5 Performance Management Mistakes Companies Make in 2025

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Performance management is a cornerstone of organizational success, aligning employee efforts with company goals, fostering career development, and boosting employee engagement. However, many organizations stumble into performance management mistakes that undermine these benefits.

Over a third of U.S. companies are moving toward continuous performance management, with frequent, development-focused performance discussions, according to Harvard Business Review. Below, we outline the top five mistakes in the performance management process and provide actionable solutions to build a successful performance management strategy.

Why Do So Many Companies Struggle with Performance Management?

Performance management programs are quite complex and prone to errors due to several factors:

Rapidly Changing Business Environments: Technological advancements, hybrid work models, and evolving customer satisfaction demands require agility, which traditional performance management systems like annual performance reviews often lack.
Untrained Managers: Many team leaders lack the skills to effectively coach employees, leading to inconsistent or biased feedback that hinders employees' understanding of performance expectations.
Misaligned Goals: When individual objectives don’t align with organizational goals, employees feel disconnected, reducing engagement and overall performance.
Bureaucratic Processes: Overly complex systems consume time and resources, placing too much focus on paperwork rather than meaningful employee performance discussions.

These challenges highlight the need for a performance management strategy that helps leaders avoid common pitfalls to manage employee performance effectively and drive business success.

The Top Five Performance Management Mistakes

Infographic on mistakes made in the performance management process

Below, we outline the five most common performance review errors, their impacts, and solutions to ensure effective performance reviews.

Mistake #1: Setting Vague or Unrealistic Goals

Vague or unrealistic performance goals create confusion and frustration. For example, a goal like “improve sales” lacks specificity, leaving employees unsure of their job responsibilities. Unrealistic targets can demotivate even the highest performers.

A Gallup study found that only 14% of employees feel inspired to improve performance after performance appraisals, often due to unclear key performance indicators.

Impact: Misaligned goals lead to wasted effort, reduced morale, and lower organizational performance. Strategic clarity accounts for 31% of the difference between high- and low-performing teams.
Solution: To address this, adopt the SMART goal framework (Specific, Measurable, Achievable, Relevant, Time-bound). For instance, instead of “improve sales,” set a goal like “increase monthly sales by 10% within Q3 by targeting new client segments.”

Frameworks like OKRs (Objectives and Key Results) can further align individual goals with organizational priorities. Tools that support cascading OKRs enable managers and employees to collaboratively set and track measurable objectives, ensuring clarity and alignment.

Aspect	Vague Goal Example	SMART Goal Example
Specificity	Improve team performance	Increase team project completion rate by 15%
Measurability	Be more innovative	Launch 3 new product features by end of Q2
Achievability	Double revenue in 6 months	Increase revenue by 10% in 6 months
Relevance	Attend more training	Complete leadership training to improve team morale
Time-bound	Grow customer base	Add 50 new customers by December 31

Mistake #2: Infrequent or One-Sided Feedback

Relying on annual performance reviews or delivering one-sided feedback limits the ability to receive feedback effectively. Annual reviews focus on recent performance, missing opportunities for real-time feedback and continuous improvement throughout the year. One-sided feedback can make employees feel judged rather than supported, reducing engagement.

Impact: Infrequent feedback fails to address issues promptly, while one-sided feedback can lower engagement. Gallup research finds that employees who receive meaningful feedback from their manager at least once a week are significantly more engaged. 61% of these employees are engaged, compared to much lower engagement rates for those who receive feedback less frequently.
Solution: Foster a culture of continuous feedback with weekly or monthly check-ins. Encourage two-way dialogue, starting with employee self-evaluations to ensure a greater sense of inclusion.
Tools that facilitate continuous feedback provide templates for constructive feedback and actionable feedback, fostering collaboration. Poorly prepared managers often fail to deliver meaningful feedback, as highlighted in this SHRM article.

Feedback Type	Traditional Approach	Continuous Feedback Approach
Frequency	Annual performance	Weekly or monthly check-ins
Direction	Manager to direct reports	Two-way dialogue
Focus	Evaluating performance	Ongoing improvement and development
Tools	Paper-based forms	Performance management software with real-time tracking

Mistake #3: Lack of Manager Training

Untrained managers struggle to deliver constructive criticism, set goals, or handle difficult conversations, often introducing biases like recency bias or favoritism. According to recent Gallup research, only about 27% of managers globally report feeling fully engaged—down from 30% the previous year—highlighting challenges in leadership development.

