Nestor has been named an EMEA Technology Fast 500 Winner by Deloitte<br />
Nestor has been named an EMEA Technology Fast 500 Winner by Deloitte
Learn more

Performance Management Trends: The Shift toward Performance Enablement

12 min read

Nestor: Performance Management Trends: The Shift toward Performance Enablement

As organizations are adapting to the dynamic needs of the workforce and the accelerating pace of technological advancements, the question that lingers is: What are the most important performance management trends that have real outcomes and help both employees and managers to stay aligned, and effectively contribute to the broader organizational goals?

While advanced analytics and different styles of leadership are the first things you might think about, many other paradigm shifts are reshaping the very foundations of how we evaluate and enhance employee performance.

And we’ll explore them in depth in this article, which aims to unravel the intricacies of the future of performance management and discover the key insights that will reshape the workplaces of the years to come.

Let’s dive right in!

What is performance management?

Performance management is a systematic and organized process through which an organization evaluates, determines, and improves overall performance levels to move closer to its strategic objectives. Some of the critical elements in this process are:

  • establishing clear (performance) goals and expectations
  • measuring results against these benchmarks
  • providing timely and constructive feedback
  • supporting employee growth with personalized development opportunities

Performance management reveals insights across multiple levels — individual, teams, and collective — and its ultimate goal is to align the efforts of all employees with the larger long-term targets of the organization.

61% of HR leaders say their current performance management approaches aren’t an efficient use of their HR team and managers’ time.


Traditional vs modern performance management

In recent years, an increasing number of companies have started to move away from the traditional way of doing performance management, because it no longer fits the shifting needs of both employers and employees.

Some of the key limitations are the limited yearly reviews, which no longer produce desirable results, are past-oriented, and can suffer from recency bias (recent results overweigh overall performance).

Inefficient and inconsistent communication, as well as a lack of focus on the future, are other aspects that have brought about an urgent need for changing performance management systems.

So, what does modern performance management look like?

It becomes a continuous process, that’s focused on employees developing applicable and ideally ‘evergreen’ skills (learn more about soft skills, the skills of the future). In this updated form, performance management prioritizes regular check-ins and ongoing feedback, as well as goals that are flexible — keeping them relevant and personalized for individual employees and teams.

Of course, there are other aspects that define what modern performance management looks like. And we’ll explore the most important ones below:

What are the performance management trends that every organization needs to get right to go ahead?

#1 More collaborative goal-setting

Goal-setting used to be a top-down process. However, the needs and expectations of newer workforce generations have determined HR and people managers to start readjusting.

It’s no secret that employees want to be seen as people, or, in other words, they want to connect with their managers and peers beyond the typical aspects of their job titles. This also means that they seek ways to somehow integrate personal aspirations, or even well-being goals, into the development process at work.

And embracing this approach to goal-setting comes with mutual benefits:

  • stronger connections between managers and employees based on open and sincere discussions
  • a better understanding on the workers’ side of how their contributions are linked to important business goals
  • enabling the development of skills that may not be directly related to current roles but could support people in their future promotion(s)
  • strengthening a company culture and work environment in which everyone feels safe to articulate their personal and professional ambitions

In the future, 83% of companies will make their goals personal as well as professional.


#2 Project-based performance reviews and pay decisions

Adopting a project-based approach to reviews and compensation is next on our list of future project management trends.

Partially driven by new work models, like gigs and short-term projects, this shift can be advantageous to various companies and organizational structures, not only to those that are already embracing workforce agility and dynamic teams.

This is in line with the previously mentioned move away from annual reviews and helps employees to develop a better understanding of their performance after each project and determine whether they are progressing as much or as fast as they (and their employer) would like.

From the organization’s point of view, this approach will:

  • help provide more relevant feedback, fair evaluations, and financial rewards (including things like bonuses) on a project-to-project basis
  • quickly determine whether a specific employee or team meets performance expectations and is worth considering for future projects
  • establish clearer and more transparent and, most importantly, more flexible performance goals

#3 Managers embracing a coaching style of leadership

Leaving the traditional performance management process behind also means a shift in the role and expectations of people managers. While the job title itself might not change, its nature will. In many ways, managers will be expected to take on responsibilities that have commonly been associated with coaching or training.

That implies becoming an even more prominent figure in the process of employee development and constantly looking for ways to increase the motivation and progress of people in their team.

Things like self-discovery, problem-solving, or skill-building will become stronger priorities, and they will also considerably strengthen relationships between employees and supervisors — directly impacting engagement, satisfaction, and overall collaboration.

Embracing a coaching style of leadership will allow managers to unlock the full potential of their team members, but it doesn’t come without challenges. For some, it will represent a massive shift from what they’re used to and what they do really well. So, mentoring programs as well as other L&D initiatives must be in place to help them throughout this transition period.

#4 Increased focus on supporting employee career pathing and development

The next item on our list of performance management trends is directly related to the previous one. Focusing on employee career development comes from two different but critical needs:

  • employees (especially Gen Z) won’t stay at companies that don’t invest in their learning and development
  • organizations are facing severe talent shortages and skill gaps

And one of the most innovative ways of addressing these challenges is by taking a skills-based approach across the entire talent management process, which also includes performance management.

By focusing on skills, managers can develop a deeper understanding of the capabilities and proficiency levels of their team members and come up with (mutually agreed) development plans that are more personalized in nature and target specific areas of improvement.

In addition to self-assessment and the manager’s evaluation, 360-degree feedback has become a common method to gather information on someone’s skills and determine where they are in relation to performance expectations — and this method will only increase in popularity.

