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How To Save Your Performance Management Budget From Getting Slashed During A Recession

“…a recession won’t derail the Great Resignation – job seekers will continue to hunt during a downturn. While 70% of respondents believe we’ll be in a recession within six months, 57% say they would still actively look for a job during a recession.”

– Greenhouse Software, Inc.

Preparing your business for a recession usually involves working on your finances, managing debt, securing cash reserves, controlling expenses, streamlining operations, and other similar cost-slashing activities.

So why are we talking about preserving your performance management budget?

What Is Performance Management Anyway?

Performance management is a regular, ongoing process of communication between supervisors and employees. The communication happens just like it does between a coach and team players. The supervisor coaches employees on how to accomplish the business objectives of the organization using their job description as a roadmap or game plan. The supervisor clarifies expectations, sets objectives, identifies goals, provides feedback, and reviews results.

If you don’t have a formal performance management plan, now is the time to create one and start doing it.  Yes, I know, being proactive is not fun and we often find excuses: “I’m too busy… We don’t have the budget… Is this really important?”

Performance Management Is Important Because It Directly Affects Retention And Turnover Costs.

According to Gartner, Inc., “the US employee annual voluntary turnover is likely to jump nearly 20% this year, from a pre-pandemic annual average of 31.9 million employees quitting their jobs to 37.4 million quitting in 2022.”  Nobody likes turnover.  You spend lots of time and resources on recruitment, and if you have a high turnover rate, it can have devastating effects on the bottom line.

According to research by the Work Institute, losing an employee typically costs approximately 33% of their base pay. For the average US employee, the cost of turnover is approximately $15,000.  According to new benchmarking data from the Society for Human Resource Management (SHRM), the average cost per hire was nearly $4,700; “But many employers estimate the total cost to hire a new employee can be three to four times the position’s salary.”

How prepared are you for handling the rising cost of turnover?

The Great Resignation made it clear that the cost of turnover is a direct cost of doing business.  It’s a major factor affecting business operations.

According to Work Institute’s “2022 Report: How Employers Caused The Great Resignation,” in 2021, the costs of turnover to employers exceeded $700 billion, more than doubling since 2009. Work Institute includes the following in calculating the cost of turnover:

When you lack a coherent and integrated performance management system, you are missing out on an opportunity to give employees the tools and development they need to succeed and be invested in their jobs.  You’re also missing the mark when it comes to understanding what employees need to be satisfied and engaged with their jobs because you don’t have a systematic way to solicit feedback and collaboration for setting and achieving common goals.  People will keep leaving your organization if you continue to ignore the need to address retention through performance management.  

The Biggest Reasons For Employees Leaving Your Organization Are Associated With A Lack Of Professional Development.

Here are some important things that people are looking for in an employer (how are you addressing them in your organization?): better pay, culture fit, wellbeing, purpose, flexible working conditions, work-life balance, and career development. You have the power to attract and retain top talent by giving people what they want, especially if we’re talking about improving your performance management system to address the need for career development.

Professional development is important to employee engagement. This is especially true for Millenials: according to a Gallup survey, 87% of Millennials consider career development in a job important. And employee engagement happens when employees care about your organization because they do their best work to achieve business objectives.  So it makes sense for you to provide the tools and resources to support the need for people to emotionally connect with your organization by feeling valued that you care about their professional development. If employees feel like there’s no opportunity for career advancement, they will leave your organization.

Do something now: if you cannot support your employees with what they’re looking for, then they’ll find better opportunities outside of your organization.

According to a Work Institute’s 2022 retention report, career reasons are the top category for why employees left their jobs in 2021.  Career reasons include: opportunities for growth, promotion, achievement, security, or to attend school.  When you take care of your people, you are taking care of their personal success and career development.  This goes a long way towards retaining your people and reducing your turnover costs.

When you don’t do anything to address the need for professional growth, then you’re making it easier for your employee to grow and achieve long-term professional goals outside of your organization. Give them what they want: professional development through performance management.  

Human Resources Budgets, Specifically Training And Development, And Recruitment And Retention, Are The First Budgets To Get Slashed When Things Go Bad, Like Being Hit By A Recession.

In the 2009 recession, one research study by Ipsos showed that 95% of surveyed HR leaders were freezing or decreasing their annual HR budgets, especially in areas such as training and development and recruitment.

So, when making the business case with your CEO for funding (or not slashing) a robust performance management system, include a budget for funding performance management activities alongside data showing how such activities drive engagement, which is linked to increased organizational performance, revenue, employee retention, and customer satisfaction.

During times of crises, it’s natural to cut costs across the organization and extend existing resources.  But you can mitigate the impact of a recession, for example, by preparing now with a plan on handling employee attrition. According to McKinsey and Company, 40% of US employees said they left their old jobs without a new one lined up. This speaks to what people are willing to do when they feel so emotionally fatigued, undervalued, and disconnected with their jobs. And this attrition trend is likely to worsen and continue for some time. 

When you lose key employees, that affects overall performance and morale, adding to costs to recruit or train replacements.  Simply put – change the way you view and manage people:

• Give them the tools they need.
• Make them feel like they belong.  
• Like they are part of something meaningful.
• Like their work really matters and is making an impact.
• Make it harder for them to leave.

You cannot go at it with a “quick fix” approach: increase pay or handout bonus.  The fix requires transformative work. 

And what I’m suggesting here is that one place to start is by taking a serious look at your performance management system and ensuring that it remains or is funded by making it part of your operational budget.

