Article Summary
- The hidden productivity killers – How presenteeism, lack of engagement, and poor recognition drain performance and cost UK businesses billions.
- HR’s role in driving resilience – Nurturing high-trust environments, strong leadership, and flexible performance management strategies it key to leading sustainable employee productivity.
- Practical strategies for boosting performance – Recognition, work-life balance, and participatory goal-setting create a workforce that thrives in challenging times.
The UK’s productivity challenge is no secret but 2025 brings fresh pressures that threaten to deepen the strain on businesses. Changes to employers’ National Insurance Contributions, set to rise by 1.2 percentage points, are expected to raise £25 billion – funding, in part, a £10 billion initiative to cut NHS waiting lists. However, the increase, coupled with a reduced minimum threshold of £5,000 and a significant rise in the National Living Wage to £12.21 per hour, represents a double blow for many employers.
As business confidence reaches its lowest level in nearly two years, according to BDO’s Business Trends report1, organisations are grappling with rising costs, falling orders and reduced customer confidence. The sharpest declines are seen in services and manufacturing, BDO saying that its index had entered contractionary territory for the first time this year. Against this backdrop employers face a critical question: how can they sustain productivity and performance while managing higher costs and economic uncertainty?
The answer lies not in simply working harder but in working smarter. For HR leaders this means addressing hidden employee productivity drains like presenteeism, where employees show up but are not fully engaged nor working at full capacity, a challenge costing UK employers £24 billion annually, according to Deloitte.2 By adopting innovative strategies that prioritise engagement, trust and recognition, organisations can unlock their workforce’s full potential, building a resilient foundation for navigating the tough times ahead.
The productivity challenge: What’s really at stake?
Productivity is essential for a business’s growth and competitiveness. It enables companies to expand market share, increase profitability and create greater value for stakeholders. Productivity gains can be used to offer consumers lower prices or enhance the quality of products and services. For employees, higher productivity often translates into better wages, while for investors it means stronger returns. Additionally, productive organisations can allocate resources to innovate and invest in initiatives that further improve efficiency and drive future success.
Dealing with issues such as presenteeism and poor employee wellbeing is therefore critical. Presenteeism, for example, is a symptom of deeper organisational issues: misaligned goals, lack of engagement and insufficient recognition.
A study by Jyoti Aggarwal from the University of Lynchburg emphasises that strong supervisor-employee relationships and targeted performance management are central to improving organisational outcomes.3 The research finds that high performance work system practices, like teamwork, training and employee involvement, do not on their own directly lead to better organisational performance but instead work through the organisation’s internal social structures, such as relationships, trust and communication among employees and supervisors. When employees feel valued and supported (through practices like recognition and trust-building), they are more likely to reciprocate with higher effort and commitment, which benefits the organisation.
A number of studies show that employee engagement is a powerful driver of both productivity and wellbeing. For example, Setyawasih and Budiyono highlight the connection between performance management and engagement, arguing that integrating the two can significantly enhance employee productivity while reducing turnover.4
However, engagement alone is not enough. McAfee and Champagne outline three critical components of performance management: planning, management and appraisal.5 Effective performance management systems do more than track output, they create a continuous feedback loop that aligns organisational goals with employee needs, fostering both efficiency and satisfaction.
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Why trust and relationships matter
At the heart of performance management lies the relationship between employees and their supervisors. As Aggarwal notes, positive supervisor-employee relationships are essential for high-performance work systems. Feedback and supportive environments are crucial in creating alignment between organisational and employee goals.
Trust empowers employees to take ownership of their work, encourages collaboration and reduces the fear of failure. In turn, this leads to greater innovation and productivity. By fostering a supportive work environment organisations can ensure that employees feel valued and motivated to contribute their best efforts.
The role of recognition and reward
Recognition is a powerful motivator. Employees who feel appreciated are more likely to be engaged, productive and committed to their organisation’s success. However, recognition must be meaningful and consistent to have a lasting impact. Recognition is about more than rewards, it’s about creating a culture where contributions are valued.
