Just one in four employers effective at managing performance linked with salary progression

A global study of 837 organisations, including 60 UK employers, showed there is a sizeable gap between priorities for performance management and delivering on those objectives.  

More than nine in ten UK respondents cited driving organisation performance as a key objective for management, yet less than half said their performance management program is meeting that objective.  

Nearly three in four (72%) said supporting the career development of their employees was a primary objective but only a third (32%) said their program was meeting that objective. 

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UK respondents also had mixed views on the effectiveness of managers in evaluating performance and differentiating pay. 

Less than half (44%) said that managers at their organisations are effective at assessing the performance of their direct reports, while 33% consider their managers effective at differentiating their direct reports’ performance.  

One in three organisations indicate their employees feel their performance is evaluated fairly. The research, conducted by financial services company WTW, showed that despite the rapid increase in remote and hybrid working models, only 14% of employers report having altered their performance management approach.
 

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“We continue to see the impact from the pandemic and difficult labour market, including how managers evaluate the performance of their employees and tie it to their pay,” said Ruchi Arora, Senior Director, Work & Rewards at WTW. 

“While some employers are sticking with their overall approach to performance management, most recognise they need to reshape their programs to correspond with new work styles and employee career aspirations and provide a better employee experience.”
 
The survey found that UK employers already have several initiatives in place or are planning or considering enhancing their performance management and pay-for-performance programs. 
 
17% have strengthened the link between performance management and career development; another 66% are planning or considering doing so.

Just under half of employers (49%) currently ensure ongoing and meaningful performance dialogue between managers and employees in a remote/hybrid working environment; another 40% are planning or considering doing so.

Only 20% of employers have improved employees’ understanding of how their performance is evaluated, but 52% are planning or considering doing so.

The study showed that companies that are effectively using pay programs to drive individual and team performance are more likely to outperform their peers (1.2 times) and report higher employee productivity (1.4 times) than their peers.
 
“Amidst concerns over cost pressures, congoing attraction and retention issues are also adding pressure to rethink performance management as well as pay for performance programs. 

"While most organisations 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 Arora.