Too many managers are flouting the principles of good performance management, as despite being rated as poor performers, they are still being rewarded by their employers, according to new research by the Chartered Management Institute (CMI) and XpertHR.

Data from the National Management Salary Survey 2015, which for the first time recorded performance ratings alongside pay, shows that rewarding poor performance is widespread within organisations, as nearly a third (30%) of all managers ranked as underperforming were handed a bonus in 2014.

Looking at the top of organisations, the salary and performance data reveals that of those senior managers and directors whose performance was rated as 'not meeting expectations', almost half (45%) received a financial bonus. The average bonus paid to underperforming senior managers stood at £8,873.

Data from the survey, taken from 72,206 employees in 317 UK organisations, also shows that managers' salaries are on the rise. Pay increased by 3% on average in the past year – the biggest annual increase since 2012 – compared to a 2.7% increase the previous year. The average salary across all executive levels now stands at £38,328. The average bonus pay-out for all managers was £8,836, rising to £44,687 for directors.

Ann Francke, chief executive of CMI, comments:

Manager (PD)"Too many managers are reaping the rich rewards of their positions despite being poor performers. This unacceptable discrepancy between pay and performance is even more widespread among the ranks of senior managers. Unfortunately, it seems to be a lot easier to reward poor performance than to face the awkwardness of having difficult conversations with underperforming staff.

"Change must start at the top with CEOs' pay, as there's plenty of scope at that level to bring pay and performance more in line. To improve performance, managers must be prepared to have honest conversations with their staff and provide regular feedback and coaching. Managers should also have clear targets and be measured against them. Organisations and their employees will only benefit from a culture in which pay closely reflects performance."

Mark Crail, Content Director at XpertHR, adds:

"Another reason so many low performers get bonuses is that there is often a culture of rewarding past glories. The biggest and most significant indicator of whether someone will get a bonus this year is whether or not they got one last year. The longer that goes on, the more people come to rely on the money and the harder it is to stop paying it. In those circumstances, employers really should think about whether it would be better to address the level of basic pay rather than finding spurious reasons to add on an arbitrary annual bonus that has little basis in performance."

In other findings, the number of employers experiencing problems recruiting new staff has risen significantly in the past year, from 79% in the 2014 survey to 89% in 2015. The main recruitment issues cited by organisations were difficulty in recruiting people with specific skills (75%), while 37% cite a poor quality of applicants which indicates a skills shortage emerging among UK managers.

Competition for skills is being driven in part by an increase in labour turnover, which has leapt from 4.8% in 2014 to 11.4% in 2015. Resignations account for 64% of labour turnover, compared to just 13% who were made redundant.

The financial implications of this management skills shortage are also being felt, with 23% of employers saying the high cost of recruitment has been a problem for them in the past year, compared to just 7% in 2014. There are signs that companies are starting to address this however: CMI's Future Forecast report* found that training and development is one of the areas most likely to see a rise in employer spending in 2015, with 45% reporting that budgets are set to increase.

Ann Francke continues:

"A toxic recruitment environment has been created by employers failing to invest in management training and addressing poor performance. The data show that managers are on the move again, and those with the most desirable skill sets are able to demand greater pay and higher bonuses – often without any link to performance targets.

"If employers are to regain the loyalty of their staff and create a working environment that attracts the very best talent in the UK, training and development programmes are critical. By helping staff to achieve their full potential and only rewarding good performance, companies will be reaping the rewards of their investment for many years to come."

Download the National Management Salary Survey 2015 infographic and find out more about improving performance management by visiting www.managers.org.uk/salarysurvey or join the conversation @cmi_managers #CMISalarySurvey

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