovations to existing elements.
The more radical changes include removing
performance ratings altogether, removing the link to
reward and abandoning the annual review cycle.

Our recommendations:
Review current practices and whether these are
effective in the various businesses and regional
markets.
Think bold and create opportunity for business
aligned, evidence based innovation, but dont innovate
for innovations sake. Changing your performance
management is also likely to affect your reward
practices, talent management, organisational culture
etc. Therefore, refrain from fundamental changes if
they do not serve business need or do not contribute to
a high-performing organisation and are supported by
your organisational design.
Be realistic about your organisations requirements and
capabilities and the steps necessary to implement a
change.
Establish measures to support the case for change,
quantify impacts and report on these. Test and correct
if desired results are not being observed.

6 The changing performance management paradigm: evolution or revolution?

Over-service the executive

population when setting
and drafting goals

Drive more effective

conversations targeting both
managers and employees

Go digital to encourage
real-time feedback, but
with structure

Our findings:
While all survey participants said
they use SMART goals, our work with
clients suggest that less than a third of
goals are typically SMART in practice.
The benefits of goal setting are well
proven; organisations are recognising
that to improve the effectiveness of
goal setting, they need to start from
the top.
Companies are particularly focussed
on change that targets the executive
population to improve alignment
of goals to business strategy, and
enhance the quality of those goals.
Capability development is typically
focussed on managers rather than
employees.

Our findings:
Around 70 per cent of the surveyed
organisations see line managers not
prioritising performance management
conversations and feedback.
Building line manager capability is a focus
area for more than half of the companies,
but only 22 per cent intend to improve
their coaching and feedback in the next
12months.
While most organisations emphasised HR
and senior leadership being responsible for
performance management effectiveness,
approximately 60 per cent of employees
participating in the international survey1
believe they are equally responsible.

Our findings:
Most organisations are deemphasising the mid-year review
meeting to encourage more regular
feedback.
Technology is being utilised to
support frequent and multi-source
feedback.
Companies are commonly using
two approaches to enhance the
feedback experience: open and
honest feedback driven by values,
and rapid feedback driven by
technology.

Our recommendations:
Distil business strategy into simple
actionable measures and values
that allow for a culture of rigor and
standards.
Hold leaders accountable to set clear
goals and create effective teams.
Foster a culture of entrepreneurship
and innovation through facilitated
goal setting workshops that include
cross-functional representation and
that allows to learn from failure.
Use scalable tools like publishing
executive goals and balanced
scorecards to cascade goals in a cost
effective manner.
Provide additional support and
conduct spot audits to ensure quality
of goals and associated targets.

Our recommendations:
Hold leaders accountable to ensure clear
and consistent messages and objectives.
Building line manager capability is costly so
it is important to consider how to scale and
apply it across the different parts of your
organisation.
Invest in increasing management capability
to increase team and employee engagement.
Separate performance and development
discussions.

Our recommendations:
Create rationale for more frequent
feedback sessions (e.g. monthly
performance/development topics).
Consider using technology to
enable providing feedback instantly
and more frequently.
Provide structure (e.g. periodical
performance themes) to avoid the
waffle and unhelpful feedback.
Use feedback to support business
ownership at the unit or team level,
supported by reward structures.

Refer to Survey demographics on page 24 of this report.

Is there a future for performance management? 7

Start with the Why

connect purpose and
performance
Our findings:
Building a high performance culture
starts with a clear connection between
purpose and performance. Once
clear on its purpose, an organisation
can determine the core values and
beliefs that reinforce this purpose.
Together with the business strategy,
these elements form the basis of an
organisations moral compass and
provide a reference point for managing
performance.
All respondents recognised the
impact of the following factors on
the performance culture of their
organisation:

Our recommendations:
Be clear on your purpose and values, and
connect these to performance.
Understand current practices around
giving feedback (frequency, quality,
preparation, etc.) and consider using
(digital) technology to encourage realtime feedback throughout the year.
Consider the high impact of leadership
on the performance culture of your
organisation. Empower leaders to
embed a values-based approach to
performance management year round
during feedback conversations, goal
setting and performance reviews.
Ensure that the desired performance
culture and beliefs is matched by
actual experience. Performance
differentiation is, therefore, an

leadership
engagement
development
values and beliefs
simplicity of objectives
frequency of feedback
talent assessment
differentiation of performance, and
reward and recognition.

The factors that were considered

to have the greatest impact on

the performance culture of the
organisation were:
feedback: quality and frequency
of performance feedback given to
employees throughout the year

essential feature of high performing

organisations. Determine what this
differentiation looks like for high
and low performers within your
organisation.
Use the insights from research into the
key success factors of high-performing
organisations, that is, the common
elements and strategies that are
characteristic for such organisations.
For instance, studies of high
performing organisations show that
a culture of rigor and accountability
is required to successfully execute the
organisations business strategy.