When implemented across the entire organization, skills-based approaches also streamline the career pathing process, since every job will be associated with a transparent and specific set of skills and proficiency levels — allowing anyone to make vertical as well as lateral and cross-departmental moves if they have the right skills or undergo the necessary upskilling or reskilling programs.

This flexibility and push for measurable employee development will significantly contribute to retention, which is only one of the benefits witnessed by skills-based organizations:

  • 107% more likely to place talent effectively
  • 98% more likely to have a reputation as a great place to grow and develop
  • 98% more likely to retain high performers
  • 79% more likely to have a positive workforce experience
  • 57% more likely to anticipate change and respond effectively and efficiently
  • 52% more likely to innovate
  • 49% more likely to improve processes to maximize efficiency
  • 47% more likely to provide an inclusive environment

More than half of HR and business leaders (59%) said they’re not using data to inform performance conversations and over half (55%) can’t spot high and low performers.


#5 Use of advanced analytics to make equitable and data-driven decisions

Another trend we’re seeing that will only grow in the future is the use of analytics and data insights when it comes to performance management. Why is it important?

Because traditional performance evaluations can fall prey to subjectivity, leading to biased assessments. That’s not the case, however, for advanced analytics, which transforms the entire process by objectively analyzing comprehensive data sets from multiple sources. In turn, this allows managers to:

  • quickly and accurately identify top performers and determine what makes them so consistent
  • discover the causes or patterns of underperforming individuals (or even teams) and list possible solutions (e.g., tailored training, coaching)
  • highlight areas that are either problematic or could benefit from improvement — especially to prevent future gaps in skills or simply to stay ahead of skills trends in the industry

Improving data literacy levels will also help managers continue their development and work toward even higher and more strategic positions (C-suite) within the company. This way, their lifelong learning journey continues and the company can be more at ease knowing that they are nurturing a healthy leadership pipeline.

#6 Mastering hybrid/remote performance management

Sixth on our list of performance management trends, it’s hardly surprising that managers will need to remain effective and influential even in the current era of hybrid and remote work.

One critical step is developing and maintaining a culture of trust, even when teams are dispersed across various locations (and even time zones). This is important because while open communication and data insights help a lot, they don’t always mitigate all the challenges of remote performance management.

Productivity paranoia, for example, is one issue that has come up, especially after the pandemic. In essence, it represents a manager’s fear that their employees aren’t as productive as they could, should, or claim to be — despite data and studies showing otherwise.

Transparent expectations and proper alignment between teams and coordinators will help in that direction. And regular check-ins are a must for any modern performance management process (as highlighted earlier), regardless of the office environment.

These are only some of the challenges as well as opportunities managers will have to upgrade their (digital) skills and find innovative ways to help their people and evaluate them fairly in the hybrid world of work.

More than half of HR and business leaders (58%) think that performance management is important now more than ever, with as many as 74% saying they find it more difficult due to hybrid working.


#7 Integration of employee wellbeing and (mental) health

This last trend aligns well with the first one on our list. As workers want to be seen as people, not just employees, that also means their personal situations, ambitions, as well as limitations will influence to a certain degree their performance as well as their development. And that also includes overall health and well-being.

Whether it’s issues like burnout or the reality that 90% of workers are affected by mental health challenges, either personally or through someone they are close to (according to WEF), organizations and HR departments have started to prioritize these aspects when it comes to their workers. And this can take various forms:

  • some are already offering a certain number of free (paid-for) therapy sessions
  • others have created internal confidant programs, through which employees can share issues they wouldn’t feel comfortable otherwise
  • physical health programs, encouraging people to be more active
  • team challenges to improve collaboration through fun activities (e.g., “Who has run the most this month?”)
  • offering what Simon Sinek calls ‘duvet days’: a certain number of days per year (say, five) when employees can simply call in the morning and announce they are taking that day off without a particular reason or simply because they don’t feel at their best

In addition to all these programs and wellbeing initiatives, managers will be encouraged to pay closer attention to their people — whom they often know better than anyone within the company — and encourage them to take time off and recharge if they notice an unusual dip in performance.

Frequently Asked Questions (FAQs) about the future of performance management

What does the future of performance management look like?

The future of performance management will be data-based, with an increased focus on employee development and career growth, likely supported by skills-based approaches that provide accurate and reliable employee and performance data.

In the (near) future, performance management is also likely to take on a more project-focused approach and to witness managers becoming more like professional coaches, overseeing a more holistic growth of their people — including keeping an eye on their general wellbeing and mental health.

What are the latest trends in performance management?

Some of the hottest trends in performance management, which are already being adopted, include:

  • the transition to a modern (skills-based) approach, which transforms the process into a continuous journey, relying on regular check-ins and ongoing communication
  • an increase in the adoption of high-tech data-driven integrated solutions, which go beyond traditional performance management platforms and rely on real-time data and reporting
  • empowering people through autonomy, recognition, and rewards

Why are companies changing their performance management systems?

Forward-thinking companies have realized that the current (traditional) performance management systems are no longer suitable for the modern workplace, in which both employee expectations and business needs have changed and are continuing to evolve as technology and other disrupting factors are redefining what we refer to as ‘work’.

Final thoughts

The performance management trends highlighted in our article show that this HR function is undergoing a transformative shift, adapting to the dynamic needs of the modern work environment.

Schedule a free demo and discover how we connect performance management, employee engagement, and career development through a skills-based approach to help HR and business leaders make talent decisions aligned with the ever-changing business needs.

Make smart, fast, and confident decisions with Nestor's skills-based talent management solutions

Make smart, fast, and confident decisions with Nestor's skills-based talent management solutions