A Healthy Operating Budget Includes Human Capital Management.

Your business exists because you have a product or service that solves a specific problem; you fill a demand in a specific market; your finance is in place to fund specific operations; and you have the right people to carry out specific tasks to execute business objectives.  Specificity allows you to align those four pieces of your business so that everyone is on the same page working toward the same business objectives.

If we learned anything from the Pandemic and the Great Resignation, it is this: people, the Human Capital of your business, are essential and play a significant role in business success. We also experienced a lesson we already knew: if you don’t take care of your people, they will leave, and business operations will be impacted.

Human Capital Management (HCM) views employees as a capital; and by investing in employees, your people, you grow your capital in the future. HCM helps you hire, develop, and retain the right people who will help you drive organizational performance and meet your business objectives.  After all, companies are built and run by people.

HCM is at the core of business operations.  Without people, more specifically, without a clear understanding, integration, and execution of your HCM, your business operations do not run smoothly and are not aligned with the other parts of your business. At best, you are wasting a lot of time and resources because you’re always operating in crisis mode: dealing with performance issues, recruitment activities, and incurring more and more turnover costs.  Remember the cost of turnover? Separation costs, Replacement costs, Training costs, and Lost Productivity; it really adds up quickly.

So, it makes business sense to invest in your people, more specifically, in the part of HCM that is concerned with performance management.  Performance management doesn’t have to be overly complicated.  Keep it simple. Above all, adopt the mindset that, “This is the way we do things here: we take care of our people by having a regular process that gives them ongoing feedback and opportunities for improvement and achievement of common business goals.” 

Bottom line: It’s cheaper to spend money on performance management to improve employee engagement and retention, than it is on dealing with rising turnover and recruitment costs that are sure to continue in the near future.  The Great Attrition is not going away anytime soon.

Ready To Get Started? Here’s A List Of Best Practices For Performance Management:

• Align your performance management system with your HCM strategy and operational budget.
• It’s critically important to integrate your efforts to manage people with your efforts to operate effectively.
• Implement formal performance management with the broad goal of improving organizational effectiveness.
• When you align performance management with your efforts to improve organizational effectiveness, then this process is not separate from other measures of performance that are critical to achieving your business objectives.  Infuse performance management into your daily business operations and not just make it a function of HR or something that happens once a year.
• Identify measures of performance that are relevant, objective, and easily assessed.
• Base these measures on job descriptions and key performance indicators (KPIs) to track progress toward big-picture goals over time.
• Make sure that goals and objectives are set in collaboration between the employee and their manager.
• The key is to foster “buy-in” from your people so they feel included in the process and invested in their job performance.
• The day-to-day supervision of the performance of individuals and teams must run alongside a formal framework under which their performance is assessed and improved.
• The key is to provide coaching with daily check-ins and conversations with your employees and link these conversations to how well employees are meeting their job expectations and contributing to organizational effectiveness and business success.
• Get manager buy-in because it is crucial for motivating them into having regular, ongoing communications with employees.
• Managers play an important role in developing and leading their staff – so you need to include them in this process if you want to see positive results. Managers are people too – so you need to give them the tools to succeed so they don’t become “bad managers.” As we know, good people don’t leave bad companies, they leave bad managers.  
• Provide effective training because it is central to the success of performance management.
• Here is where you need to invest your time and resources: support your managers and supervisors because they’re responsible for the day-to-day interactions with employees and you need to make sure that everyone is on the same page, operating under the same plan, and working to achieve common business objectives.
• Align employees’ training and development goals with formal performance reviews that happen at least twice a year.
• Hold your people accountable by making formal reviews part of everybody’s job description because “that’s the way we do things here.”
• Review and adjust your formal performance appraisal system every couple of years.
• Rinse and repeat!

Be Proactive: Don’t Wait For A Crisis.

Making performance management a business priority is smart business planning. Now is the time to get together with your executive team and discuss your plans for making sure that you can meet operational needs through a thoughtful approach to HCM.  Here are some final thoughts to help you be more proactive in your approach to manage your people today and beyond:

• Up your game by increasing your knowledge on how all the moving pieces – from operations to finance – work together so that you have a better understanding of the role people play in driving organizational performance.
• To weather the effects of the Great Resignation or a recession, you must be more competitive with talent acquisition, management, and retention strategies.
• In other words, implementing a solid performance management program can make your business competitive for attracting and retaining top talent during good and bad times.
• Now is the time to also look at your retention strategy – what are you doing to retain top talent?
• Tip: Use exit interviews as a tool for developing employee retention strategies. Ask them why they’re leaving.  You’ll be amazed at how honest people are! 
• Assess other areas where you can improve engagement and relationships with your people.
• For example, now is the time to operationalize or revise your work-from-home policy, offer a wellness stipend, or create more purposeful work through enriched job descriptions that show how employees’ responsibilities, duties, and tasks contribute to the advancement of your mission and business objectives.

We’re Here To Help.

We’d be honored to help you create a solid performance management plan. Contact us today to learn how be the change HR can help you align your management systems with your business objectives.

We also have prepared a free assessment to help you Recession Proof your HR.  Contact us to get on the list and receive your free copy!

Written By: Raul T. Pereyra.  Raul is an HR Pro and Consultant with be the change HR. He has over 20 years of experience as an educator, trainer, and HR Pro. Raul’s expertise includes DEI, employee engagement, and HR compliance. Connect with Raul on LinkedIn.