Copyright 2015 Human Capital Institute. All rights reserved.

Executive Summary 3 Practicing Performance Management 4 Manager as Coach 16 Supporting and Developing Managers 21 Key Insights and Recommendations 28 About the Research From July 24 to August 17, 2015, a 23-item questionnaire was distributed via email to HCI members who opted into the HCI Survey Panel and into HCI electronic mailings. The results of this questionnaire and secondary sources form the basis of this research. The findings in this report represent the views of the respondents who were surveyed. Survey Demographics 30 2

For most the term performance management evokes a description of the dreaded annual review when hundreds of hours are spent on a process that is neither effective at improving performance nor enhancing employees development. The true purpose of performance management is an agile system of goalsetting, development, compensation actions, feedback, and a goals-based appraisal of performance. However, most organizations stop at the annual review without having manager-employee conversations focusing on performance, engagement, and development drivers continuously all year. A study of HR practitioners showed that only half of managers are providing their direct reports with regular feedback, and less than a third are having routine career coaching conversations with their employees. If the traditional, annual way of performance management is not working and managers are not engaging their employees in regular discussions that they crave, how can we expect our employees to be engaged, perform well, and develop to their potential? In this signature research, conducted in partnership between the Human Capital Institute and Lee Hecht Harrison, we explore the current and planned future state of performance management and the importance of manager accountability. In a study of over 350 organizations, we found: Organizations that develop and support their managers to be coaches report greater financial performance and satisfaction with their performance management process. There is a disconnect in where performance management processes are now (annual reviews and ratings of past performance) to where HR practitioners want to them to be (in-the-moment managerial coaching). Most managers are not trained or held accountable for performance management and managers are not meeting the expectations that are placed upon them. 3

Less than a third of respondents agree that their performance management (PM) process is effective, one half hold managers accountable for PM, and one quarter develop managers to be successful at PM. I am satisfied with our performance management (PM) process. Managers are held accountable for performance management. Our PM process is effective in developing employees knowledge, skills, and abilities. Our PM process improves the performance of our employees. Our PM process improves employee engagement. We are successful at developing our managers so that they execute our PM process. Figure 1. Percentage Strongly Agree/Agree with the following statements. 4

Respondents report more favorable outcomes if they hold managers accountable and develop managers for performance management. 0 1 2 3 4 5 0 1 2 3 4 5 I am satisfied with our performance management (PM) process. 2.1 3.0 I am satisfied with our performance management (PM) process. 2.3 3.4 Our PM process is effective in developing employees' knowledge, skills, and abilities. 2.2 2.9 Our PM process is effective in developing employees' knowledge, skills, and abilities. 2.3 3.5 Our PM process improves the performance of our employees. 2.4 3.2 Our PM process improves the performance of our employees. 2.5 3.6 Our PM process improves employee engagement. 2.3 2.9 Our PM process improves employee engagement. 2.4 3.4 Hold Managers Accountable (n=178) All Others (n=176) Develop Managers (n=86) All Others (n=268) Figure 2. The average rating to each statement on a scale of 1= Strongly Disagree to 5= Strongly Agree by agree that managers are held accountable for performance management. Figure 3. The average rating to each statement on a scale of 1= Strongly Disagree to 5= Strongly Agree by agree that they develop managers to execute PM. 5

Performance ratings tied to compensation is how performance management is practiced today. Respondents report that they want to move toward managers as coaches and developers of talent and to the calibration of employees performance. Descriptions Yes, this is included No, this is not included, but it is desired Numeric ratings or rankings-based appraisals 78% 6% Performance evaluation is linked to compensation and recognition 72% 20% Employees goals can be aligned to business strategy 67% 32% Managers identify strengths and developmental opportunities for all employees 67% 32% Managers provide employee performance (remedial) coaching 67% 31% Performance evaluation process is aligned to core organizational values 65% 33% Managers work with employees to create individual development plans 60% 38% Competency-based appraisals 57% 34% Managers provide employee developmental coaching 52% 45% Managers function as primary developers of talent 51% 45% Employee performance is calibrated across departments for fairness 40% 47% Table 1. How would you describe the performance management process, including performance appraisals, at your organization? (Select one: Yes, this is included ; No, this is not included, but it is desired ; or Not included and not important ) 6

