Calculating the ROI for Continuous Performance Management
There is an overwhelming amount of research suggesting that traditional performance management just doesn't work.
If you are a talent leader, you probably are already familiar with some of these statistics:
95% of managers reported being “unhappy” with traditional performance management.
65% of employees want more feedback.
98% of employees fail to be engaged when managers give little or no feedback.
Disengaged employees have 37% higher absenteeism, 18% lower productivity and 15% lower profitability.
43% of highly engaged employees receive feedback at least once a week.
While you may be convinced that continuous performance management should be a priority, it may be hard to convince your CFO and colleagues that a continuous feedback platform (like Pavestep) is a must-have investment. This is partly due to the difficulty in calculating the ROI of a continuous performance management solution.
Below we list some meaningful data points that you can capture to help convince your leaders that your continuous performance management system is working or not working.
1) Adoption and usage
Percent adoption of the platform is a great way to assess if your employees are liking the software. Moreover, usage beyond the mandatory once-a-month (or whatever your HR leaders strive for) is a great indicator that managers and employees are liking the platform. Adoption and usage of a software will be somewhat dependent on ease-of-use; integration of a software into employees' day-to-day is important. When looking at performance management softwares, consider the intuitiveness of the system. This will be key for employee adoption and usage!
2) Quantity and quality of feedback
Quantity and quality of feedback matters. A manager can give employees feedback once a week, but if it constantly consists of short, nondescript feedback like “good job” or “kudos”, this feedback will not motivate employees to read, request, or give feedback. This type of feedback will also not create high performers. Feedback has to be constructive, and it has to be relevant. We have talked about effective feedback and given some examples of feedback previously - feel free to view these resources.
One way to measure quality of feedback is by the number of characters per feedback. Of course, number of characters may not indicate that the feedback is effective, but it is a good starting point to measure the ROI of a continuous feedback system.
Shameless promo: At Pavestep, we understand that giving and receiving feedback can be difficult. Feel free to reach out - we would be happy to help ensure that your employees are getting the right feedback for the career developmental needs. With our platform, the average feedback length is between 6-10 sentences and each employee gets 2-3 feedback a month!
3) Retention rate
Turnover is costly. Research by SHRM suggests that replacement costs can be as high as 50%-60% with overall costs ranging anywhere from 90%-200%. A study by the Center for American Progress reported the average cost of replacing an employee to be 21% of their annual salary. Another estimate put it at 1.5-2 times the employee’s annual salary. Frankly, turnover is a company’s worst nightmare. If you are implementing a continuous performance management system, pay close attention to retention rate. This metric can also be great to indicate employees engagement levels.
4) Employee engagement and productivity
According to Gallup's recently released State of The American Workplace report for 2017, only 33% of employees are engaged. Moreover Gallup estimates that disengagement costs $3,400 for every $10,000 of salary. Pulse surveys are a great way to capture employees' engagement, productivity, motivation and the overall feelings of a performance management solution.
5) Time saved during performance reviews
Many organizations know that time is money. Inadequate performance management is a sink hole for manager’s time (and therefore money). According to a study by CEB, managers spend 210 hours a year on performance management and employees spend 40 hours per year. This is a lot of time and resources spent on a process that could be ineffective. A great performance management system can help streamline the administrative hassle, freeing up people leaders as well as making it easier for managers.
Have any other metrics that you look at? Let us know!
If you liked this article, feel free to check out our other articles on performance management: