Performance management, epitomized by the ritual of the annual performance review, is heading toward a reckoning.
As many organizations navigate rapid change, this annual-but-isolated island of reflection feels disconnected from the daily realities of work, when what’s needed is a causeway that links reflection to action.
Dynamic organizations can see priorities change on a quarterly or even monthly basis. In fact, 90% of C-suite leaders identified an accelerated pace of change since January 2025, and 84% expect the rate of change to further increase, according to a report from Accenture.
But leaders can’t afford to let performance management fall to the side when managing rapid change. Organizations that focus on employee performance are 4.2 times more likely to outperform peers, “realizing an average 30% higher revenue growth and experiencing attrition five percentage points lower,” according to research from McKinsey.
How can organizations balance the rate of change with a focus on performance management, all while managing the employee growth that stems from both?
Artificial-intelligence-powered coaching provides one answer, with an aim to transform a static review process into a dynamic exercise that can fit the shifting demands of constant change. AI-driven coaching focuses on delivering timely, personalized feedback that supports development journeys for individual contributors and managers alike.
However, as organizations consider AI tools, HR leaders must carefully navigate the path forward, balancing innovation with the essential need for human trust, including buy-in from managers and employees.
"As anyone who has ever participated in an annual performance review knows, they are fraught with a litany of shortcomings."
Christopher D. Lee
Managing Director of Storbeck Search, a recruiting firm
The State of Performance Reviews in 2025
Performance reviews in 2025 can be summed up in four words: “Does not meet expectations.”
Nearly two-thirds of HR professionals (61%) reported that fewer than half of the managers at their organization “effectively address underperformance or areas for improvement among direct reports,” according to research from SHRM.
“As anyone who has ever participated in an annual performance review knows, they are fraught with a litany of shortcomings,” explained Christoper D. Lee, managing director of Storbeck Search, a recruiting firm. “Rater bias; an unnecessary and negative-in-tone focus on a distant past that cannot be changed; a misalignment with goals or current priorities; their tether to pay that oftentimes causes the tail to wag the dog; and a one-sided view of actual performance are among the common pitfalls that plague the annual bloodletting known as appraisal.”
Two core issues drive this breakdown in the efficacy of performance reviews, according to SHRM research. First, managers aren’t adequately trained — 43% of HR professionals reported insufficient preparation to conduct effective reviews. Second, 60% said people managers are not provided with data-driven insights to inform evaluations.
“High-performing employees crave real-time, unfiltered feedback. Using all types of feedback to constantly adjust their own performance is just one hallmark of effectiveness,” explained SHRM CHRO Jim Link, SHRM-SCP.
Performance management is at a crossroads: Organizations can continue a staid process focused on the annual performance review, often performed by managers lacking data, or evolve performance management into a dynamic process driven by metrics, led by managers, and poised for what’s next.
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70% of talent management executives expect that managers and leaders will increasingly use AI in developing performance reviews over the next year.
Talent Management Executives: Priorities & Perspectives, SHRM
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Over two in five talent management executives (41%) said that ensuring managers are providing objective, constructive performance feedback was a challenge in 2025.
Talent Management Executives: Priorities & Perspectives, SHRM
2026 Predictions: AI Coaches Take the Stage
Looking ahead to 2026, the next evolution is already taking shape: the rise of the personalized AI coach.
This tool can enliven outdated performance management processes with continuous feedback, and it also touches employees’ paths to upskilling and growth while supporting the leadership development of managers. How? The insights become part of an employee’s daily routine rather than a meeting on a calendar set for one day each year. This keeps the goals and aspirations of employees and managers front and center, allowing for continuous engagement.
“One of the most exciting frontiers is combining AI with coaching. It’s not about replacing the conversation — it’s about deepening it,” emphasized Kelly Jones, CHRO at Cisco.
Consider a newer employee, one to two years into a role, sifting through a wealth of information to find their pathway forward in an organization. A yearly, or even quarterly, checkpoint might illuminate a path toward earning a specific professional credential, but in the interim, a new, better credential comes to market, unbeknownst to both employee and manager. The employee can course-correct, but only after months of working toward a different goal.
But if the employee and people manager had teamed up with an AI coach, both might have been alerted sooner: The coach could marry the culture, goals, and mission of both the organization and the employee, and automatically flag a new pathway for the employee to a different credential.
