Organizations can achieve greater productivity and employee engagement with improved performance management, new research finds
AI and skill integration are enhancing the performance management process
NEW YORK, Oct. 29, 2025 (GLOBE NEWSWIRE) -- WTW (NASDAQ:WTW), a leading global advisory, broking and solutions company, found that almost half of organizations believe performance management optimization would significantly increase productivity, yet most programs lack clarity and effectiveness. The study also found that more organizations 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 organizations 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 organizations 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 organizations say that managers are effective at providing coaching and feedback to employees. And while most organizations 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 difficult conversations and deliver honest feedback, which limits the effectiveness of performance management,” said Kristy McClellan, 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 organizations 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 organizations (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 organizations are using skills for pay decisions.
Organizations are also seeking more simplification, fairness and differentiation around performance ratings. Currently about half of organizations (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 organizations either have changed their rating scale already or are considering doing so.
“Optimizing performance management processes is 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 Matt Kamensky, Senior Director, Employee Experience, 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 organizations and bonus payouts that are 50 percent larger at almost half of organizations.
- The most common reasons organizations 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 organizations 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, organizations 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.
About WTW
At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.
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