The We invest in people framework reinforces this approach, highlighting the importance of recognising and rewarding people in ways that align with organisational values. By embedding recognition into the culture HR leaders can create an environment where employees feel motivated to perform at their best.
How HR can drive performance: A practical guide
To address hidden employee productivity drains and drive performance HR leaders need to adopt innovative strategies that prioritise engagement, recognition and flexibility. Research consistently shows that focusing on people’s performance pays dividends. McKinsey reports that companies prioritising their workforce’s performance are 4.2 times more likely to outperform their peers, achieving 30% higher revenue growth and five percentage points lower attrition.6 These numbers highlight the critical role of people-centric approaches in building resilience and maintaining a competitive edge.
#1
Reimagine performance management
Performance management should go beyond annual appraisals. Incorporate regular check-ins that assess both performance metrics and employee engagement levels. Engagement-focused performance management improves both productivity and wellbeing. Leverage analytics to pinpoint areas where engagement and performance falter. This enables targeted interventions that address specific issues, whether they are workload-related or tied to management practices.
#2
Foster a culture of recognition
Recognition doesn’t always need to be financial. Simple gestures such as public acknowledgements, handwritten notes or time-off rewards can significantly boost morale. Tailor recognition strategies to individual preferences. For instance, some employees may value professional development opportunities, while others might appreciate flexible work arrangements.
#3
Encourage flexible goal-setting
Ensure that performance goals are clear, measurable and aligned with organisational objectives. Flexibility is critical, especially in times of economic uncertainty, as rigid targets can demotivate employees. Involve employees in setting their own performance targets. This participatory approach creates a sense of ownership and accountability.
#4
Strengthen manager-employee relationships
Equip managers with the skills needed to build trust, deliver constructive feedback and inspire their teams. Effective feedback is a cornerstone of strong supervisor-employee dynamics.
#5
Promote work-life balance
Enable employees to balance personal and professional responsibilities through hybrid work models, compressed workweeks or flexible hours. This not only boosts productivity but also enhances overall wellbeing. Overburdened employees are more likely to disengage. Regularly assess workloads to ensure they are realistic and manageable.
Conclusion
The economic challenges of 2025 demand innovative solutions. For HR leaders this means rethinking traditional approaches to performance management and focusing on strategies that drive engagement, trust and collaboration. By prioritising recognition, fostering positive relationships and creating a supportive work environment HR can unlock the full potential of the workforce. These efforts not only address the immediate employee productivity challenge but also build a resilient organisation prepared to thrive in the face of future pressures.
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Sources
- https://www.bdo.co.uk/en-gb/news/2024/business-confidence-falls-to-lowest-level-in-almost-two-years-as-output-drops-sharply
- Mental health and employers: The case for employers to invest in supporting working parents and a mentally health workplace. Deloitte https://www.deloitte.com/uk/en/services/consulting/research/mental-health-and-employers-the-case-for-employers-to-invest-in-supporting-working-parents-and-a-mentally-health-workplace.html
- Aggarwal, J. (2019). Importance of use of High-performance work system and effectiveness of employee’s role on organizational performance: A Review. International Journal for Innovation Education and Research, 7(7), 421-425. https://doi.org/10.31686/ijier.vol7.iss7.1623
- Efektivitas Pengelolaan Kinerja Pegawai Dan Employee Engagement Dalam Hubungannya Dengan Kinerja Pegawai June 2017 Optimal Jurnal Ekonomi dan Kewirausahaan 11(1):16 DOI:10.33558/optimal.v11i1.80
- McAfee, R.B. and Champagne, P.J. (1993), “Performance Management: A STRATEGY FOR IMPROVING EMPLOYEE PERFORMANCE AND PRODUCTIVITY”, Journal of Managerial Psychology, Vol. 8 No. 5, pp. 24-32. https://doi.org/10.1108/02683949310040605
- Alex Camp, Arne Gast, Drew Goldstein, and Brooke Weddle, “Organizational health is (still) the key to long-term performance,” McKinsey, February 12, 2024.