8 The changing performance management paradigm: evolution or revolution?

leadership: leading with a clear

purpose, vision and business

strategy, visibility of role models
and tone at the top
agility: differentiation of high and
low performance, and
reward and recognition associated
with performance.

Innovate beyond, as well as within, existing

frameworks
Innovative performance management approaches are exciting. They present the possibility of authentic
connection to strategy, selfless collaboration and increased employee engagement everybody wants to
do performance management here!

And yet truly innovative

approaches are still rare
Historically, performance management frameworks
in large listed organisations had these steps:
performance planning during which KPIs were
mutually agreed, a mid-year and annual review,
calibration to finalise annual performance rating
and determination of an annual bonus through the
performance rating. Our research confirms that most
performance management systems still follow these
same steps.

We will embark on a new performance

management scheme: new definitions of
behaviour, simplification of rating scale,
introduction of performance reviews after
milestones or projects and integration in a new
HR information system.
While innovative approaches are not yet mainstream,
we do expect to see more sensible innovation, both
inside and outside of existing frameworks within the
next 12 months. Given the world of work has changed
so substantially since traditional performance
management systems were introduced, we believe
there is room for bolder approaches to be considered.
However, a little scepticism may be wise:
Beware of the sample of one when exciting
results appear from companies breaking the
mould, be cautious of one-hit wonders riding
good luck and self-promotion rather than good
management.
There is no silver bullet that applies to all
many stories of truly innovative approaches to
performance management are coming from small
to medium high tech organisations. A radical
approach doesnt necessarily make sense for all.
Ensure your changes are fit-for-purpose, i.e. driven
by business needs.

Nurture new approaches carefully and realistically.

Dont be led so much by where you want to be in
best practice that you miss out on important steps
on the journey. It is important to be realistic about
your organisations capabilities.

Seven innovative practices

The seven innovative practices below signal a move

away from traditional performance management
systems. They are listed as related trends that are
getting more substantial traction, along with details
of where they tend to work well and risks to manage
upon implementation. Innovations within existing
performance management frameworks are outlined in
more detail under the upcoming themes.

 bandoning the annual performance

A
review cycle

What:
Shortening of review periods or de-linking from a
standard cycle altogether, moving to continuous
feedback
Why:
-- Creates flexibility for line managers and employees
to link the review to a specific business objective,
project, assignment or milestone enabling
alignment with the real pace of business
-- Removes the complex, time-consuming annual
performance management processes, in particular
the year-end performance reviews
Works well where:
-- The focus is already on or can be shifted
to continuous employee development and
performance improvement
Be aware of:
-- Active performance reviews and difficult, robust
conversations on performance will not happen
with some managers where there is no clear
structure and/or hard deadlines
-- May not be effective or perceived as equitable
where compensation decisions (fixed, variable) are
tied to annual review results

Is there a future for performance management? 9

 eleasing the focus on evaluation and

R
appraisal

What:
Putting less emphasis on the backward-looking
assessment, i.e. year-end appraisal against fixed
goals, aiming for a forward-looking approach with
dynamic, agile goalsetting and regular conversations
on development and performance
Why:
-- The traditional appraisal process includes a
year-end rating, often setting the tone of the
conversation that managers are reluctant to have
and employees do not like either. The governance
and rules around ratings can erode fairness and
trust, which are essential for employee loyalty and
engagement
-- Robust conversations on performance need to
happen, but there seems to be a case for having
these conversations in the moment, providing
real-time feedback and focusing on future growth
rather than past performance
-- Agile goalsetting creates more flexibility both
from a business perspective as from an individual
employees development perspective

Works well where:

-- Organisations with medium to high coaching
capability
-- Dynamic business environments where
adaptability and an agile workforce is key
-- Organisations are ready to adopt a more dynamic
performance appraisal process and encourage
commitment and participation in an improved
process from different stakeholders: senior
leaders, HR, line managers and employees
-- Organisations with a higher proportion of younger
workers; millennials favour career development
and embedding behaviours they favour work-life
balance over money and reject formal corporate
structures
Be aware of:
-- Need for an economical and sustainable way of
deploying coaching capability
-- Requires strong change management skills for this
approach to succeed
-- Fair allocation of annual variable pay pool still
requires relative ranking of individual employees
on performance, potential and critical skills

We will not change the

current framework,
but rather adjust it by
tweaking some bits and
pieces.

Assuming Performance Management in your organisation is currently an annual cycle and this cycle were discontinued, what
would be most effective in your view?

