Welcome to December's HR Trends & Insights
Welcome to the latest edition of our monthly HR newsletter! This month, we take a deep dive into the evolving landscape of performance management. With traditional appraisals often falling short of driving employee engagement or meaningful outcomes, forward-thinking organizations are redefining how performance is measured and managed.
In this edition, we explore hybrid approaches to performance management, featuring practices from leading companies, insights into the role of feedback, and the impact of motivation on results. Additionally, we discuss how HR technology can enhance these processes and help organization both decreasing the operational phases and also increasing the effectiveness of HR strategic partnership providing data and analysis.
A total of nearly 15 minutes of reading, there are a number of reference articles, researches and videos included in the Newsletter so it is advised to take each part individually and spare a quality time to follow up the references.
Our goal is to provide you with actionable insights, expert opinions, and a closer look at the events shaping the HR landscape, so you can lead with innovation and stay ahead of the curve.
Performance Management: Balancing Evaluation and Development
59% of employees think that traditional reviews have “no impact” on their performance
In this edition, we are focusing on developing traditional performance management and explore how companies has reimagined performance management to create a culture that drives both business success and employee development.
Leading companies’ approach is a blend of structured evaluation, a strong emphasis on continuous growth, and proactive measures to mitigate biases. The below summarized approaches are compiled from different practices of leading companies and these methodologies offer a hybrid approach which fits the company’s culture.
What Influences Performance Scores?
As traditional performance management and scoring fails, Leading companies use a comprehensive and well-calibrated system to determine performance results, ensuring fairness and objectivity.
Here’s what primarily affects these scores, along with potential biases, mitigation strategies, and the outcomes of these practices:
Potential Bias: Setting overly ambitious goals may lead to unrealistic expectations, while conservative targets can limit innovation.
Mitigation Practice: Regular check-ins and transparent goal-setting practices help ensure goals are realistic and adjustable as needed.
Outcome: The use of OKRs drives innovation and keep teams focused, contributing to successful projects.
Potential Bias: Evaluations of competencies may be subject to unconscious biases, like favoritism, similarity or fundamental attribution error bias.
Mitigation Practice: Managers receive training to recognize and minimize these biases, ensuring a more equitable assessment process.
Outcome: Focusing on competencies ensures that employees develop essential skills and behaviors, creating a well-rounded and effective workforce.
Potential Bias: Employees may overestimate or underestimate their contributions. High performers might be overly modest, while lower performers may rate themselves too highly.
Mitigation Practice: Structured guidelines and self-awareness training help employees provide more accurate assessments.
Outcome: This encourages self-reflection and accountability, contributing to a culture of personal and professional growth.
Potential Bias: Manager evaluations can be affected by fundamental attribution error bias, halo/horns effect, or unconscious biases related to personal relationships.
Mitigation Practice: Using evidence-based evaluations and providing manager training to mitigate these biases.
Outcome: This practice results in more consistent and objective performance ratings, fostering trust and transparency.
Potential Bias: Calibration discussions can be influenced by groupthink or advocacy bias.
Mitigation Practice: Companies facilitate structured, data-driven calibration sessions to ensure fairness.
Outcome: Calibration sessions help eliminate inconsistencies and ensure more equitable performance ratings, increasing employee confidence in the process.
Regular Feedback: A Foundation of Success
Feedback is an integral part of performance management system. It comes in various forms, including:
Manager Feedback
According to a research of SHRM 85% of employees who receive weekly feedback are more engaged in their work.
According to Gallup research, only 19% of millennials strongly agree they receive routine feedback at work.
Peer Feedback
On the research of Officevibe, 62% of employees state they would like to receive more feedback from their co-workers.
The Role of 360-Degree Feedback
A unique aspect of Companies’ performance management is how they use 360-degree feedback. Rather than affecting performance scores directly, peer feedback serves as a developmental tool. Employees receive constructive insights from colleagues / managers that highlight their strengths and pinpoint areas for improvement, promoting personal and professional growth.
Outcomes of this Hybrid Approach
These performance management practices illustrate the power of balancing objective evaluation with a commitment to ongoing development. By integrating targets and competencies, This ensures a holistic approach that drives both employee and organizational success.
In modern performance management applications (hybrid version) we see bi-weekly or monthly check-ins between managers and their subordinates.
In a public survey Deloitte conducted recently, more than half the executives questioned (58%) believe that their current performance management approach drives neither employee engagement nor high performance and you may review Deloitte’s new way of performance management.
A McKinsey survey indicates most CEOs don’t find the appraisal process in their companies helps to identify top performers.