How does AI currently fit into performance management? Nearly half of organizations deploying AI tools for performance management (46%) use them to help facilitate employee goal setting, according to SHRM’s 2024 Talent Trends report. Deepening the performance conversation with AI coaching extends progress, helping to integrate performance management with development goals for employees and managers.
“AI could be invaluable by giving managers suggestions for better ways of communicating information and delivering feedback, as well as providing templates for use in creating action plans,” Lee explained.
The caveat is that while AI coaching tools can deepen a conversation, they cannot stand on their own. “Guides, templates, and suggestions are most valuable when they are integrated with the manager’s knowledge and experience and with the particular circumstance,” he said.
The personalization enabled by AI coaches is accompanied equally by risks and opportunity. AI performance management tools may spark privacy concerns and questions related to surveillance, challenging trust further in an already-fraught process. And if these systems are trained on flawed or biased data, they may scale inequities rather than solve the issues they were instituted to fix.
To combat these fears, organizations must ensure AI is used to develop — not judge or discipline — people, Link explained. Transparency, governance, and human oversight will be essential to maintaining trust.
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“One of the most exciting frontiers is combining AI with coaching. It’s not about replacing the conversation — it’s about deepening it.”
Kelly Jones, CHRO at Cisco.
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Nearly 9 in 10 CEOs (87%) said they expect AI to drive widespread workforce upskilling and reskilling efforts.
CEO Priorities & Perspectives, SHRM
The Data Behind the Shift
The move away from annual reviews is not just anecdotal. There’s a growing demand for more frequent and personalized feedback, with data to prove it.
Feedback Frequency Matters
Ongoing conversations and a focus on strengths are two of the five employee engagement drivers identified by Gallup. Specifically, continuous dialogue can foster a sense of value and connection while balanced recognition and constructive feedback from managers can help employees feel valued.
Managers Need Support
Six in 10 HR professionals (60%) said managers lack the data-driven insights to conduct effective performance reviews, a gap that AI is poised to fill.
Employees Want Personalization
In fact, 71% of consumers expect personalized interactions from companies, according to McKinsey & Company. In the workplace, employees increasingly expect development opportunities that are tailored to their unique skills, career aspirations, and performance gaps.
AI for Performance Management is Growing
Among organizations using AI in performance management, 57% use it to help managers provide more comprehensive and actionable feedback to their teams.
Practical Steps for HR Leaders
Successfully integrating AI into performance management is about augmenting human connection rather than replacing it. HR leaders can guide their organizations through this transition with four key actions.
1. Pilot AI Tools
Pilot AI-enabled feedback tools with a small, volunteer group. Be transparent about the pilot’s purpose, how the data will be used, and the technology’s limitations. This allows the organization to learn and adapt in a lower-stakes environment, building trust along the way.
2. Train Managers on AI-Generated Insights
Train managers on how to interpret and use AI-generated insights. The goal is not for managers to simply relay what an algorithm says. Instead, they should be taught how to blend these insights into authentic, empathetic coaching conversations. AI can provide the “what,” but managers must still deliver the “why” and “how” with human-centric context.
3. Monitor AI Systems
Continuously monitor AI systems for bias, equity, and unintended consequences. Regularly audit outcomes to ensure the technology is not unfairly penalizing certain groups or creating a culture of surveillance in which every move is monitored — and scrutinized. Establish clear governance and a human review process to override or correct flawed AI recommendations.
4. Supplement Manager Accountability
Use AI to supplement manager accountability. Technology can be a powerful support tool, but managers must own their team’s development. AI tools should empower managers to be better coaches and enable performance management to evolve into a trust-based cycle rather than a dreaded annual event.
Done well, AI can transform performance reviews into a continuous dialogue. Implemented poorly, AI coaches dole out automated judgment. HR must ensure organizations leverage AI for the former.
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Moving Beyond Performance Management
AI coaches and real-time feedback systems signal the beginning of the end for the annual performance review. The future belongs to organizations that can skillfully blend continuous, data-driven insights with authentic, human-centered leadership to drive the development of all employees and managers.
“Performance management is an aspect of HR ripe for an overhaul. AI coaching, in particular, offers a pathway to personalization for employees to support overall organizational efficiency — and the bottom line,” Link said.
HR leaders are in the crucial position of championing responsible implementation. By focusing on trust, transparency, and fairness, they can ensure these powerful new systems empower employees, strengthen managers, and build a more dynamic and equitable workplace for everyone.
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