Review of evidence on the impact of individual performance managements systems, what makes them have positive or negative effects?

1. Performance management: what
does the evidence tell us about
its impact?
Mark Beatson
Chief Economist, CIPD

2. What do we mean by performance
management?
Agree
objectives
Monitor in-
period
Assess
end-
period
Feedback
and
improve

3. What does performance management
look like in practice?
• Linked to pay:
• 37% (CIPD Employee Outlook survey, autumn 2015)
• 60% entirely/to some extent (CIPD Labour Market Outlook survey,
summer 2015)
• Feedback:
• 61% receive formal feedback from line manager, 49% informal
feedback, 18% never receive feedback (CIPD Employee Outlook
survey, spring 2015)
• Frequency of formal reviews:
• 9% quarterly (or more often)
• 25% twice-yearly
• 48% annually
• 18% less often (CIPD Employee Outlook survey, summer 2014)
• Future objectives agreed:
• 56% (CIPD Employee Outlook survey, spring 2015)
• Linked to evaluation of employee’s training needs:
• 90% (CIPD Labour Market Outlook survey, summer 2015)

4. Formal appraisal systems have become more
widespread
(% of employees)
Source: Skills and Employment Survey series and CIPD Employee Outlook survey, summer 2014
53%
61%
70% 71% 71%
1997 2001 2006 2012 2014

5. Prevalence of appraisals across the EU, 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
DK RO FI SE NL CY BE AT UK FR HU LU IR LV DE SL EL PT IT MT SV CZ ES BG PL EE HR LT
% of employees in workplaces where all employees have appraisal at least once a
year
Establishments with 10+ employees only
Source: European Company Survey 2013

6. Performance management systems are one of
the key ingredients of high performance work
(HPW) practices
0 10 20 30 40 50 60 70 80 90 100
ISO9000
IIP
Create project teams
Individual PRP
Flexible benefits
Awards performance bonuses
Training budget
Formally assess performance after training
Training plan
Business plan
Annual performance review
On or off job training
Work shadowing
% of establishments with 5+ employees
Source: Employer Skills Survey, 2013

7. Evidence of links between HPW
practices and productivity
• CIPD Megatrends paper: “While the evidence base is far
from perfect, there appears to be a positive relationship
between the use of HRM or HPW practices and increased
productivity, although this will, of course, depend on how
well these practices are executed and the extent to which
they are aligned with the broader orientation and culture
of the business” [1].
• CIPD 2014 employer survey data: Positive links between
workforce training, cultural fit some agile working/HPW
practices and relative business performance [2]
• CIPD 2015 employer survey data: Positive links between
relative business productivity and organisation culture
(and fit) and learning and development – but no
independent effect from existence of performance
management process! [3]

8. What do employees think of their performance
management?
Satisfaction
(winter 2013)
Very
satisfied
Satisfied Neither
satisfied nor
dissatisfied
Dissatisfied Very
dissatisfied
8% 31% 32% 18% 9%
Fair (autumn
2015)
Very fair Somewhat
fair
Neither fair
nor unfair
Somewhat
unfair
Very unfair
13% 32% 29% 13% 9%
Effective in
incentivising
individual
performance
(autumn
2014)
Very
effective
Effective Neither
effective nor
ineffective
Ineffective Very
ineffective
2% 17% 34% 24% 17%
Excludes the self-employed, owner/proprietors and those in the top layer of the organisation
‘Don’t know’/’not applicable’ responses not reported
Source: CIPD Employee Outlook surveys

9. Employee views on the most important
aspects of their performance review
76%
48%
47%
31%
24%
16%
Feedback/recognition
Goal setting
Development opportunities
Self-appraisal
Rating/scoring
Understanding pay-performance link
Excludes the self-employed, owner/proprietors and those in the top layer of the organisation
Respondents could make up to three choices
Source: CIPD Employee Outlook survey, autumn 2015

10. Impact of employee understanding of
performance management on engagement
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Strongly
agree
Agree Neither
agree
nor
disagree
Disagree Strongly
disagree
Strongly
agree
Agree Neither
agree
nor
disagree
Disagree Strongly
disagree
% of employees engaged
Excludes the self-employed, owner/proprietors and those in the top layer of the organisation
Source: CIPD Employee Outlook survey, summer 2014
I understand how
my objectives fit
into the overall
company
strategy
I understand the
measures my
organisation
uses to assess
my performance