With traditional appraisal systems no longer working properly, employers need to focus on more modern strategies and tools such as employee engagement software if they want improved performance and committed employees. Performance management statistics meanwhile suggest that frequent, quality feedback, is the building block of enhanced employee performance, which ultimately will deliver better business outcomes.
The main idea is actually looking not back but always ahead to make things better.
The Role of Incentive Systems: Balancing Tangible and Intangible Returns
Incentive systems play a critical role in aligning employee behavior with organizational performance goals. These systems can be divided into two broad categories—tangible returns (e.g., compensation and financial incentives) and intangible returns (e.g., recognition and development opportunities). Each type offers unique benefits and challenges, and effective alignment requires a balance that motivates employees while reinforcing desired outcomes.
1. Tangible Incentives: Compensation and Financial Rewards
Bonuses, pay raises, and other monetary rewards provide a direct link between performance and reward, reinforcing short-term goals. Competitive compensation attracts top talent and reduces turnover, especially when tied to superior performance (e.g., efficiency wages).
On the other hand, tangible incentives can lead to “rewarding A while hoping for B” when employees focus on meeting narrow, incentivized goals rather than broader organizational objectives which also lead the expense of business. For example, sales incentives might encourage volume over profitability, creating long-term risks. Another negative side of Over-reliance on financial rewards can undermine intrinsic motivation, making employees feel undervalued beyond monetary compensation. Perceptions of unfairness in tangible rewards (e.g., favoritism or lack of transparency) can also demotivate employees and harm morale.
2. Intangible Incentives: Recognition and Development
As we all know now that, employees are more engaged and motivated by recognition programs where their efforts are seen and appreciated. Non-monetary rewards, such as recognition programs, public acknowledgment, and personalized praise, enhance employees’ sense of purpose and belonging. They appeal to intrinsic motivators like autonomy, mastery, and meaning.
As recognition and development focuses on Growth Mindset, development opportunities (e.g., training, career paths, mentorship) signal long-term investment in employees, fostering loyalty and commitment. Intangible rewards can adapt to different employee needs and preferences, offering personalized motivation.
On the other hand, recognition and development take time to show results and may not provide the same immediate motivational boost as financial incentives.
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3. The Need for Alignment with Performance Goals
Incentive systems are only effective if they support organizational goals and encourage desired behaviors. Misaligned systems can create unintended consequences, such as suboptimization or a focus on short-term gains or “rewarding A while hoping for B” which fails to reach real company goals. Alignment ensures that rewards are tied to individual, team, or organizational performance in meaningful ways. Ensure that both tangible and intangible incentives directly correlate with clear, measurable performance metrics that align with business objectives. Employees should understand how rewards are determined and trust that the system is equitable.
4. A Balanced Approach: Short-Term vs. Long-Term Focus
Tangible rewards drive immediate performance, while intangible rewards build long-term engagement and loyalty.
To support short and long term success and retention, Companies also build STIs, spot bonuses and annual performance bonuses, and LTIs, are more partial shares of the company or a 12to24 salaries on the promise of stayig at the company for 2 to 5 years. Meanwhile, in some researches we also see some STI and LTI may also not be effecting the performance results as expected.
Incentive systems should reflect the organization’s culture. For example, a highly collaborative culture might prioritize recognition and team rewards over individual bonuses. To define what motivates the culture of the organizations 360 degree surveys and Organizational Health Check tools may help.
And finally, regularly review the outcomes of the incentives and adapt incentive systems to ensure continued alignment with changing organizational goals and employee needs.
Conclusion
Effective incentive systems require a balance between tangible and intangible rewards, tailored to the organization’s performance goals and employee motivations. By aligning these systems with clear, measurable outcomes and maintaining fairness and transparency, organizations can foster sustained engagement, drive productivity, and achieve long-term success.
The Effect of Motivation on Performance Results
According to a Gallup study; Just one in five employees agreed that their company’s performance practices motivated them. Motivation is a central factor influencing employee behavior, performance, and organizational success. Motivation shapes how employees engage with their work, respond to challenges, and contribute to achieving organizational goals. Key insights include:
Economic and Behavioural Motivation:
Incentive systems, such as bonuses or efficiency wages, can boost performance when aligned with measurable and controllable outcomes. However, over-reliance on monetary rewards risks diminishing intrinsic motivation and may lead to counterproductive behaviors (e.g., “rewarding A while hoping for B”). In Poorly designed incentive systems may lead to unintended consequences, such as employees prioritizing short-term results over long-term goals.
