WTW found that almost half of organisations believe performance management optimisation would significantly increase productivity, yet most programmes lack clarity and effectiveness. The study also found that more organisations are using AI and integrating skills as part of their performance management process.
According to the 2025 Performance Management and Pay for Performance Virtual Focus Groups, almost half of organisations say productivity would increase by at least 10% if the performance management process was optimized. However, while employers say that employees expect clear goals and priorities, regular feedback, fair ratings and strong ties to rewards, just 39% of these organisations say their performance management process is effective at delivering on these expectations.
Another obstacle pertains to the role of managers. Although manager feedback is the most commonly used source of data in the evaluation process, just 20% of organisations say that managers are effective at providing coaching and feedback to employees. And while most organisations use goal cascades to set goals, challenges remain around manager capability to help set goals, alignment and communication, and keeping goals relevant throughout the year.
“Managers often lack the training and tools needed to have constructive conversations and deliver honest feedback, which limits the effectiveness of performance management,” said Tom Hellier, Senior Director, Work and Rewards, WTW. “Companies are starting to use AI to increase efficiency, improve the quality of outcomes, and enhance both the employee and manager experience.
More than one-third (37%) of organisations are currently using AI as part of their performance management process and a similar number are considering doing so. According to the study, goal setting (44%) and development plans (40%) are the most commonly cited uses of AI, followed by use in performance reviews (37%), and continuous feedback and coaching (35%).
In addition to AI, more than half of organisations (54%) have incorporated skills into their performance management process. Among this group the most common uses include the areas of learning, development and career growth (78%), goal setting (40%), and promotion decisions (29%). Just 18% of these organisations are using skills for pay decisions.
Organisations are also seeking more simplification, fairness and differentiation around performance ratings. Currently about half of organisations (45%) use a five-point rating scale, with most of the rest reporting using a 3 or 4 point scale. However, more than half (54%) of organisations either have changed their rating scale already or are considering doing so.
“Optimising performance management involves more than a systems upgrade. By embracing AI, integrating skills, simplifying ratings, and ensuring fair pay practices, companies can reap significant rewards in productivity as well as employee engagement,” said Gaby Joyner, Head of Employee Experience, Europe at WTW.
Other key findings
- Compared to average performing employees, those awarded the highest performance rating get a merit increase that is more than twice as large at one-third of organisations and bonus payouts that are 50 percent larger at almost half of organisations.
- The most common reasons organisations use pay for performance are to reward high performers (68%), motivate and engage employees (53%), drive business results (50%) and retain high potentials (48%).
- More than half of organisations say they effectively differentiate and reward high performance. Just as many are confident using performance rating as an objective reason for pay differentiation.
- To ensure fairness and consistency in pay for performance, organisations apply performance rating calibrations, clear guidelines and pay ranges, HR review and data analysis, training and communication support, and systematic processes and tools.
About the research
The 2025 Performance Management and Pay for Performance Virtual Focus Groups were conducted from September 15 to September 18, 2025, with multiple sessions to accommodate participants from different time zones globally. The Performance Management Focus Groups had a total of 280 registrants and the Pay for Performance Virtual Focus Groups had a total of 208 registrants. The registrants represented different geographic scopes (domestic, international, and global) across a broad range of industries.
