SHRM Survey Findings HR Professionals Perceptions About Performance

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

Key Findings • How often do organizations conduct formal employee performance appraisals? Almost threequarters (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 2014 2

Key Findings Frequency of performance appraisals [CATEGOR Y NAME] [VALUE] [CATEGO RY NAME] [VALUE] Priority organization places on performance management [CATEGO RY NAME] [VALUE] Top priority 30% Some attention and resources given 65% [CATEGORY NAME] [VALUE] 46% Grades given for the effectiveness of performance management 42% agree Managers at my organizations did an effective job of differentiating between poor, average and strong performers. agree Managers at my organization are willing to “make the tough calls”. 32% 38% Disagree 21% C 53% C+ to B 12% B+ to A SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 3

What do these findings mean for the HR profession? • 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 2014 4

Typically, how often do employees within your organization undergo formal performance appraisals? Every other year or less frequently 2% Annually 72% 16% Semi-annually (twice a year) Quarterly Monthly As needed (e. g. , when individual performance problems arise) 3% 0% 2% By request of employee or his/her supervisor 0% Ad hoc 0% Other 1% My organization does not conduct formal employee performance appraisals 3% Note: n = 391. Percentages do not total 100% due to rounding. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 5

If you were to give your organization a “grade” based on its overall effectiveness with performance management, what grade would you give? A 2% A-/B+ 10% B 27% B-/C+ 26% C 21% C-/D+ 10% D F 3% 1% n = 359 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 6

How much of a priority will performance management be in the coming year compared with other business issues? Performance management will be a top priority at our firm 30% Some attention and resources will be given to performance management, but other business issues are a higher priority Performance management will not be a priority in the coming year at our firm 65% 5% n = 332 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 7

If you were to give your organization a “grade” based on its overall effectiveness with performance management, what grade would you give? 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 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). 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%) Some Attention and Resources Will Be Given to Performance Management C grade (80%) > A-/B+ grade (36%) Note: Only statistically significant differences are shown. Performance Management ©SHRM 2014 8

Managers’ role in performance management 2% Managers in my organization do an effective job of differentiating between poor, average and strong performers 30% Managers in my organization are willing to “make the tough calls”* as appropriate 22% 34% 19% 43% 3% 38% 4% 4% Strongly disagree Disagree Neither disagree nor agree Agree Strongly agree Note: n = 358 -361. 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 2014 9

Demographics SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 10

Demographics: Annual Revenue Less than $1 million 4% $1 million to less than $5 million 19% $5 million to less than $10 million 11% $10 million to less than $20 million 11% $20 million to less than $50 million 13% $50 million to less than $100 million 12% $100 million to less than $500 million to less than $1 billion or more 13% 4% 14% 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. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 11

Demographics: Organization Industry Percentage Professional, scientific and technical services 22% Government agencies 16% Health care and social assistance 12% Manufacturing 12% Finance and insurance 11% Educational services 9% Retail trade 5% Transportation and warehousing 5% Administrative and support and waste management and remediation services 4% Construction 4% Wholesale trade 4% Utilities 3% Note: n = 338. Percentages do not sum to 100% due to multiple response options. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 12

Demographics: Organization Industry (continued) Percentage Accommodation and food services 2% Information 2% Mining, quarrying, and oil and gas extraction 2% Real estate and rental and leasing 2% Religious, grant-making, civic, professional and similar organizations 2% Repair and maintenance 2% Agriculture, forestry, fishing and hunting 1% Arts, entertainment and recreation 1% Personal and laundry services 1% Other industry 10% Note: n = 338. Percentages do not sum to 100% due to multiple response options. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 13

Demographics: Organization Sector Publicly owned for-profit 17% Privately owned for-profit 48% Nonprofit 15% Government Other 16% 4% n = 336 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 14

Demographics: Organization Staff Size 1 to 99 employees 23% 100 to 499 employees 31% 500 to 2, 499 employees 21% 2, 500 to 24, 999 employees 25, 000 or more employees 16% 9% n = 332 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 15

Demographics: Other Does your organization have U. S. -based operations (business units) only, or does it operate multinationally? 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% n = 255 n = 355 What is the HR department/function for which you responded throughout this survey? Corporate (companywide) 70% Business unit/division 16% Facility/location 14% n = 250 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? 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% n = 249 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 16

SHRM Survey Findings: Perceptions About Performance Management Effectiveness In collaboration with and commissioned by the National Center for the Middle Market (NCMM) Survey Methodology • 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 SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 17

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About SHRM Founded in 1948, the Society for Human Resource Management (SHRM) is the world’s largest HR membership organization devoted to human resource management. Representing more than 275, 000 members in over 160 countries, the Society is the leading provider of resources to serve the needs of HR professionals and advance the professional practice of human resource management. SHRM has more than 575 affiliated chapters within the United States and subsidiary offices in China, India and United Arab Emirates. Visit us at shrm. org. SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 19

About the National Center for the Middle Market ACADEMIC & PRACTIONER RESEARCH EVENTS EDUCATION AND OUTREACH + Middle Market Indicator + State Economic Studies + Focused Research Talent and People; Growth and Innovation; Customer Focus and Sales; Finance and Governance; Operational + Congressional Caucus on Middle Market Growth + Briefings for State and Local Policy Makers + Executive Education + Industry Cluster Program + National Middle Market Summit + Regional Partnerships and Events + Events with Research and Strategic Partners + Middle Market Student Summit + Case Competition Excellence For more information go to www. middlemarketcenter. org SHRM/NCMM: Perceptions About Performance Management Effectiveness ©SHRM 2014 20