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The Pivotal Role of AI in Performance Management

By Michelle Gouldsberry
September 20, 2023
8 minute read

Enterprise HR leaders are quickly realizing the potential of artificial intelligence (AI) to automate tasks, surface key insights, and generate new content from existing information, and that includes AI in performance management.

Traditional performance management processes can be painstaking and time-consuming, says Arnaud Grunwald, chief product officer at Betterworks. They primarily make managers responsible for collecting and interpreting data to understand their employees’ performance. “Incorporating AI, particularly generative AI, into performance management can relieve this burden from managers, offer deeper, objective insights into past employee performance, remove the bias from the calibration process, and inform career growth and skill-building,” Grunwald says.

According to Doug Dennerline, CEO of Betterworks, “Generative AI will be able to use data to write an unbiased and comprehensive performance review based on an employee’s entire body of work for the review cycle. The manager will still be in charge, with AI serving as a co-pilot. This capability will save managers a lot of time and free them to focus on strengthening relationships with their employees and doing strategic work.” 

The current state of AI in performance management

Generative AI (GenAI) is the latest wave of AI technology, and HR is among the many business functions that can streamline, automate, or even displace legacy processes. In fact, 81% of HR leaders have already considered or implemented AI solutions to improve their process efficiency, according to Gartner’s AI in HR: A Guide to Implementing AI in Your HR Organization.

AI can be used in performance management systems to streamline the process of tracking, evaluating, and rewarding workers. This technology can help HR leaders and managers set better goals for employees, improve the feedback they receive, and identify and provide recommendations for areas of improvement. 

By collecting and interpreting employee performance data, AI-driven performance management systems can provide real-time updates and insights to employees and managers at scale. This helps your workforce make better decisions more efficiently while improving overall organizational performance.

AI-driven performance management systems have the potential to optimize performance management by providing a comprehensive view of actual performance, in turn driving meaningful conversations between managers and workers — all within the flow of work. “They will get the full benefit of performance management,” Grunwald says, “all the things that we are advocating for — team alignment, employee engagement, continuous coaching and development, succession planning, and talent clarity.”

Managers and employees…will get the full benefit of performance management, all the things that we are advocating for —  team alignment, employee engagement, continuous coaching and development, succession planning, and talent clarity.”

arnaud grunwald, chief product officer, betterworks

3 key applications of AI in performance management

AI has great potential for HR leaders, but like any technology, it’s most effective when applied thoughtfully. Here are three areas where we most expect GenAI to influence performance management.

Providing better feedback

Fair, effective, and actionable feedback is essential to a great employee experience and better performance. According to Betterworks’ 2023 State of Performance Enablement report, nearly half (49%) of employees are considering leaving their jobs because their manager is bad at giving feedback. Managers can struggle with feedback for many reasons, including insufficient training, time, or resources.

AI in performance management takes the pain and second-guessing out of delivering feedback that’s candid, supportive, and oriented toward actions and solutions. 

“Feedback is riddled with bias,” Dennerline says. ”Most of us are not psychologists. We don’t necessarily know what motivates or demotivates our people. With data and GenAI, we can remove the bias, remove the opinions, and actually give employees actionable feedback.” 

In addition to assisting with feedback composition, GenAI can “summarize all the feedback, all the mid-year conversations that an employee has had, and summarize it in a structured manner that’s easy to digest,” Grunwald says. “AI can then generate a comprehensive and unbiased performance summary.”

AI-powered performance management processes collect data from multiple sources for a fuller and unbiased picture of employee performance. Within Slack or Microsoft Teams, for example, AI tools can recognize when conversations include feedback or recognition and pull that interaction into the performance management platform to provide actionable suggestions that are personalized for each employee.  

“Generative AI will be able to use data to write an unbiased and comprehensive performance review based on an employee’s entire body of work for the review cycle. The manager will still be in charge, with AI serving as a co-pilot. This capability will save managers a lot of time and free them to focus on strengthening relationships with their employees and doing strategic work.”

doug dennerline, ceo, betterworks

Facilitating ongoing conversations

When managers have regular performance conversations, employees report feeling more productive, engaged, and confident, according to our State of Performance Enablement report. Despite the positive outcomes, however, only half of employees are having these critical conversations with their managers.

Managers are busy, often serving as individual contributors in addition to being team leaders. They can struggle to find the time for ongoing, meaningful conversations with their team members, much less know what to focus on in individual conversations. 

GenAI can help managers and employees have better conversations by providing intelligent prompts for managers based on employee data collected in a performance management system. These prompts are based on real-time analysis of performance, past conversations, and the employee’s goals. For the AI, this is another session of reinforcement learning with human feedback which further develops it to managers’ or employees’ preferences. The result for managers is tailored guidance so they can have meaningful personal interactions with their reports and be more effective coaches with less effort.

