SHRM Survey Findings: HR Professionals’ Perceptions About Performance Management Effectiveness In collaboration with and commissioned by the National Center for the Middle Market (NCMM) October 21, 2014

How often do organizations conduct formal employee performance appraisals? Almost three- quarters (72%) of organizations conduct performance appraisals annually, and 16% semi-annually. Only 3% of organizations reported they did not conduct formal performance appraisals. How much of a priority is performance management compared with other business issues? Nearly one-third (30%) of HR professionals reported that performance management would be a top priority at their organizations in the coming year, and two-thirds (65%) indicated that some attention and resources would be given to performance management, though other business issues were a higher priority. From the perspective of HR professionals, are organizations doing a good job managing performance? More than one-half (53%) gave their organizations a grade between C+ to B, another one-fifths (21%) chose a C, and only 2% gave an A in performance management to their organizations. Are managers pulling their weight in performance management? Although almost one-half (46%) of HR professionals said they agreed with the statement that managers at their organizations “did an effective job of differentiating between poor, average and strong performers,” about one-third (32%) had some level of disagreement with this statement. Similarly, although two- fifths (42%) agreed that managers at their organization were “willing to ‘make the tough calls,’” another 38% disagreed. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Key Findings

SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Key Findings Frequency of performance appraisals Priority organization places on performance management Managers at my organizations did an effective job of differentiating between poor, average and strong performers. 46% agree 32% Disagr ee Managers at my organization are willing to “make the tough calls”. 42% agree 38% Disagr ee C 21% C+ to B 53% B+ to A 12% Grades given for the effectiveness of performance management

HR professionals’ opinions are mixed regarding the effectiveness of performance management in their organizations, although the vast majority did say that performance management would either be a top priority or receive some attention in the coming year. And although there has been increased scrutiny lately on the benefit of conducting annual performance appraisals for employees, identifying strengths and weaknesses among workers has become particularly important for compensation strategies. Research has shown that many employers are placing less emphasis on blanket merit salary increases for their staff and are now channeling more resources toward incentive programs and variable pay structures in order to reward top performers who consistently meet goals. Conversely, low performers are seeing smaller increases in pay. Performance management analysis has consequently become a key component of compensation reviews. Overall, the data suggest that many more firms should make performance management a priority and ensure that their HR capabilities are developing at a pace that can keep up with the growth of their business. Even those organizations that currently report high levels of satisfaction with the way their performance management systems are working will need to continuously monitor and assess their effectiveness to stay ahead of the competition. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM What do these findings mean for the HR profession?

Typically, how often do employees within your organization undergo formal performance appraisals? SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Note: n = 391. Percentages do not total 100% due to rounding.

If you were to give your organization a “grade” based on its overall effectiveness with performance management, what grade would you give? SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM n = 359

How much of a priority will performance management be in the coming year compared with other business issues? SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM n = 332

If you were to give your organization a “grade” based on its overall effectiveness with performance management, what grade would you give? Performance Management ©SHRM Note: Only statistically significant differences are shown. Performance Management Will Be a Top Priority A-/B+ grade (61%) B grade (35%) >C grade (14%) A-/B+ grade (61%)>C-/D+ grade (16%) Comparisons by Priority of Performance Management HR professionals who indicated that performance management would be a top priority at their organizations (see Slide 5) were more likely to give a higher grade (i.e., A or B grade) when assessing their organization’s overall effectiveness with performance management. HR professionals who indicated that that some attention and resources would be given to performance management, but other business issues would be a higher priority at their organizations were more likely to give a lower grade (i.e., C grade). Some Attention and Resources Will Be Given to Performance Management C grade (80%)>A-/B+ grade (36%)

Managers’ role in performance management SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Note: n = Percentages may not total 100% due to rounding. *e.g., giving a low/no increase for poor performance, firing a poorly performing employee, etc.

SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Demographics

Demographics: Annual Revenue SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Note: n = 247. Participants who answered "don't know" or “prefer not to say” were excluded from the analysis. Percentages do not total 100% due to rounding.

Demographics: Organization Industry SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Note: n = 338. Percentages do not sum to 100% due to multiple response options. Percentage Professional, scientific and technical services22% Government agencies16% Health care and social assistance12% Manufacturing12% Finance and insurance11% Educational services9% Retail trade5% Transportation and warehousing5% Administrative and support and waste management and remediation services4% Construction4% Wholesale trade4% Utilities3%

Demographics: Organization Industry (continued) SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM Note: n = 338. Percentages do not sum to 100% due to multiple response options. Percentage Accommodation and food services2% Information2% Mining, quarrying, and oil and gas extraction2% Real estate and rental and leasing2% Religious, grant-making, civic, professional and similar organizations2% Repair and maintenance2% Agriculture, forestry, fishing and hunting1% Arts, entertainment and recreation1% Personal and laundry services1% Other industry10%

Demographics: Organization Sector SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM n = 336

Demographics: Organization Staff Size SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM n = 332

n = 355 Demographics: Other SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM U.S.-based operations only 74% Multinational operations 26% Single-unit organization: An organization in which the location and the organization are one and the same. 30% Multi-unit organization: An organization that has more than one location. 70% Multi-unit headquarters determines HR policies and practices 55% Each work location determines HR policies and practices 2% A combination of both the work location and the multi-unit headquarters determines HR policies and practices 43% Is your organization a single-unit organization or a multi-unit organization? For multi-unit organizations, are HR policies and practices determined by the multi-unit headquarters, by each work location or by both? Does your organization have U.S.-based operations (business units) only, or does it operate multinationally? n = 255 n = 249 Corporate (companywide) 70% Business unit/division16% Facility/location14% n = 250 What is the HR department/function for which you responded throughout this survey?

17 SHRM Survey Findings: Perceptions About Performance Management Effectiveness Response rate = 13% 391 HR professionals from a randomly selected sample of SHRM’s membership participated in this survey Margin of error +/- 5% Survey fielded August 11-29, 2014 In collaboration with and commissioned by the National Center for the Middle Market (NCMM) Survey Methodology SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014

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