October 2026
Performance management is a process that impacts every employee, every manager and, in most organisations, every pay decision. However, it is a process which routinely causes employers anxiety and frustration and is met with mistrust by employees and managers alike. When it is done well, it connects individual effort to business priorities and helps people to grow, building engagement and loyalty along the way. That is the paradox: a process that is so important and has so much to offer the business and employees should be appreciated and valued, not merely tolerated. This Lens is for organisations frustrated with their current approach or about to review it, particularly as the move towards greater pay transparency puts the link between performance and pay under closer scrutiny.
Why performance management matters, and why it disappoints
Performance management earns its place in a business because it delivers three things that no other process does:
Alignment. Performance management aligns individual performance with business aspirations in a way that no other business process can.
Engagement. People want to know what is expected, how they are doing and that someone has noticed.
Reward. It informs pay progression, bonus and promotion. Career growth is a core part of the reward package, and this is where careers and engagement can be supercharged or switched off.
The real value of a performance management approach sits in the conversation between a manager and an employee. However, frustration often arises from the process built around it; employees may feel they are experiencing a ‘verdict’, managers have to manage the administration, and leaders see little change in performance.
Asking too much of one process
A common reason why performance management fails in many organisations is that it is relied on to serve too many purposes. Many frameworks have at least six common aims for the performance management approach (see table below), and each requires something different from the manager and the employee. Employers should decide on the core purpose of their approach and build the design around it.
| Purpose | What it needs | What it competes against |
|---|---|---|
| Align goals to strategy | Forward-looking, flexible goals | Fixed annual targets to inform a rating |
| Develop people | Candour about development needs | Any link to pay |
| Decide pay and bonus | A defensible, differentiated judgement | Open, exploratory conversation |
| Spot talent and successors | A view of potential | Ratings of past performance |
| Manage underperformance | Evidence and a paper trail | Trust and a light touch for others |
| Recognise and engage | Frequent, specific appreciation | An annual event |
The deepest conflict is often between the roles of ‘coach’ and ‘judge’ that a performance management process pushes a line manager into. An employee who is aware that the conversation impacts their pay will present their best case, while an employee who wants to develop needs to admit what is not working. One meeting cannot address both conversations.
Developing an effective performance management approach
The manager sets the tone. Therefore, the same process can deliver very different experiences from one team to the next. Investment in manager capability to enable the performance management approach to be deployed effectively usually provides a better return than investment in developing the forms or platforms.
Clarity matters when it comes to performance. Many employers scrapped performance ratings a decade ago and research at the time by CEB (now part of Gartner) found that performance and the quality of manager conversations both fell when ratings were removed.
The ‘win-win’
Performance management needs to deliver value to the business and the employee. The potential benefits of an effective performance management approach for employees and the business include those listed below.
| The business ‘win’ | The employee ‘win’ | |
|---|---|---|
| Direction | Effort focused on current business priorities | Clarity on what is expected and why it matters |
| Feedback | Problems surfaced early, employee strengths utilised and development areas addressed | Regular, usable and valued feedback from someone who understands their role and knows their work |
| Reward | Pay focused on ‘impact’ with clear, defensible decisions | An explanation of how pay is determined and how the individual can influence outcomes |
| Growth | A view of capability and future succession | A realistic picture of career trajectory |
Ellason commentary
The performance management paradox is often self-inflicted. Employers need the process to add value and so keep adding to it, and each addition weakens the conversation that generated value in the first place. We suggest that those unhappy with their current approach to performance management, and those about to embark on a review, consider the following five success factors in their evaluations:
Clarify the purpose. If performance management is about doing only one or two things really well, what would they be? Identifying the primary purpose for performance management means you can design for it.
Understand the conflicts. Separate the development conversation from the pay decision.
Keep the ‘mechanics’ as light as possible. If managers need training to complete the form, the form itself is probably too complicated.
Make the link to pay transparent. Pay transparency rules increasingly expect objective, accessible criteria for pay progression.
Explain the purpose. Perception shifts when people see the process doing what it says.
Please do not hesitate to contact any of the Ellason team should you wish to discuss this issue further.