What is the impact on compensation? What is the impact on how we decide who is a high-potential employee and how we promote people? What are the answers we give people on potential career paths within the organization? My concern is employers go to one extreme in eliminating the performance review process without giving thought to these questions. Vince Molinaro Global Managing Director, Strategic Solutions Lee Hecht Harrison 7

Most respondents want to see managerial feedback occur in the moment rather than on an annual basis. Managers provide employees with performance feedback. Currently Ideally 2% 4% 3% 3% 9% 16% 15% 20% 22% 52% 52% Organization-wide formal appraisal process to compare employees against each other. Currently Ideally 2% 1% 2% 1% 13% 35% 39% 49% 57% Never Annually Quarterly Monthly Weekly In the moment Figure 4. How frequently does your organization require the following? and- How frequently would you like to see the following happen at your organization? (A Semi-annually option was erroneously excluded in the questionnaire design. Totals may not equal 100% because of rounding.) 8

According to our respondents, establishing and tracking employee objectives does not occur often enough. Managers work with employees to establish individual objectives. Currently Ideally 4% 11% 2% 2% 4% 1% 10% 5% 8% 30% 47% 77% Managers track progress against employees individual objectives. Currently Ideally 9% 10% 2% 4% 1% 3% 9% 7% 32% 33% 43% 46% Never Annually Quarterly Monthly Weekly In the moment Figure 5. How frequently does your organization require the following? and- How frequently would you like to see the following happen at your organization? (A Semi-annually option was erroneously excluded in the questionnaire design. Totals may not equal 100% because of rounding.) 9

Ideally, development and career conversations between managers and employees would take place more than once a year. Managers have conversations with employees about development. Currently Ideally 1% 6% 5% 10% 13% 13% 18% 18% 17% 47% 52% Currently 5% 2% 26% 55% Managers have conversations with employees about their career path. Ideally 1% 1% 5% 10% 12% 32% 52% Never Annually Quarterly Monthly Weekly In the moment Figure 6. How frequently does your organization require the following? and- How frequently would you like to see the following happen at your organization? (A Semi-annually option was erroneously excluded in the questionnaire design. Totals may not equal 100% because of rounding.) 10

83% of respondents have planned changes to their PM processes in the next five years. Focus on employee development and coaching (cited in 22% of all responses) In the next two to five years we would like to establish individual development opportunities and career paths. We would like to move to quarterly conversations versus an annual process. We want more focus on coaching and development than just task performance. Managers are to become talent developers not talent inhibitors. Move to more frequent reviews and performance conversations (19%) The immediate plan is to move to an agile performance process with more frequent check-ins and conversations. The long-term plan is its connection with career lattice framework allowing employees to scale up and scale back based on their desired work-life balance. We will implement a company-wide performance tuning process that aligns employee goals with business unit goals which are aligned with corporate goals. Goals and competencies will have verbiage ratings but not numbers. Numerical ratings will be captured in the background only for analytics purposes. Our goal is to have managers having conversations with employees on a regular basis to discuss development, career paths, and goal setting. The ratings from these routine conversations will create the annual appraisal ratings for merit purposes and analytics. Invest in technology and automation of processes (17%) We have automated performance applications for the first time this year. We are rolling out a new performance management system (PMS) and an enterprise wide succession/talent management initiative that is linked with new PMS. Note. Survey participants (n = 219) provided responses that were coded into categories. Their responses spanned multiple categories, thus the percentages exceed 100. 11