A bi-annual cycle (i.e. 2 times a year)

0%

Appropriate job-related cycle (e.g. at the end of a specific project

and/or achievement of a milestone for a project manager)

44%

Real-time (i.e. direct feedback by anyone, anytime, anywhere)

44%

Do not know

11%
0%

10 The changing performance management paradigm: evolution or revolution?

10%

20%

30%

40%

50%

 implifying the process supported by

S
tools and technology

What:
Getting rid of the complex, time-consuming and
potentially bureaucratic performance management
process moving towards easy, direct solutions
supported by tools and technology (e.g. online realtime feedback and engagement)
Why:
-- Belief that there is an imbalance between the
total time spent on traditional performance
management process and the ultimate return on
that time investment
-- The need for a fresh perspective on what purpose
performance management should serve, i.e.
essential business needs. A radical change of the
business model may make it necessary to go back
to the drawing board
-- The search for powerful and compelling tools
providing immediate feedback for meaningful
conversations in the moment
Works well where:
-- The current process is perceived as unnecessarily
complex, time-consuming and burdensome
-- Employees are curious, eager to learn, openminded and skilled in the use of software tools
Be aware of:
Throwing the baby out with the bath water,
i.e. abandoning the process altogether before
setting the basics for a new performance culture
Over-engineering and/or over-emphasising
the role of technology, e.g. a wide use of a 360
degrees feedback tool

 emoving individual performance

R
ratings

What:
Removing individual year-end performance ratings,
in any case forced distribution rankings, allowing
the performance discussion to become a meaningful
conversation on personal development and career
progress
Why:
-- Avoids the negative consequences of being
judged: disengagement, fixed mindset,
demotivation
-- Creates a culture that learns from failure
-- Studies show that people are more effective at
laddering (i.e. ranking) employees rather than
rating them
Works well where:
-- Organisations or business units with a high
fixed to variable pay ratio, i.e. relatively (and/or
absolutely) low incentives
-- High talent populations, e.g. Netflix, Atlassian,
who pay top of market for fixed pay and are
recognised as employer of choice
Be aware of:
-- Opening the door to bias: absence of structure
leads to managers projecting their own potentially
biased rules
-- Allocating incentives is harder without individual
rankings
-- Removing the official ranking system may result in
an unofficial ranking system

Is there a future for performance management? 11

 hanging the link between pay and

C
performance

5A Strengthening the pay-performance link

What:
Performance and reward cycles are shortened from
the annual cycle, e.g. incentives are paid quarterly or
immediately following an event
Why:
-- Annual cycles impose an artificial and arbitrary
time horizon and are not necessarily aligned with
the needs of the business
-- Possibility to recognise extraordinary performance
shortly / immediately
Works well where:
-- There is an accurate and efficient measurement
and payroll processes
-- There are natural performance cycles, e.g. project
based or based on monthly / quarterly results
Be aware of:
-- Increase of administrative burden
-- Risks decoupling with organisations results
5B Separating pay and performance
What:
Retaining performance management practices, but
removing incentive payments and/or standard fixed
pay increases
Why:
-- Incentive systems may include perverse stimuli
and drive pursuit of short-term company
performance at the expense of customers
Works well where:
-- In business environments where trust is a
competitive advantage
-- Recognition and reward may be in conflict with
better customer outcomes
Be aware of:
-- Removes a key impetus for performance
management to happen. 82 per cent of the
respondents indicate that the effect of linking
reward to performance ratings forces the
performance management process to be taken
seriously by all parties
-- Requires more flexibility in fixed pay practices and
potentially increases fixed costs

Gaining insights from data

What:
Using the results of various technology-supported
tools to analyse the individual employees
performance and potential, in particular relative to
his/her peers. For example: interim appraisals upon
closing of a project, input from periodical check-ins,
performance snapshots, real-time feedback, 360
degrees instruments

12 The changing performance management paradigm: evolution or revolution?

Why:
-- Collecting relevant data throughout the year
provides a more objective and reliable basis for
meaningful conversations on performance than
the traditional ranking and rating at year end
Works well where:
-- Organisations have decided to consider
improvement of performance as a continuous,
ongoing process that also requires frequent input
-- People are eager to use new technology and tools
to boost their own performance and that of the
teams they work in
Be aware of:
-- Over-engineering technology and tools, e.g. a onesided emphasis on data
-- Giving insufficient attention to one-on-one
conversations

I ntegrating various people challenges

driving business performance

What:
Moving from performance management as a HR
silo instrument to a holistic approach to deal
with different people challenges in an integrated
manner, using broader tooling: engagement,
talent management, learning and development,
recruitment and retention, compensation and
benefits, workforce agility and eventually improved
alignment with business performance
Why:
-- Its not the performance management system as
such that counts, but the purpose it should serve:
performance of people and business, so alignment
with the business and integration with other
people challenges is key
-- Performance is not the exclusive domain of HR
Works well where:
-- Fast growing organisations
-- Organisations faced with different people
challenges
Be aware of:
-- Good stakeholder management
-- Sharing ownership without giving up the drivers
seat
The above innovative practices can also be used
to improve an existing performance management
framework. Such improvements usually relate
to process, execution (discipline), and use of
technology. We will outline innovations within
current frameworks in more detail under the
upcoming themes.

