executivesummary

Performance Management Practices Survey Report

By Paul Bernthal, Roger Sumlin, Patty Davis, and Bob Rogers

The majority of CEOs surveyed believe their performance

management system drives the key factors associated with both
business and people strategies.

translating a strategy into results. Performance

Background
In 1993, Development Dimensions International
(DDI) and the Society for Human Resource
Management’s survey Performance
Management: What’s Hot—What’s Not, A
National Study of Current and Future Practices
examined the performance management practices
of 79 companies. The survey also asked
respondents to predict which practices they
believed would be most critical in the future.
Since that 1993 study, DDI has established the
HR Benchmark Group, an alliance of
organizations committed to sharing information
and benchmarking current HR practices. These
organizations, a mix of DDI clients and non-
clients, have agreed to respond to periodic
surveys in order to provide current information in
various areas of human resources. The
organizations represent a geographical and
industry cross section.
This study, Performance Management Practices,
substantiates that successful organizations—more
than ever—realize that performance management
is a critical business tool, particularly in
management, therefore, continues to grow and
develop as an integrated business system, with
strong links to business strategy, compensation,
employee development, and other systems.
Purpose
The objective of this study was to investigate
organizations’ current performance management
practices and determine which system
characteristics or qualities influenced
effectiveness and predicted success. The study,
based on survey results from 88 of the HR
Benchmark organizations, was designed to
establish a general profile of each organization’s
performance management system as well as
address four main areas:
1. Current and best practices.
2. CEO ratings of the effectiveness of their
organization’s performance management
system in relation to areas such as improving
financial performance, developing
 organizational talent, and driving the
organization’s strategic plan.
3. Overall system effectiveness.
4. Each system’s impact on business, the
organizational culture, and customer
satisfaction.
Impact and Best Practices
for Results
In addition to determining the most effective
performance management systems, it was
important to discover the program qualities and
practices that linked directly with organizational
success in terms of five critical outcomes—
financial performance, productivity, product or
service quality, customer satisfaction, and
employee job satisfaction.
Most survey respondents perceived that their
performance management systems directly
influenced key outcomes. And, when those
performance management systems were flexible
and linked to strategic goals, organizations were
more likely to see improvements in these five
critical areas. This analysis also showed that
team objectives, nonmanager training, appraiser
accountability, and links to total quality
management were the specific practices most
strongly associated with positive outcomes.
Findings Overview
Performance Management Today
• A clear majority of the organizations (89%) in
the sample currently use a company-sanctioned
performance management system or approach.
For the average organization this system is
three to five years old and is used by all
employees.
• A large majority (78%) of the performance
management systems involve a single yearly
performance review. About 16 percent of the
organizations conduct biannual reviews.
Most Frequently Used Practices
• Today, 51 percent of organizations frequently
train managers in applying performance
management systems, and 22 percent
frequently train nonmanagers.
• Thirty-eight percent of the sample
organizations frequently use competencies in
their performance management systems. They
establish job competencies and/or core
competencies to clarify what is expected of
employees and to link different systems.
• Twenty percent of the current sample of
organizations frequently include team-based
objectives in individual performance plans.
Team appraisal, in which team members or
peers actually set goals and appraise one
another, is less common.
• Approximately 20–25 percent of the
organizations in this survey frequently use peer
input, customer feedback, and input from direct
reports.
• For rating techniques organizations rely
primarily on overall ratings (a single rating that
represents the overall evaluation of an
individual’s performance), summary statements
(an essay that summarizes overall
performance), and numerical ratings.
Changes in Usage
• Training for both managers and nonmanagers
in performance management has doubled in the
past four years.
• Forced rankings (i.e., the use of a
predetermined percentage of ratings
distribution) decreased by more than 300
percent since 1993. Numerical rating, which
involves the use of numbers as labels for rating
scales, also has declined. These ratings reflect
more quantifiable performance data, but they
are rarely used as the sole form of evaluation.