Impact: Poorly trained managers can erode trust, reduce morale, and introduce inconsistencies. A piece of data shows that only 36% of managers receive peer feedback through formal processes, suggesting gaps in continuous development.
Solution: Invest in training managers on feedback delivery, goal setting, and bias mitigation, using practical scenarios like role-playing. Research highlights that companies with formal employee training programs see significantly higher productivity and profitability.

For instance, firms with well-developed training programs have been shown to increase productivity by about 17% and profitability by 21% on average. These statistics underscores the value of systematic training investments rather than ad hoc approaches.

AI-powered tools can analyze feedback for biases, ensuring fair evaluations. Review biases can provide actionable steps for consistent performance reviews.

Bias Type	Description	Mitigation Strategy
Recency Bias	Focusing on recent performance	Review performance over the entire period
Halo Effect	Letting one positive trait skew perception	Evaluate multiple performance aspects
Leniency Bias	Overly positive rating scales	Use standardized evaluation criteria
Central Tendency Bias	Rating everyone as average	Encourage differentiation in ratings

Mistake #4: Ignoring Employee Development

Key statistic about employee development

Focusing solely on performance appraisal without addressing employee development leads to stagnation. Many organizations fail to integrate development plans, missing chances to build skills and retain talent. Research indicates that 94% of employees would stay longer with companies that invest in talent management and career development.

Impact: Neglecting development increases turnover and reduces engagement. Employees unsupported in career growth are less committed to the organization’s success.
Solution: Developing Talent through Individual Development Plans
Create Individual Development Plans (IDPs) outlining career goals, skill development, and training needs, integrated with the review process.

Development	Traditional Approach	IDP-Based Approach
Objective	Evaluate past performance	Plan future growth
Frequency	Annual review	Ongoing updates and check-ins
Tools	Generic training programs	Personalized development plans tied to career goals
Outcome	Limited skill growth	Enhanced skills and retention

Mistake #5: Failing to Follow Up on Reviews

Reviews without follow-through feel like empty exercises, eroding trust and accountability. Employees may perceive the current process as a formality if action items are ignored, reducing motivation to achieve business results.

Impact: Lack of follow-up undermines credibility and fails to help the organization meet its goals. Failing to follow up frustrates employees, as noted in Forbes.
Solution: Use a performance review tool to track action items, set reminders, and schedule follow-up meetings. Platforms that connect with tools like Microsoft Teams and Outlook ensure consistent follow-through for most organizations.

For example, Teamflect is a performance management system designed to live within Microsoft Teams, that not only helps organizations conduct performance appraisals through intuitive templates but also encourages managers to follow-up on performance reviews automatically.

It also supports automated check-ins and sends review reminders directly through Teams and Outlook, helping ensure accountability and that no critical tasks or discussions get lost between meetings.

Final Thoughts

Avoiding common performance management mistakes requires more than just implementing new tools or processes; it demands a commitment to ongoing improvement and strategic alignment. By fostering an environment of continuous feedback, embracing integrated technologies, and regularly reviewing the effectiveness of your system, organizations can create a culture of accountability and sustained progress.

Above all, ensuring that performance management efforts align with broader organizational objectives helps teams stay focused and driven. With thoughtful, data-informed approaches, leaders can transform performance management into a powerful lever for individual and collective success.

Written by

Emily Helen Arnold

Emily Helen Arnold is a People Strategy Specialist and Senior Content Writer at Teamflect, where she explores the intersection of organizational behavior, employee experience, and workplace transformation. Drawing on her passion for the science of how teams work, she creates research-driven articles on people strategy, leadership, and the evolving dynamics of high-performing organizations, especially within the Microsoft Teams ecosystem. Emily is also a regular contributor to Teamflect’s webinars and podcast series, sharing practical insights and interviewing experts on modern HR practices. Her guiding principle is simple: Deliver actionable, evidence-based content that empowers organizations to unlock their full potential through thoughtful, data-informed people strategies.