Over-service the executive population when

setting and drafting goals
Goals matter. Academic research on goal setting has shown that goal-setting theory is
among the most valid and practical theories of employee motivation in organisational
psychology. From a motivational perspective, an assigned goal is as effective as one that is
set participatively provided that the purpose or rationale for the goal is given. However, if
the goal is assigned tersely (e.g. Do this . . . ) without explanation, it leads to performance
that is significantly lower than for a participatively set goal.
Goal setting is not easy, however. Many of the planned
changes reported by and discussed with survey
participants focussed on improving alignment of goals
to business strategy and on enhancing the quality
of those goals. For example, many organisations
were introducing a start of year calibration step to
minimise gaps between business plans and individual
performance agreements and more structured
goal setting processes to ensure cross-functional
alignment. As regards the quality of goals, all survey
participants said they use SMART goals, however,
our work with clients shows that the majority of
employees goals are not SMART in practice. One
organisation had a third of employee goals not being
SMART in practice and 38 per cent of its employees
using goals with an objective marked as to be
confirmed or to be agreed two months before the
end of its performance year.
In our research, we found that companies prioritising
goal setting were deliberately spending much more
time on goal setting for the top two to three layers of
their organisation and less time on how they might
cascade goals elsewhere. They recognised that the
senior management team offered the most leverage:
get their goals right and the rest of the business will
follow their lead. But if their goals are not right, the
business is back to square one. Key to the success of
this approach is to hold executives accountable for
setting clear goals.

Align the executive population

Based on interviews with respondents of PwCs
international surveys, top practices included:

Dissect strategy into actionable measures:

business strategies are often ethereal. To create
clarity and consistency, some companies were tasking
multidisciplinary teams to translate the strategy and
culture into actionable measures and values, e.g. KPI
libraries.
Foster business ownership (with support): it is
important for the business to own the process and
its outcomes and HR enabled this using a common
cascading and alignment approach. Respondents
indicate that (i) the execution of performance
management is a shared responsibility of senior
leaders, line managers, HR and employees, but (ii)
the management board and HR are more or less
equally accountable for the effectiveness thereof.
While the business needs to drive performance
management, HR is still expected to provide the
support and system.
Tightly manage the vertical and horizontal
alignment of senior leader goals: establish and
manage the process of setting aligned goals for
senior management. Emphasise strategic alignment,
horizontal alignment and quality drafting of goals.
Structure collaboration across business areas:
set horizontally aligned goals to deliver network
performance and in service of the customer. Some
companies are doing this using collaborative goal
setting sessions, including examples of cross-business
unit representation.

Is there a future for performance management? 13

Review goals using different lenses: goal

drafting can be surprisingly poor across executives.
To encourage sharing and feedback in a safe
environment, one company used personas at its goal
sharing sessions, in which the participants adopted a
set evaluation role, e.g. customer alignment of goals.

Adopt a scalable approach for

other employees

It is often too costly to oversee a thorough goal

alignment process beyond the top few layers of
management. Companies focused on aligning goals
further down the organisation adopted some or all of
the following practices:

Publish executives goals: share goals on intranet

sites/goal templates for other staff to reference
and test alignment, as do global companies such
as Google and Juniper.

Use balanced scorecards: provide a consistent

framework to cascade goals. 18 per cent of the
companies surveyed in the Netherlands use
balanced scorecards when setting performance
objectives.

Encourage staff buy-in: But purely top-down

approaches will fail if staff do not buy-in

sufficiently. Self-directed goal setting that is
aligned to strategic objectives is most effective at
engaging employees. But where companies push
goals to employees, it was vital for leaders to
discuss why the goals were relevant.

14 The changing performance management paradigm: evolution or revolution?

Drive more effective conversations

targeting both managers and employees
Effective coaching conversations are widely seen as a key objective of performance management.
However, line managers often lack the resources and capabilities to lead strong coaching conversations
because they do not have the time and because other priorities in performance management get in the
way.
69 per cent of employee respondents in our
international surveys see line managers not
prioritising performance management conversations
and feedback as an issue.

feedback in the next 12 months. When we asked more

about these intentions, many said they particularly
wanted to develop line manager capability in the
coaching conversation.

This directly impacts employees. When we gave

employees the option of prioritising two changes
to the performance management system in their
organisation, half said that receiving more effective
coaching and feedback was the most important
change they would make, rating it ahead of the link
to reward (43 per cent) and a better performance
definition (29 per cent).

For example:

Getting better at the coaching conversation is clearly

the focus for our surveyed companies, with 46
per cent intending to improve their coaching and

Prioritise from the top

Two-thirds of companies who see performance

management as an effective enabler discuss it as
a strategic people priority at board level. Where
boards are also accountable for the effectiveness of
performance management, line managers are much
more likely to prioritise performance management
conversations and feedback (44 per cent versus 11 per
cent).

Look for sustainable approaches

Improving coaching tends to be a resource intensive

approach for companies. While some companies
make substantial investments in coaching employees,
others look for more economical approaches: digital
solutions (videos, online courses) and/or coaching
guides for specific conversations.
Whatever the approach, it is important to consider
how to scale and apply it across the different parts of
your organisation. And to think through how you can
maintain the chosen approach over the long term.

