Benefits and Compensation

Reshaping Performance and Pay Programs

The combined forces of a tight labor market and high inflation have really pinched a great deal of American businesses trying to recruit and retain top-tier talent. Of course, companies can’t simply keep throwing money at the problem and trying to outbid the competition. It’s simply unaffordable.

Instead, evidence suggests that employers need to reshape their performance management and pay programs to be more efficient at managing and paying for performance.

Performance Management Gaps

WTW, an advisory, brokering, and consultancy firm, surveyed 837 organizations worldwide, including 150 North American employers, for its 2022 Performance Reset Survey. The survey was conducted during September and October 2022 and looked at the connection between pay and performance. North American respondents employ more than 2.7 million workers.

The WTW survey found that the gap between the priorities for performance management and the delivery of those objectives is wide. According to survey results, just 1 in 4 North American employers (26%) reported being effective at both managing and paying for performance.

Additionally, more than 9 in 10 North American 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 3 in 4 (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.

Moreover, survey respondents were generally skeptical of company managers’ ability to effectively evaluate the performance of their teams. 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.

Closing the Gap

According to a WTW press release covering the survey, North American employers already have several initiatives in place, or in the planning or consideration stages, to improve their performance management and pay-for-performance programs.

  • 34% have strengthened the link between performance management and career development; another 60% are planning to do so or are considering doing so.
  • 54% currently ensure ongoing and meaningful performance dialogue between managers and employees in a remote/hybrid working environment; another 39% are planning to take or are 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.
  • 23% have improved the employee and manager experience, but 64% are planning or considering ways to improve the experience.

All companies have an opportunity to examine and take steps to close these gaps. That could represent an important strategy for 2023.

Lin Grensing-Pophal is Contributing Editor at HR Daily Advisor.

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