Models like expectancy theory and path-goal theory highlight that motivation depends on employees believing in their ability to achieve goals and having the necessary tools and direction to succeed. Non-monetary factors, such as autonomy, trust, and recognition, significantly enhance commitment and engagement.
Behavioral and Social Influence:
Techniques like behavior modification (spot rewards or recognition) reinforce desirable actions and foster a culture of continuous improvement. Random reinforcement can create lasting behavioral changes without over-dependence on tangible rewards.
Conformity, role models, and workplace norms significantly affect motivation, especially for new hires during onboarding.
Employees disproportionately focus on negative feedback, which can demotivate them if not delivered constructively.
Conclusion
Motivation is multifaceted and influenced by both intrinsic and extrinsic factors. Effective motivation strategies require balancing financial incentives with psychological needs, fostering trust, and creating supportive environments where employees feel valued and capable of achieving their goals. As Kerry Goyette states the employees are already motivated, as leaders, we should undertand what motivates them individually, then design the practices to not demotivate them. Organizations that understand and leverage these principles can drive long-term success and employee satisfaction.
Leveraging HR Tech for Effective Performance Management
Implementing performance management practices can be significantly enhanced with the right HR technology. Here’s a comprehensive analysis of top performance management software that supports features such as continuous feedback, goal alignment, and competency assessments. Before procurement of any HR Technology, It’s important to prepare RFP and SoW documents so that HR professionals assure aligning techology with Performance management process.
Performance Management Software Overview
We just highlighted some of the vendors and HR tech companies in this article, it’s advised to search for more technology vendors according to your expectations and processes for cultural fit.
SORWE : Continuous feedback, OKR alignment with goals and competencies, 360-degree evaluations, self and manager assessments, 1:1 sessions and employee engagement surveys.
SAP SuccessFactors : Performance and goals management, continuous feedback, comprehensive analytics, and learning and development modules.
BambooHR : Customizable performance reviews, goal tracking, feedback collection, and employee self-service.
Workday : Performance management, goal tracking, continuous feedback, talent management, and in-depth analytics.
idenfit : Goal setting, performance appraisals, competency assessments, time tracking, and attendance management.
Layers HR : Performance management, employee engagement, and compensation and benefits management.
Lattice : Performance reviews, goal tracking, continuous feedback, 1:1 meeting tools, and employee engagement features.
Upcoming HR Events You Shouldn't Miss
Future of Diversity, Equity, Inclusion and Belonging | 3 December 2024 | Online
Attend this virtual event to learn about new trends in diversity, equity, inclusion, and belonging (DEIB), and to learn how to make efforts more impactful in your organization.
Future of Career Development & Mobility | 5 December 2024 | Online
Attend this virtual event to learn about the increasingly crucial issues of employee career development, succession management, and internal mobility.
Future of Employee Well-being | 10 December 2024 | Online
Attend this free virtual event to learn new developments in physical, emotional and overall workplace wellness, allowing you to enhance your employee wellness programs.
How to retain and motivate your staff | 10 December 2024 | Online
Among the many factors influencing employee satisfaction, pay levels are still front and centre of the struggle to retain your best people. Join this webinar with Brook Street to learn more about using pay as a retention tool.
Transforming HR & Shaping the Future of Work | 14 December 2024 | Online
The event focuses on Transforming HR to meet the challenges of tomorrow and Shaping the Future of Work.
i4cp's 2025 Priorities and Predictions | 17 December 2024 | Online
Each year, i4cp gathers priorities and predictions about the coming year from executive boards, representing heads of HR, talent, learning, talent acquisition, DEI, total rewards, and people analytics.
Top 10 Future of Work Trends for 2025 and Beyond | 23 January 2024 | Online
In this The Gartner HR webinar, a Gartner expert explores the 10 trends shaping the workplace in 2025 and beyond, and lets how HR leaders can navigate these trends to achieve superior talent outcomes.
Let's Keep the Conversation Going
We would like to summarize key take aways of this newsletter;
Reimagining Performance Management:
Traditional appraisals are increasingly seen as ineffective, with 59% of employees stating they have no impact on their performance.
The Power of Feedback:
In Gallup Research, Managers who received feedback on their strengths showed 8.9% greater profitability.
Motivation Drives Performance:
80% of Gen Y said they prefer on-the-spot recognition over formal reviews, and feel that this is imperative for their growth.
Last but not least, companies should invest in its people as they invest in technology and infrastructures. For a healthy and successful performance results, run Leadership development programs and support with open feedback culture.
We would like to hear your thoughts and comments regarding the content we prepared in this newsletter, and also please share your suggestions on what you would like see in the following editions.