Many Employers are Reshaping Performance Management and Pay

Employers in North America need to reshape their performance management efforts and pay-for-performance programs to give them a much-needed boost, according to a survey of over 800 global organizations by WTW, a global advisory, broking and solutions company. The survey revealed similar conclusions worldwide.

The survey found just one in four North America employers (26%) reported being effective at both managing and paying for performance. Additionally, the gap between the priorities for performance management and delivering on those objectives is wide. For example, more than nine in 10 North America respondents (93%) cited driving organization performance as a key objective for performance management, yet less than half (44%) said their performance management program is meeting that objective. Similarly, nearly three in four (72%) said supporting the career development of their employees is a primary objective, but only 31% said their performance management program was meeting that objective.

North America respondents also had mixed views on the effectiveness of managers in evaluating performance and differentiating pay. Less than half (49%) agree that managers at their organizations are effective at assessing the performance of their direct reports. A similar number — 46% — consider their managers effective at differentiating their direct reports’ performance. Further, only one in three organizations indicates its employees feel their performance is evaluated fairly. Interestingly, despite the rapid increase in remote and hybrid working models, only one in six employers (16%) reports having altered its performance management approach to align with such models.

“Employers have their work cut out to raise the bar on their performance management programs. 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,” said Amy Sung, Work & Rewards global growth leader, WTW.

While most employers recognize their programs are falling short of expectations, the survey found that North America employers already have several initiatives in place or are planning or considering enhancing their performance management and pay-for-performance programs:

• Three in 10 respondents (34%) have strengthened the link between performance management and career development; another 60% are planning or considering doing so.
• Over half of employers (54%) 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 one in four respondents (23%) has improved the employee and manager experience, but 64% are planning or considering ways to improve the experience.

Employers that make the effort to improve their programs are likely to reap financial benefits. The study found that companies using performance management programs effectively are one and a half times as likely to report financially outperforming their industry peers and one and a quarter times as likely to report having higher employee productivity than their peers. Companies that are effectively using pay programs to drive individual and team performance are also more likely to outperform their peers (1.2 times) and report higher employee productivity (1.4 times) than their peers.

“Our results show that performance management can be a key competitive differentiator as can pay-for-performance programs. 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,” said Alex Weisgerber, senior director, Work & Rewards, WTW.