Work on people
leaders ability to
have constructive
conversations.

Who is accountable for the effectiveness of performance management in your organisation? Please select all that apply:

The Management Board

Senior leaders
Line managers
HR
All employees
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Is there a future for performance management? 15

Include employees when

improving performance
management capability

More employees seem ready to play a greater role

than expected in driving performance management.
When asked who they see as accountable for
the effectiveness of performance management,
companies tend to emphasise the role of senior
leadership, line managers and HR. On the other
hand, 61 per cent of the employee participants in
our international surveys said employees should be
accountable for its effectiveness, followed by senior
leaders (53 per cent) and line managers (47 per
cent).

Focus on line manager

capability training.

Companies sharing the view that all employees

are accountable for the success of performance
management also tend to enjoy greater success in the
execution of the system:
For companies who describe their performance
management as highly effective, 75 per cent see
all employees as accountable.
For companies who rate their overall execution as
somewhat effective, 50 per cent see all employees
as accountable.
While 65 per cent of companies try to improve
the capability of their line managers, only 42 per
cent invest in building capability for all employees.
Creating employee engagement in the process
correlates strongly with successful performance
management, so it is vital to include a focus on
employees and give them the attention needed.

How is performance management discussed at the level of the Management Board?

As a strategic people
priority for monitoring and
improvement

33%

As a part of the annual

performance and reward
outcome

67%

Provide line managers

with skill development
in assessment and
performance feedback.

16 The changing performance management paradigm: evolution or revolution?

Go digital to encourage real-time feedback,

but with structure
Successful coaches in all sports and at all levels know that delivering feedback in the moment is essential
for improving performance. From a halftime huddle to comments from the side-lines, players receive
constructive feedback and praise from their coaches while the game is being played.
No winning coach who would hold off on all feedback
until post-game, and it is virtually unimaginable that
a coach would keep quiet until the end of the season.
And yet that is exactly what many organisations do by
saving feedback on employee performance for a oncea-year review.

Provide timely feedback

The timing of feedback matters, in sports, in learning

new skills and in improving performance in just
about every area. For example, when presenting do

you move your hands too much? Is your eye contact

strong and consistent? Do you appear distracted at
meetings? It is much more likely that you will improve
your performance if you get immediate feedback
rather than waiting until later for it. While some
organisations emphasised open and honest feedback
via their values, others emphasised rapid feedback
and were investing in tooling and technology (e.g.
mobile apps, web-based feedback, social media crowdsourcing platforms, Yammer).

Changes planned in the next 12 months

Make 360 feedback more targeted

and customised to different roles
and levels.

Introducing a feedback tool to

capture real-time feedback across
employees for ongoing development
discussions to support performance.

Trialling some mobile and other

technology to provide real-time
feedback either publicly or privately
on employees performance at any
time.

Integrating bias assessments into

annual process to provide more
real-time feedback into how ratings
are playing out.

Looking to decouple
development and
performance conversations
as these contaminate one
another.

New online performance

management system
deployed to replace various
e-mail based processes.

Allowing for more timely feedback

based on business activities.

Is there a future for performance management? 17

These changes were also seen as helping to make the

feedback a more socially rewarding and engaging
process.

absent from feedback systems, such as in systems

that use likes or high fives as a form of feedback,
they quickly become stale.

Other planned changes include:

Separate your development and

performance discussions

Use technology but provide

structure

While more rapid feedback is valuable, several

respondents noted that feedback sessions could take
a lot of time and were often poor quality.
More structure can improve the value of the
feedback, focussing it and speeding it up. We saw this
in some companies conducting 360 reviews, which
prompted respondents with two questions related
specifically to them and their roles.
Periodical performance themes are another
approach, where a particular theme (e.g. customer
centricity, safety) is adopted as a performance
focus for a set period of time. This approach forces
employees, and those providing feedback, to focus
on a tight number of important measures until these
are embedded as behaviours. Engaging employees
and people managers in this way can drive a key
change, but it needs performance management to
be generally effective already. There is also a higher
onus on HR to embed the change over time. Once a
performance theme has been successfully embedded
into behaviours, a new theme can be introduced.

Keep feedback relevant by design

The relevance and longevity of a digital feedback

mechanism is affected by its design. For example,
gamification principles suggest that longevity can
be increased by incorporating a sense of progression
and the ability to increase status. An example of
progression is a company structuring its feedback
around its capability framework: employees are
assessed against the capabilities for their role and,
where they achieve above their current level, are
more likely to be promoted. Where progression is

18 The changing performance management paradigm: evolution or revolution?

Getting feedback on development and performance

at the same time creates noise for the receiver of the
feedback. These are separate but highly important
and emotionally charged parts of performance
management. Talking about them at the same time
can cloud the real issues. We are now seeing many
companies separate the conversations on these
topics: focus midyear discussions on development
and end of year ones on performance.

Focus feedback for growth

How you frame feedback also affects its impact.

