How to Evaluate and Reward Employee Performance During an Economic Downturn

How to Evaluate and Reward Employee Performance During an Economic Downturn

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With a potential recession on the horizon, we know you want resources to help your business master the moment. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead.

As CFOs and other business leaders know all too well, economic downturns can create some difficult choices when managing personnel. How do you fairly evaluate employee performance in an uncertain marketplace where opportunities are limited? And how do you reward and incentivize employees without putting undue strain on a company's finances?

It's a tricky balancing act that requires sensitivity, insight and practicality. There are key considerations for assessing and rewarding employee performance during an economic downturn, ensuring that you have what you need to craft lasting success stories out of times of hardship.

Leveraging Alternative Reward Opportunities

During an economic downturn, tight budgets often force companies to curtail raises and bonuses. While this strategy is good for the bottom line — at least on paper — it can have a detrimental impact on employee morale.

Recent data from Workhuman found that 38% of workers want a raise, and 36% are hoping for a year-end bonus, despite the state of the economy. What's more, half of employees say they will look elsewhere for a job if they don't receive that pay increase or bonus.

Failing to recognize the need for staff motivation and rewards can be dangerous at a time when there is also a significant talent shortage, so consider whether you can find room in your budget to make it happen — even if it's on a smaller scale than years past. It might be worthwhile to have executives give up or reduce bonuses by 25-50% and redistribute those funds.

If you truly don't have the financial means to give bonuses this year, there are other ways to motivate and reward employees. Some ideas include:

• Stock options

• Extra vacation days

• Flexible working hours

• Additional learning and development opportunities

• Time to work on passion projects

• Public recognition

• Experiential rewards, such as tickets to a local sporting event or lunch with one of the company's founders

• Paid time off for volunteering.

It might also be possible to negotiate to pay bigger bonuses next year (or once the company hits specific targets for revenue or net income). This can help ensure paying bonuses doesn't strain company finances during uncertain market conditions.

Rethinking Your Evaluation Strategy

Employees often consider bonuses part of their salary rather than a reward linked to growth targets or superior performance. If this is the position your organization is in, it may be time to rethink your communication strategy.

When bonuses aren't linked to company results, it sends the wrong message that individuals can still win even when the rest of the team (i.e., the company) loses.

However, when you make it clear that bonuses are linked to growth targets, employees better understand the direct link between their performance and the reward they receive.

One way to do this is to set a threshold — say 5% of net income — then allocate a percentage of whatever exceeds that threshold to a bonus pool.

For example, say your gross revenues are $10 million and your net income is 10% of that, or $1 million. The company retains the first 5% of net income: $500,000. Your bonus plan might allocate 25% of the remaining 5% to the bonus pool, meaning $125,000 is available for employee bonuses. You don't pay any bonuses if the company doesn't generate at least 5% in net income.

Not only does this create a transparent performance evaluation and bonus process in which employees understand the criteria and metrics used to determine rewards, but it can also help employees focus their efforts on tasks that have the most significant impact on business success.

While an economic downturn can create a challenging climate for rewarding and retaining employees, there are still ways to motivate and recognize your employees. By using alternative reward opportunities and clearly tying bonuses to performance metrics, you can ensure your employees feel valued and appreciated while still maintaining financial stability in difficult times.

For more information on implementing these strategies, contact us today.

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How to Evaluate and Reward Employee Performance During an Economic Downturn evaluation becomes all the more challenging on the heels of a recession. Here are some key tactics you can use to evaluate and reward your employees.2023-04-18T17:00:00-05:00

Employee evaluation becomes all the more challenging on the heels of a recession. Here are some key tactics you can use to evaluate and reward your employees.

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