Why Your Performance Budget Isn’t Actually Driving Performance

Attracting and retaining talent has always been a priority for businesses.

There was a time, not too long ago, when we designed amazing office spaces, built nap pods and game rooms, offered beer kegs and wine racks, sponsored borderline office bodegas, and catered lunches and happy hours.

Competition for talent had ballooned costs and companies were equating culture with office snacks and ping pong tables.

For as brutal as the pandemic was, I was right there with the other CFOs secretly celebrating that we could cut happy hours, beer kegs and nap pods from our budgets.

But we went too far. Sure, we tried to replicate in-office experiences for our distributed teams through stipends, meal allowances and virtual events. But many companies realized these just weren’t that meaningful or effective and struck their employee engagement budget altogether.

In doing so, we weakened the foundation of the relationships that drive businesses.

Remote, distributed and hybrid work is the way of the future. But when we embraced it, we inadvertently created an engagement void that’s negatively impacting performance. And that void needs to be filled.

In-person collaboration allowed employees, managers and leaders to develop relationships in the natural flow of work. It built loyalty and community and allowed for organic and spontaneous communication. For leaders, it provided visible health signals around work, company culture, and values. In short: it drove engagement.

The solution lies not in going back to the “good old days.” Instead, we as CFOs and as leaders need to understand the changes in the way we work and invest in new solutions that better meet today’s needs.

Understanding our new way of work

The past four years have been non-stop workplace whiplash. We lived through the pandemic, great resignation, economic uncertainty, generative AI, and return to work. As we’ve settled back into our new normal, two key trends have emerged.

First, we realized that workspace flexibility is both possible and required. Our core values have changed, and what we want out of our relationship to work is different than what it once was. Post-pandemic, what matters most is balance—the ability to excel in a career we believe in without compromising where we live, deprioritizing our family and friends, or sacrificing personal passions.

Second, even as we want to work from anywhere, we also crave connections with our company, our peers, and most of all, our managers. We want to feel like we’re part of the company’s mission—to collaborate with our colleagues and know the work we’re doing matters. Separation from the place of work and team has created a void and with it a sense of isolation.

Polls show that 94% of employees prefer the flexibility of remote or hybrid work—and yet 57% feel disengaged. And it’s not just employees who are feeling the strain.

Without the benefit of in-person signals that are part of office work, it’s difficult for leadership to know if messages are resonating and if employees are collaborating effectively to achieve company outcomes.

Managers are just not as effective, caught in the middle of leadership and their direct reports, trying to communicate goals, motivate their teams, and provide the right feedback to hit goals and maximize impact.

But with each touchpoint relegated to a Zoom meeting or Slack message, there’s little opportunity to build the authentic trust that fuels both engagement and constructive performance discussions.

What’s more: we’re in the middle of a generational shift. Gen Z is expected to make up 27% of the workforce by 2025, and will only grow from there. This generation grew up with technology and is accustomed to real-time feedback around performance and areas to improve. These new employees need to be enabled through methods they’re familiar with and respond to.

It’s time for leadership to take action and be intentional in rethinking how to drive performance in our new way of work. To make new investments aligned to the new world, not in the form of return-to-office mandates or virtual versions of events better experienced in person, but by investing in new technology that provides new solutions for the new way and generation of work.

We, as CFOs, had no problem investing dollars in beer and bean bags. It’s time we reinvest a fraction of that in digital tools that motivate our teams and empower our managers. 

Budgeting for performance in our new world of work

The underlying purpose of employee engagement is to build strong relationships between employees and the company, encourage team interactions and collaboration, and help managers lead more motivated and coachable teams. Each of these relationships directly impacts a company’s bottom line. 

Allocating a budget for performance review tools without investing in programs that actually enable performance, like strategic employee engagement, is money misspent. 

Let’s look at some statistics. I ran a survey within my CFO network pre-pandemic to ask other CFOs what they spent on office lunches, snacks, and events like happy hours. The answer was $3,000 per employee per year. That was just on food and drink! The budgets for office supplies, office space, maintenance, professional development, wellness, and so on were all separate line items. Maybe these stats don’t apply to your industry, but they tell a pretty fascinating story about employee experience budgets. 

But that’s not the full picture. Disengagement comes with a real cost. According to Gallup, disengaged employees cost their companies 34% of their annual salary. At an average salary of $60,000, that is a whopping $20,400 of dollars down the drain. 

Employees who receive regular appreciation are five times more likely to be highly engaged, and supportive management can more than double employee retention. 

With these figures in mind, let’s compare the cost of a platform like Bonusly that engages employees, provides visibility to leadership and enables performance through recognition and feedback when it matters. 

On average, we’re looking at a platform cost of about $36 per employee per year if you choose a standard plan that enables both top-down and peer-to-peer recognition programs. When it comes to funding employee rewards, let’s budget on the high-end at $500.

In total, recognition done right (in that it reinforces culture and values, motivates employees, and empowers managers to success) costs under $550 per employee per year. That’s compared to the $3,000 we used to spend on snacks and booze, and the additional $20,000 in lost value from disengaged and disgruntled employees. 

Employee experience and engagement spend doesn’t have to be frivolous. And it certainly shouldn’t be cut altogether. Companies who win realize this—and intentionally invest in modern tooling that keeps their employees and managers connected, motivated, and successful.

The takeaway

Times have changed, and we need to as well. The pressures HR and leadership teams feel around enhancing productivity, visibility and performance are real and hard. But the solution does not lie in going back to the old ways. At every HR conference I’ve attended this year, the topic that’s top of mind for leaders is increasing productivity and retention. HR is held accountable for increased disengagement, but the budget to solve the problem is being allocated to the wrong solutions. 

Leadership and HR need to understand their own workforce, what the right needs are and look at solutions designed for the new way of work. This isn’t a “rip and replace” technology play — it’s about supplemental investments to fill an engagement void. That starts with reallocating some less effective spend on employee experience to more effective and meaningful engagement strategies.

The ROI is in your company’s results. They don’t happen without an engaged workforce. 

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