Feedback focused on personal attributes
intelligence, capability, charisma actually
encourages risk aversion as people grow concerned
about being found out. Feedback that focuses
on the processes that people engaged in effort,
strategies, persistence encourages people to
develop themselves and take on more stretching
objectives. Again, another reason to provide structure
to ensure real-time feedback is offered in a way that
is consistent with a growth mindset rather than a
fixed mindset.

Start with the Why connect purpose and

performance
Building a high performance culture starts with a clear connection between purpose and performance.
An organisations purpose is founded in its reason for being. Purpose addresses the why and seeks to
understand an organisations role in society. Once clear on its purpose, an organisation can determine
the core values and beliefs that reinforce this purpose. Together with the business strategy, these
elements form the basis of an organisations moral compass and provide a reference point for managing
performance.
In our view, high performance is an outcome of
a culture founded on purpose and values. The
alignment between purpose and performance
empowers leaders to take a values-based approach
to performance management. For example, good
performance conversations begin with purpose and
connect to performance. The same can be true for
other components of performance management, such
as goal setting, performance reviews and the link to
reward.
For this reason, when concentrating solely on
performance processes and systems, the bigger
picture can often be overlooked. Processes and
systems are an important dimension of cultural
change, but only one perspective1. To be firmly
anchored within an organisations culture and aligned
with business needs, performance management must
also align with an organisations purpose, values and
beliefs.
All respondents recognised the impact of the
following factors on the performance culture of their
organisation:
leadership
engagement
development
values and beliefs
simplicity of objectives
frequency of feedback
talent assessment
differentiation of performance, and
reward and recognition.

The factors that were considered to have the greatest

impact on the performance culture of the organisation
were:
feedback: quality and frequency of performance
feedback given to employees throughout the year
leadership: leading with a clear purpose, vision
and business strategy, visibility of role models and
tone at the top
agility: differentiation of high and low
performance, and
reward and recognition associated with
performance.

DNA elements and strategies of

high-performing organisations

The Conference Board provides a diagnostic tool,

Elements of High-Performing Organizations The
15 strategies associated with increasing levels of high
performance in an organisation. This diagnostic tool is
one offering from a suite of research products on the
common elements the DNA of high-performing
organisations. See www.conferenceboard.org/highperforming-organization.

Companies need to build the internal

capability to deal with a world where
volatility, uncertainty, complexity and
ambiguity are the new normal (a VUCA
world). In such a world, employees as well
as leaders must be strategic, innovative,
agile, and resilient while delivering an
increasing level of performance just to remain
competitive. We explore the competitive
advantage for companies where CEOs,
CHROs, and human capital professionals
partner to deliver results; how higher
performance delivers greater impact; and
how organizations build a high-performance
culture.
The Conference Board

Time to get real on culture! Restoring trust in the financial sector, PwC, February 2015,
www.pwc.nl/nl/assets/documents/pwc-time-to-get-real-on-culture.pdf

Is there a future for performance management? 19

Of the above 15 strategies, Require managers

to set clear goals and manage performance and
Align rewards and recognition to support business
strategy have a clear connection to performance
management. However, embedding a high
performance culture requires a focus on how these
strategies are achieved. This means being explicit
about the values and behaviour expected or desired
during execution (the how).

Respond to underperformance

An important feature for employee engagement

in high-performing organisations is addressing
underperformance in an adequate manner. 56 per
cent of respondents indicated that their organisation
is quite agile in responding to employee
underperformance, whilst 33 per cent said they were
agile to some extent.

Three core elements

15 strategies to build a
high-performing organisation
Execute strategies in an
operationally efficient manner
Create a culture of rigor and
standards for financial stability
(strong financial management)
Require processes around fiscal
management, oversight, and
decision making

Align organisational structure

to support business strategy

Alignment of
business and
people to execute
business strategies

Create a strong
customer-centric culture
Focus organisations processes and
products toward customer needs

Deliver high quality products

and services
Strong customer
focus: put
customer needs
first (a customer
mindset)

Develop a global mindset

among leaders
Help managers create
effective teams *

Provide learning and development

opportunities to employees at all
levels

Create and maintain a culture

of accountability

Require managers to set clear goals

and manage performance

Alignment of
organisational and
business capabilities
to support critical
business objectives

Attract and retain talent through

strong brand and reputation
Raise employee engagement to
drive productivity
Align rewards and recognition to
support business strategy

* PwC research shows that goal alignment, structural clarity, constructive behaviour and
change agility are common characteristics of High Performing Teams

20 The changing performance management paradigm: evolution or revolution?

Snapshot of survey findings

Performance management:
not outstanding, but far from
hopeless

Survey respondents reported a number of concerns

with their performance management approaches.
However, many also said that performance
management positively contributed to business
performance and shied away from disbanding
performance management altogether.
The overall execution of the performance
management process is considered to be somewhat
effective (56 per cent). On balance, performance
management appears to be partially meeting
expectations, but needs to be improved rather than
dumped.

Most companies agree that

performance management
continue to add value

Overall, companies are relatively satisfied with the

contribution performance management makes to the
delivery of business objectives:
63 per cent say performance management
contributes to some extent or higher to strategic,
commercial and operational outcomes
77 per cent say that discontinuing performance
management in their organisation would worsen
their business performance
78 per cent say discontinuing performance
management would reduce their ability to engage
and manage high and low performers.

How effective is the overall execution of your performance

management process currently?

Unsure

11%

Whilst employees also agree

performance management
systems are effective, almost half
say they would feel no impact if
the systems were discontinued:
Almost three-quarters of employees who

participated in our international survey

agreed that their organisation has an effective
performance management system in place.
Performance management is not necessarily seen
as a must have by employees. In our international
survey, we asked what the impact would be on
them personally if performance management were
discontinued in their organisation. 42 per cent of
employees anticipated no impact while 35 per cent
said there would be an impact on their engagement
and motivation.

Performance management mostly

achieves its key objectives, but
execution needs to improve

Companies in our international survey reported

that they are relatively satisfied with how well
performance management systems achieve their
key objectives. Having said that, many companies
agreed that there is at least some room to improve the
execution of their performance management system.
Only 18 per cent of respondents said execution is
highly effective in their organisation and 73 per cent
said their organisations needed to improve their
execution of performance management.

Does performance management effectively enable

strategy?

Highly effective

Very well
No, not at all

11%

25%

13%

Ineffective

22%

Somewhat
effective

56%

To some extent

65%

Is there a future for performance management? 21

Annual performance cycle is timeconsuming, but within reasonable

limits

What is the estimated time spent on the performance management cycle

on an annual basis?

The execution of the annual performance cycle can

be very time-consuming and burdensome. Total time
spent and the potential bureaucratic character may
cause organisations to change their approach. But
what is the estimated time spent on the performance
management cycle on an annual basis, i.e. including
goal setting, personal development plan, mid-year
assessment and review, end-year assessment and
appraisal interview, performance and potential
ratings of staff, calibration and moderation
meetings? What is the actual time spent by an
employee, a line manager (responsible for 7 to 10
employees) and a HR professional responsible for
performance management? The answers indicate
that the total amount of time spent is not excessive,
rather proportional and within reasonable limits.

6 to 10 hours

33%

Employee

3 to 5 hours

67%

more than 50
hours

11 to 20 hours

22%

22%

Linking reward to performance

ratings forces the performance
management process to be taken
seriously by all parties

Line
manager
21 to 30 hours

Individual performance ratings have a direct impact

on reward packages (salary, bonuses and equity
incentives). Although there are different views on
whether to strengthen the link between performance
and pay or separate pay from performance, our
survey reveals that 82 per cent of the respondents
think that linking reward to performance rating
forces the performance management process to be
taken seriously by all parties.

22%

31 to 40 hours

33%

0 to 50 hours

22%

more than 400

hours

33%

HR
professional
0 to 50 hours

22%

301 to 400 hours

11%
101 to 200 hours

11%

Overall, what is the effect of linking reward to performance ratings in your organisation

Undermines the overall culture

Creates divisiveness between individuals and teams
Distorts decision making on ratings
Forces the performance management process to be taken seriously by all parties
Ensures tangible consequences for certain behaviours/risk-taking
Motivates employees to improve performance
0%

22 The changing performance management paradigm: evolution or revolution?

10% 20% 30% 40% 50% 60% 70% 80% 90%

Conclusion
In conclusion, there is no silver bullet in performance management. Whether or not you continue with
traditional performance management, or are looking towards a more radical approach, it is important
to manage what matters: over-service the executive population, drive more effective conversations,
provide timely feedback with structure and build a culture founded on purpose and values. And as
with any change, move at a pace that your organisation can sustain and consider the full scope and
implications of any recommendation.

And any change should be testable. In December

2014, Harvard Business Review published an article
A testable idea is better than a good idea. Its premise
was that testable ideas prompted action and learning
in ways that merely good (but untestable ideas) could
not.
Are organisations managing their performance
management systems using testable ideas? Not really.
Most are making do with what they have semirelevant questions from engagement and culture
surveys, and analysis of rating distributions. While
these have some value, you will not be able to test
whether your changes to coaching, goal setting,
simplifying are responsible for achieving results. In
this context, technology can enable evidence-based
people management.
Many ideas in performance management can benefit
your organisation. Unfortunately, few will be adopted
unless there is proof that they work and there are
people to make them happen. So we recommend that
you:
Be bold and start with the right question for
example:
What do we need to reach the next level
towards a high-performing organisation?
Is our organisation ready to adopt a holistic
approach to solve people issues?
What does fantastic performance management
look like?
.. and design around that rather than starting
with the existing frameworks and asking how
do we make these better?