11. Impact of perceived weaknesses in
performance management on engagement
0%
10%
20%
30%
40%
50%
60%
70%
80%
Strongly
agree
Agree Neither
agree
nor
disagree
Disagree Strongly
disagree
Strongly
agree
Agree Neither
agree
nor
disagree
Disagree Strongly
disagree
% of employees engaged
My performance
review is a tick
box exercise
rather than a
meaningful
process
Excludes the self-employed, owner/proprietors and those in the top layer of the organisation
Source: CIPD Employee Outlook survey, summer 2014
The performance
review process is
consistent across
the organisation

12. Impact of perceived fairness of
performance management process
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Job satisfaction (% very
satisfied/satisfied)
Engagement (%
engaged)
Employee productivity
(% much more/more
productive than
colleagues)
Employee brand (%
very likely/likely to
recommend their
employer)
Very fair Somewhat fair Neutral Somewhat unfair Very unfair
Excludes the self-employed, owner/proprietors and those in the top layer of the organisation
Source: CIPD Employee Outlook survey, autumn 2015

13. When is performance management
likely to enhance performance?
• When it’s used to communicate and reinforce the big
picture, align organisation and individual objectives
• When employee goals are clear and encourage
value-creating behaviour – and little or no scope for
gaming [9]
• When employees understand how their performance
will be measured
• When ‘objective’ performance measures are
available [12]
• When allied with reward

14. When is performance management
likely to hold back performance?
• When trust is low
• When performance management system is seen as
unfair, inconsistent or a tick box exercise - the
outcome can be worse than if there was no
performance management system
• When the (powerful) effects of rank-ordering and
forced distributions mobilise anti-social behaviour [8]
• When over-elaborate subjective rating systems
create more scope for negative effects on employees
[12]
• When lenient ratings and lack of consequences
encourage excessive entitlement behaviour [6]

15. Something’s got to change?
• Formal appraisal provides a means of making (and
justifying) decisions on pay
• Cost and risk of change – especially when linked to
pay – encourage conservatism [4]
• Employees are split over the merits of more frequent
and regular reviews (39% change, 38% stick, 23%
undecided) – CIPD Employee Outlook survey,
autumn 2015
• Employees ambivalent about sharing of performance
data and team appraisal – fears of backdoor control?

16. Lessons for practice
• Implementing HPW practices [3]:
• Control
• Capability
• Context
• Pay attention to demographics of workforce/teams
(such as gender)? [7] [8]
• Performance management can’t compensate for
ineffective managers [10][11]
• CIPD looking to work with organisations pursuing
innovative forms of performance management

17. References
[1] CIPD (2014) Megatrends: are UK organisations getting better at managing their people?.
[2] CIPD (2015a) Productivity: getting the best out of people.
[3] CIPD (2015b) Investing in productivity: unlocking ambition.
[4] A Cox (2005) ‘The outcomes of variable pay systems: tales of multiple costs and unforeseen
consequences’, International Journal of Human Resource Management, 16:8, pp1475-1497.
[5] A Falk (2014) Fairness and motivation. IZA World of Labour.
[6] Fisk, G (2010) ‘“I want it all and I want it now!” An examination of the etiology, expression, and
escalation of excessive employee entitlement’, Human Resource Management Review, 20, pp102–114.
[7] Garbers, Y and Konrad, U (2014) ‘The effect of financial incentives on performance: A quantitative
review of individual and team-based financial incentives’, Journal of Occupational and Organizational
Psychology, 87, pp102-137.
[8] Gill, D et al. (2015) First-Place Loving and Last-Place Loathing: How Rank in the Distribution of
Performance Affects Effort Provision, IZA Discussion Paper No. 9286.
[9] Goerg, S (2015) Goal setting and worker motivation, IZA World of Labour No. 178.
[10] Groscurth, C (2015) ‘Great Managers Can Fix Broken Performance Management Systems’, Gallup
Business Journal, June.
[11] Groscurth, C (2015) ‘Managers Could Do a Lot Better at Performance Management’, Gallup Business
Journal, June.
[12] Kampkotter, P and Sliwka, D (2015) The Complementary Use of Experiments and Field Data to
Evaluate Management Practices: The Case of Subjective Performance Evaluations, IZA Discussion Paper
No. 9285.

18. Thank you
Mark Beatson
m.Beatson@cipd.co.uk
@MarkBeatson1