• Team-based objectives have become more
common.
• The most common rating tools—overall ratings
and summary statements—are used even more
frequently now than they were four years ago.
• Respondents to the 1993 survey predicted a
large increase in the use of team appraisal.
That prediction proved to be off target.
• Different forms of performance management
input have become more common, particularly
peer input.
A View from the Top—
CEO Ratings
The majority of CEOs surveyed (63%) believe
their performance management system drives the
key factors associated with business strategy. But
an even greater majority, approximately 79
percent perceive their performance management
system drives the people or the cultural strategies
that maximize human assets.
Survey results also indicate that when CEOs
realize the value of performance management in
driving business strategy, overall system
effectiveness is significantly higher. In general,
the success of performance management and its
affect on business and cultural strategies depend
heavily on senior- level support.
Effectiveness
Given that system effectiveness scores ranged
between 2 and 8 (on an escalating scale of 1–10),
researchers wanted to determine which
performance management system qualities
differentiate a highly effective system from a less
effective one. Although some system qualities
such as employee involvement and flexibility
were more prevalent, they were not necessarily
the qualities most predictive of system success.
The following system qualities and practices had
the strongest relationship to overall ratings of
effectiveness.
Alignment
Aligning performance management to support
organizational goals and to integrate with other
systems proved to be the most critical
differentiator in system effectiveness. However,
it was the least common quality of the
performance management systems in our sample.
Accountability and Training
The most successful performance management
systems required training in using the system,
established clear accountability for the people
using it, and focused on competencies.
Participant Profile
A total of 88 organizations participated in this
study.
• The typical survey respondent was a human
resource manager (84%).
• Half of the organizations in the survey sample
(44) also completed a special survey section for
CEOs.
• The sample included both DDI clients (47%)
and non-DDI clients (53%).
• The average organization was in manufacturing
(33%), but the total sample represented 14
different industries, ranging from banking to
hospitality to communication.
• In 1996, 37 percent of the surveyed
organizations reported revenue in excess of $1
billion.
• Median total company size was 4,000
employees (range 147 to 122,000).
• The average organization reported a workforce
of approximately 50 percent hourly employees.
• All U.S. geographic regions were represented
in the sample, with the largest proportion of
respondents located in the Midwest (41%).
 incorporating core organizational competencies
A Look Forward
and competencies for individual jobs into their
Today performance management is a broad, performance management system, organizations
sweeping, living system, characterized by will translate their overall strategies into
ongoing interactions, feedback, and mutual individual expectations, behaviors, and activities.
ownership. Based on the trends observed in the
Despite all these changes, common practices
past four years, performance management should
(overall ratings, summary statements, and
continue to grow, playing an even stronger, more
numerical ratings), supplemented with other
diversified role in organizational and individual
practices, will continue to define rating systems.
success.
However, as this study revealed, the practices that
The most obvious changes, a reflection of this
make a difference for business success often are
broadening role, will be in how organizations use
less commonly used. These seemingly
performance management to achieve multiple
conflicting findings indicate that, to stay ahead,
goals. Expectations will be for performance
organizations should continually reevaluate and
management to drive individual performance,
try new methods for managing performance.
career planning, succession planning, training
transfer, and business strategy. To do all of this, New practices mean new challenges, but
it will become flexible and personalized. organizations will have to continually align and
realign, monitor and modify, and search for new
Organizations will increasingly use their
ideas so their performance management system
performance management system to
will be able to accommodate new business
communicate organizational objectives. By
demands.
establishing and

For more information, contact:

HR Benchmark Group
Paul Bernthal
Development Dimensions Intetnational
1225 Washington Pike
Bridgeville, PA 15017
Phone: 1-800-9-DDI-MAIL, extension 2786
Fax: 412-220-5204
E-mail: hrbench@ddiworld.com

Paul Bernthal
Senior Research Consultant
To order a complete report, call: Survey Series Director
800-DDI-1514
(800-334-1514)

MKTCPGN43 Printed on recycled paper.

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