Establish measures that can be used before, during

and after the project is complete. To verify whether

your changes are having an impact, establish
measures that are sustainable and allow you to test
the effectiveness of the change, ideally using pilots
and control groups.
Report on performance against measures.
Reporting performance is a key part of involving
and engaging others throughout the project.
Take action when the measures turn up good news
or bad news. Measures are meant to drive action,
so use the information to guide the decisions that
you make.
In this way, your organisation can ensure that
the changes you are making to your performance
management system are in synch with your business
needs, relevant and effective, and are less likely to
leave you wondering whether there is a future for
performance management.

Our special thanks go to the team of PwC Australia - Emma Grogan, Daniel Geard and
Elisabeth Stephens - who shared their performance management effectiveness survey
materials to enable us to set up this survey for the Netherlands.

Is there a future for performance management? 23

Survey demographics

When we speak to our clients

about performance management,
the conversation often focuses on
pain points and opportunities for
improvement. Dutch-based companies
know that something about their
system is not working quite as it should
as evidenced by symptoms such as
employee disengagement and distrust
with the process, lack of credibility and
a perception that the process wastes time
rather than enables performance. Yet
most large organisations continue to run
some form of performance management
program, even if far from perfect, as
they recognise that when done well it
can unlock commercial, financial and
operational value.

Whilst it is more or less common

knowledge that performance management
is not doing well in the Dutch market,
there was no consolidated evidence base
or benchmark for current practices, the
relative effectiveness of those practices
and what organisations were looking to
improve.
Our colleagues in the PwC UK firm
surveyed performance management
practices in 2014 and our Australian
colleagues developed a similar survey
for the Australian market early 2015.
After reviewing established research,
we investigated what was (and was not)
working through:
Surveys of performance management
system owners in selected organisations
in a few selected industries
One-to-one interviews with a few survey
respondents
Surveys of about 200 system users (i.e.
employees) using AskU, our proprietary
market research tool.

24 The changing performance management paradigm: evolution or revolution?

In this report, references made to the

international survey regard the surveys of
PwC UK and PwC Australia on performance
management.
This report presents our research findings
and our views on the opportunities
for organisations to optimise their
performance management processes.

Read more

10 recent articles on the evolving

insights regarding performance
management, performance culture
andhigh performing organisations

Reinventing Performance Management, by Marcus Buckingham and Ashley Goodall,

Harvard Business Review, April 2015, https://hbr.org/2015/04/reinventingperformance-management
Conducting dynamic performance appraisals, Talent Pulse e-book of Human Capital
Institute, November 2014, http://www.hci.org/hr-research/2014-talent-pulseconducting-dynamic-performance-appraisals
Winning Your Workforce: The Essential Guide to Improving Retention and Employee
Performance, e-book SABA, March 2015, http://www.saba.com/us/dynamic-landing/
resource/go/ebook-retention-2015-march-1/
Change is on the way, but will it be enough?, by Emma Grogan, Daniel Geard and Elizabeth
Stephens, PwC Australia, March 2015, http://www.pwc.com.au/people-business/assets/
publications/Performance-Management-Mar15.pdf
DNA of High-Performing Organizations, by Rebecca L. Ray, Amy Lui Abel, Amanda Popiela,
The Conference Board, March 2015, http://www.pwc.com.au/people-business/assets/
publications/Performance-Management-Mar15.pdf
Elements of High-Performing Organizations: The 15 Strategies Associated with Increasing Levels
of High Performance in an Organization (A Diagnostic Tool), by Rebecca L. Ray, Amy Lui Abel,
Amanda Popiela, The Conference Board, March 2015, https://www.conference-board.org/
publications/publicationdetail.cfm?publicationid=2960
Learning to Lead a High-Performance Culture through Innovation, webcast on demand at
Human Capital Institute presented by Marla Hetzel, October 2014, http://www.hci.org/
lib/learning-lead-high-performance-culture-through-innovation
How Technology is Overhauling Performance Management, webcast on demand at Human
Capital Institute presented by Edward E. Lawler and Gerry Ledford, March 2015,
http://www.hci.org/lib/how-technology-overhauling-performance-management-0
Five reasons why people management is at the top of the people agenda, by Zsolt Szelecki,
article in People agenda blog series, PwC United Kingdom, June 2014, http://pwc.blogs.
com/the_people_agenda/2014/06/five-reasons-why-performance-management-is-atthe-top-of-the-people-agenda.html
Are performance ratings heading towards extinction?, by Alastair Woods, article in People
agenda blog series, PwC United Kingdom, July 2014, http://pwc.blogs.com/the_people_
agenda/2014/07/are-performance-ratings-heading-towards-extinction.html
Why More and More Companies Are Ditching Performance Ratings, by David Rock and Beth
Jones, Harvard Business Review, September 2015, https://hbr.org/2015/09/why-moreand-more-companies-are-ditching-performance-ratings
Agile Performance Management, HRs Next Big Move Whitepaper of Human Capital
Institute, September 2015, http://www.hci.org/white-paper/agile-performancemanagement?CS=NQ

Is there a future for performance management? 25

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