Align performance appraisal to strategic goals and core values (16%) We are planning to add our core values to the performance management process (in 12 months). We are also thinking about adding a 360-feedback assessment (in 2 to 5 years). In the short term, the plan is to rewrite/revise the performance review to better align with the organization's strategic goals and the behaviors and competencies that support achieving them. We are also hoping to move the process into our HRIS system to increase efficiency and reporting available during and after the review process. Create competency-based evaluations (13%) Within the next year, we will include competencies for a competency-based performance evaluation. We will integrate performance for pay and calibration in the next two to three years. We are creating a new set of competencies and updating our current talent development program to reflect those changes. Train managers on coaching and development (11%) We are rolling out training classes for leaders on staff development in our next fiscal year, as well as a mentorship program that will reinforce and support career development and planning. We introduced a train the manager program, so they can give appropriate feedback and coaching to team members. Change the review form or rating scale (8%) We will shorten the performance feedback form, reduce the number of performance ratings, and modify the user interface to be more user friendly. There is a plan to review the performance appraisal process to make it more scientific, remove sentiments,and make it truly reflective of an employee's actual performance. It has been observed that scores awarded to employees most times do not match actual staff productivity nor interpersonal relationships at work. 12

Move to a pay-for-performance model (7%) We will do away with the antiquated annual review process and encourage a true pay for performance model and develop a channel for managers and directors to reward and promote when they see fit. We will challenge employees to empower themselves to identify a development track, to enroll in courses, and to request stretch assignments to obtain those roles. Extend feedback beyond managers with peer and crowd-sourced feedback (7%) We have a performance management process based of feedback from all key stakeholders as investors, customers, and employees. Remove ratings and rankings -Change from interpersonal comparisons to intrapersonal comparisons (6%) We're embarking on a mid-year pilot right now with the following changes: eliminating ratings (we previously used both ratings and goal completion, and we will still keep a numerical indicator of goal completion measuring what percentage level employees achieved their goals), changing the what/how ratio from 80/20 to 70/30, and having more frequent documented performance discussions (from once or twice a year--depending on the area of the business) to three times a year. We will provide in-the-moment feedback and remove the annual appraisal process. We will remove the ratings and the calibration to compare employees. It should be about them, not how they compare to others. Add a calibration review (4%) We introduced calibration meetings and up-skilled managers to deliver coaching for development. 13

It s all about change management and making sure that you get buy-in at the top and the buy-in filters its way down. Managers need to first understand the difference in this new way of managing performance that it s about engaging employees regularly. Managers need to hear about it in multiple ways and experience it in positive ways. Employees also need to be trained on what this process looks like and their part in it. I don t want to do something that appears that it s only the responsibility of leadership. Engagement about one s career is the responsibility of every employee and his/her manager. Laura Smith, SPHR, SHRM-SCP Vice President of Global Human Resources Digital Intelligence Systems, LLC (DISYS) 14

17% of respondents do not plan to make changes in the next five years and some of their reasons as to why are below. Poor resources available There is a lack of urgency. There is a lack of money. There is no dedicated staff to coordinate these deliverables. Lack of senior leader support There is no commitment from top management to make a cultural change at this time or the near future. Anything that could remotely detract from profitability is frowned upon. There is no logical thought process of how training, safety, performance management, or anything that does not show a profit line BUT saves the organization millions is considered a worthy endeavor. Changes were recently made and the system is satisfactory We just changed back from a prior attempt. We have recently transitioned from performance reviews to performance-based development and coaching. We will continue to train, model, and work with that model. Our system is currently working well for our organization. 15

Only 28% (n = 101) of respondents organizations are classified as having Managers as Coaches which was determined by affirming all of the factors in the composite index. These organizations perform better financially; they have higher revenue growth. Manager as Coach Composite Index: Managers identify strengths and developmental opportunities for all employees. Managers work with employees to create individual development plans. Managers function as primary developers of talent. Managers provide employee developmental coaching. Below 8% 11% On par 33% Above 35% Manager as Coach (n=88) 54% 59% All Others (n=215) Figure 7. 2014 revenue growth in relation to industry peer group by Manager as Coach. 17

Respondents that view their managers as coaches report more favorable outcomes with their PM system, and their organizations managers are more likely to be held accountable for PM and be developed. 0 1 2 3 4 5 I am satisfied with our performance management (PM) process. Our PM process is effective in developing employees' knowledge, skills, and abilities. Our PM process improves the performance of our employees. Our PM process improves employee engagement. 2.3 2.4 2.6 2.4 3.0 3.1 3.3 3.1 Managers are held accountable for PM. 3.0 3.7 We are successful at developing our managers so that they execute our PM process. 2.5 3.1 Manager as Coach (n=100) All Others (n=254) Figure 8. The average rating to each statement on a scale of 1= Strongly Disagree to 5= Strongly Agree by Manager as Coach. 18

Lack of skills, accountability, and commitment are the top challenges to managerial coaching of employees. Lack of skills in managers Not holding managers accountable Lack of manager commitment Employees not owning their development Ineffective or lack of training Lack of senior leader support Managers unaware of the responsibility Too many direct reports per manager No incentives for managers Poor employee-manager trust 69% 64% 51% 39% 38% 34% 30% 29% 27% 22% Figure 9. What are the top five challenges to providing ongoing coaching and feedback to your employees? (Select no more than five options.) 19

There are massive priorities coming at managers and they are changing every day. How do you manage through that and still have time for employees? Coaching and development doesn t need to take a lot of time. Managers can have a coaching conversation with employees in 3 to 5 minutes, if you know what the issue is and you are asking the right questions. It s not always one-hour sit downs looking at forms; it s about how can I develop my employees on a day-to-day basis. Vicki Foley Senior Vice President, Global Practice Leader, Leadership Development Lee Hecht Harrison 20

Most managers are rated poorly by HR practitioners at performing the essential competencies of their jobs. Decrease high-performer turnover Communicate business strategy and goals Set expectations and direction for team Establish trust with employees Increase the quality of new hires Conduct performance appraisals Set performance and development goals with employees Increase employee engagement Inspire employees to achieve their optimal performance Identify skills gaps On-board new hires effectively Identify employee strengths and match those to the job Identify opportunities for employee development Manage employees' development Identify and develop a successor 45% 49% 37% 36% 42% 33% 48% 59% 58% 58% 54% 62% 58% 72% 77% 42% 13% 39% 13% 50% 13% 51% 13% 46% 11% 57% 10% 43% 8% 30% 11% 29% 11% 35% 8% 37% 10% 32% 6% 35% 7% 23% 6% 19% 3% Far short/short of expectations Equals expectations Exceeds/Far Exceeds expectations Figure 10. How well do your managers perform against the following expectations? 22

On average, 72% of organizations hold managers accountable for the following competencies, but only an average of 54% of organizations train managers on them. Most organizations train managers on how to conduct performance appraisals as compliance-based training. Manager Competencies Held Trained on accountable for how to do Decrease high-performer turnover 74% 44% Communicate business strategy and goals 74% 51% Set expectations and direction for team 76% 59% Establish trust with employees 72% 49% Increase the quality of new hires 66% 60% Conduct performance appraisals 80% 75% Set performance and development goals with employees 78% 65% Increase employee engagement 72% 57% Inspire employees to achieve their optimal performance 73% 43% Identify skills gaps 69% 49% On-board new hires effectively 66% 58% Identify employee strengths and match those to the job 75% 44% Identify opportunities for employee development 73% 54% Manage employees' development 68% 53% Identify and develop a successor 70% 49% Table 2. Are your managers trained and held accountable for each of the practices listed below? (Percentages are respondents who indicated Yes ) 23

On average, 43% of managers in organizations receive training on how to develop and coach employees. They have almost 12 hours of training per year and spend 5 hours a week developing their employees. Mean Standard Deviation Min. Max. Percentage of your managers who received training 43.2 32.2 0 100 Number of training hours per manager in 2014 11.8 11.1 0 41 Number of hours per week a manager spends developing employees 4.5 4.9 0 20 Table 3. Descriptive statistics for manager training and development in 2014. 24

The most popular ways to train and support managers to develop and coach employees are: teaming up with HR, attending workshops, and providing guidelines and checklists. Partnering with HR Training, seminars, or workshops Reminders, guidelines, or checklists Clear, formal expectations of managers Development plans for managers Mentoring Assessments Peer coaching with other managers Professional coaches KPIs on developing/engaging their team Sharing stories of success of coaching KPIs on coaching conversations Time for reflection Communities of practice 27% 22% 18% 15% 12% 12% 10% 46% 42% 35% 35% 67% 80% 77% Figure 11. What training and tools are offered to managers to be effective at performance management and coaching their employees? (Select all that apply.) 25