Developing powerful goals

Setting the right goals can be challenging for employees. There are a few components of effective goal setting. First, personal goals should align with the goals of the worker’s team, department, and the overall business. Goals should leverage each team member’s unique skills and abilities. They should neither be too easy nor unfairly difficult — the best employee goals are stretch goals, which include practice in the skills employees need to achieve their career aspirations. 

Employees often struggle to pull all of these elements together into actionable objectives on a quarterly basis. When this occurs, employees are less likely to write meaningful, relevant goals — and they might be discouraged from writing goals at all.

AI-powered assistants can help employees write clear and well-constructed goals by curating relevant information, such as an employee’s current duties and career aspirations, their manager’s goals, and objectives for the team and the business.

5 benefits of AI-driven performance management

The primary role of AI in performance management is to increase manager effectiveness so that managers can transform simple employee interactions into powerful drivers of business impact.

Here are several benefits of applying GenAI to performance management.

Reduced risk of recency bias and other biases

Human biases can skew a manager’s perception of performance. When giving a performance evaluation, recency bias can prompt managers to put more emphasis on recent events, good or bad. If an employee recently struggled with deadlines, for example, their manager may give them a more negative review — even if their performance track record overall was outstanding.

AI can help managers combat unintended recency bias in conversations and feedback by making it easy to refer to historical performance data. “Managers are not going to miss those things that might have been captured already or captured six months ago because it’s all there for them,” says Cheryl Porro, senior vice president of engineering at Betterworks.

By providing a comprehensive view of an employee’s accomplishments, skills, and capabilities,

AI also helps guard against other unconscious biases, such as affinity bias and the “halo and horns effect,” that can affect performance reviews and calibrations

Improved employee productivity

Performance feedback is most useful when it’s delivered in the flow of work, giving employees the chance to apply it in real-time. However, managers often struggle to deliver real-time employee feedback, especially in remote and hybrid settings, when they may not have as much visibility into performance.

Augmenting performance management with AI can increase employee productivity by facilitating personalized feedback and performance insights — all in the flow of work. GenAI-powered performance reviews can help managers deliver better feedback more consistently, while employees get sound advice they can immediately implement for better outcomes.

Increased fairness and objectivity

Fairness is a key element of a great employee experience. In fact, fairness was the most important workplace quality for respondents in our State of Performance Enablement report — ahead of characteristics including good work culture, flexibility, and growth. AI helps managers and peers leverage feedback given across time and place for a more complete and objective picture of employee performance. This reduces the likelihood of subjective judgments because managers are relying on data-driven feedback and documented conversations.

Higher-quality human relationships

One of the greatest benefits of implementing AI at work is its ability to make work more human. Applying AI in performance management can streamline or automate administrative and time-consuming tasks for managers, creating more time for meaningful conversations and coaching that keep employees engaged, productive, and performing at their highest level.

Greater organizational success

Because AI helps organizations improve their performance management through data-driven insights, your managers can make better judgments about coaching employees to improve and develop their strengths. This can ultimately lead to increased organizational success, as employees are focused on the areas with the biggest payoff and deliver better outputs for the business.

How to implement AI technology responsibly 

Like any use of AI in the workplace, companies must be sure to protect data privacy, be transparent about their use of the technology, and deploy appropriate safeguards to detect, prevent, and mitigate bias. Start by looking at the foundation models used by the vendors of whatever AI tech you’re relying on. Find a technology partner who can demonstrate transparency and show how they’re prioritizing data privacy and security. 

“We are making sure we are securing everything: securing in transit and securing at rest,” Porro says.

Users also have a responsibility to use AI tools safely, ethically, and responsibly. When using AI in performance management, that onus falls on HR leaders and people managers. 

GenAI is often more relatable than other types of AI because it can create new content from existing outputs. It’s not human, but the way it responds in real-time to prompts makes it feel more real. This relatability makes GenAI easier to use but also increases the risk of people becoming too trusting of its outputs.

“That’s what makes it really such a leap, and so powerful and useful — but that’s also where the risk comes in because essentially there’s a creative element to the large language model,” Porro says. “Every enterprise, as their folks are adopting this technology in novel ways, needs to make sure everyone understands that risk.” 

You can’t take GenAI’s output at face value. There must always be a human in the loop to verify the AI algorithm’s accuracy, especially given the occurrence of so-called AI hallucinations. When using AI for performance management, embrace the potential while proceeding with caution.

Applying AI in performance management

GenAI presents a powerful opportunity to improve performance management outcomes for employees, managers, HR leaders, and organization‌s.

AI can help your managers unlock the performance potential of your workforce by streamlining tasks, summarizing key information, and freeing up time for one-on-one interactions. When you understand how to thoughtfully implement AI, you can enter a new era of transformational performance management.

Want to learn more? Explore 3 Ways AI Transforms Work According to HR Leaders

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