Employers recognize need to improve efforts to manage and pay for performance

Just 1 in 4 North American employers considers itself effective at both managing and paying for performance.

“Employers have their work cut out to raise the bar on their performance-management programs,” says Amy Sung, work and rewards global growth leader for WTW. “Many recognize that their programs have not kept up with the changes due to the pandemic and tight labor market, yet they have not taken action. Ideally, employers will reshape their programs to correspond with new work styles and employee career aspirations and provide a better employee experience.”

WTW recently surveyed more than 800 global organizations about workplace performance management and compensation issues. Among the findings:

• More than 9 in 10 North American respondents cite driving organization performance as a key objective for performance management, yet less than half say their performance management program is meeting that objective.
• Similarly, nearly 3 in 4 say supporting the career development of their employees is a primary objective, but only 31% say their performance-management program is meeting that objective.
• Less than half agree that managers at their organizations are effective at assessing the performance of their direct reports.
• Forty-six percent consider their managers effective at differentiating their direct reports’ performance. Further, only 1 in 3 organizations indicate that its employees feel their performance is evaluated fairly.
• Three in 10 respondents have strengthened the link between performance management and career development, and another 60% are planning or considering doing so.
• More than half of employers currently ensure ongoing and meaningful performance dialogue between managers and employees in a remote/hybrid working environment. Another 39% are planning or considering taking actions to ensure meaningful dialogue.
• Only 17% of employers have improved employees’ understanding of how their performance is evaluated, but 70% are planning to improve employee understanding.
• Nearly 1 in 4 respondents has improved the employee and manager experience, but 64% are planning or considering ways to do so.

Employers that make the effort to improve their programs are likely to reap financial benefits. The study finds that companies effectively using performance-management programs are one-and-a-half times more likely to report financially outperforming their industry peers and one-and-a-quarter times more likely to report having higher employee productivity.

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“Our results show that performance management can be a key competitive differentiator, as can pay-for-performance programs,” says Alex Weisgerber, senior director of work and rewards for WTW. “While most organizations are currently planning for larger increases in 2023, the need to demonstrate to employees how their pay is tied to performance has never been greater.”