Less than half of organizations provide incentives to managers to be effective at performance management and coaching, yet these incentives were reported as effective at holding managers accountable. Built in to their objectives 66% 78% Linked to salary increases 40% 72% Linked to bonuses 35% 73% Linked to promotions 28% 77% Percentage Use Of those that Use - Rated Effective/Very Effective Figure 12. How does your organization hold managers accountable? (Select all that apply.) and- Of the methods you selected, rate how effective each one is at holding managers accountable for performance management? (1= Very Ineffective to 4= Very Effective ). 26

What gets measured gets done. If managers bonuses are impacted on how they drive engagement, they are going to change their behavior and create accountability. Sometimes you need to have obligatory metrics to create a culture shift around accountability and performance management. People always say they don t have the time for coaching conversations, but they aren t making the time because they don t see the impact on employees and business results. Kim Spurgeon Vice President, Career Solutions Lee Hecht Harrison Knightsbridge 27

Currently, the focus of performance management (PM) is on ranking or rating employees against each other on an annual basis. However, eighty-three percent of respondents report that their PM system will change in the next five years. It will change to more of a focus on coaching and employee development and more frequent conversations between managers and employees. Most survey respondents report that their performance management process is ineffective at improving employees performance and developing employees potential. A possible cause of this dissatisfaction with performance management is that managers are not trained on nor held accountable for the performance management practices that organizations want to see, such as an increased focused on developing and coaching employees. Less than one-third of respondents organizations have managers who coach, and these organizations report more favorable outcomes with their performance management process and higher revenue growth. Managerial competencies were rated poorly; however, most managers are not developed or given support in these practices. Lack of skills, accountability, and commitment are the top challenges to managerial coaching of employees. Organizations have a long way to go to be at their ideal state for performance management. Clarifying their goals for performance management, communicating their expectations to all employees, offering training to managers, holding managers accountable, and offering incentives are steps to performance management transformation. 28

The steps toward performance management transformation to achieve better business results. Set expectations for performance management Model Manager as Coach Have frequent manageremployee conversations Focus less on ratings and rankings Stress that employees own their development Develop managers skills in coaching, providing feedback, and developing employees Develop and support managers Offer training to all managers Create guidelines and checklists Build it into managers objectives Hold managers accountable Follow-up with managers Recognize managers who coach and develop 29

Level of Seniority C-level 8% VP-level 14% Director-level 35% Manager-level 26% Individual contributor 15% n = 355 Eighty-one percent of respondents organization are headquartered in North America. Functional Area Human Resources / Talent Management Organizational Development Learning and Development 55% 17% 13% Executive Management 7% Number of Employees Under 100 13% 101 to 1,000 33% Industry Financial Services/Real Estate/Insurance Auto/Industrial/ Manufacturing Business/Professional Services 14% 10% 10% Health care 8% IT Hardware/Software 8% Chemicals/Energy/ Utilities 7% Government 7% Only categories with at least 6% of the sample are displayed. 1,001 to 10,000 32% 10,000+ 22% 30

Lee Hecht Harrison is a global talent mobility firm focused on delivering Career Transition and Outplacement, Leadership Development, Employee Engagement and Change Management solutions for organizations committed to developing their best talent and becoming employers of choice. We offer: A global footprint that enables us to provide you with a consistent, integrated and scalable approach to address your unique challenges, regardless of size or complexity, anywhere around the world. Strategic partnerships that help us bring you the experience and expertise you need to implement best-in-class solutions with sustainable results. Contact us to learn more about our services and how we can help your organization maximize performance and results through talent mobility. 31

The Human Capital Institute (HCI) is the global association for strategic talent management and new economy leadership, and a clearinghouse for best practices and new ideas. Our network of expert practitioners, Fortune 1000 and Global 2000 corporations, government agencies, global consultants, and business schools contribute a stream of constantly evolving information, the best of which is organized, analyzed, and shared with members through HCI communities, research, education, and events. For more information, please visit www.hci.org. Author: Jenna Filipkowski, PhD (Jenna.Filipkowski@HCI.org) Publication date: October 15, 2015 v. 2 110 Main Street, Suite 200 Cincinnati, OH 45202 32