How to get the best out of your people without the dreaded end of year performance review

Dread performance reviews? Overwhelmed by completing forms? Hate meetings that feel contrived? There are other ways to get the best out of people. Read on.

In a small business, time is paramount as is each individual’s performance. Getting great people in and keeping them is a challenge. An overly engineered process simply doesn’t work nor does having no process in place. It’s about getting the balance right between people understanding what they need to do,  having a fair process to base compensations decisions on and at the same time motivating people to help your business grow. 

We believe each component should be managed separately, but before going in to an alternative viewpoint let’s look at why performance reviews do not work.

 What’s wrong with performance reviews?

The landscape of business has changed significantly.  Rapidly growing, constantly changing and technology has impacted on every facet of the modern business. Decisions happen quicker and change occurs daily. Unfortunately, traditional HR processes have not yet caught up to meet the demand of a modern workplace.

Criticisms abound, here is some interesting research about why end of year reviews don’t work:

 

  1. Ratings lower morale especially if linked to compensation: Research shows that employees, on average, rate their comparative job performance at the 78th percentile; that is, better than 78 percent of the other people in the office. From a business perspective, if you had to rate everyone on a 5 point scale, you could not possibly give everyone a 4 or a 5 as there would be no differentiation and you may also link ratings to bonus or pay increases. You therefore may need to apply a distribution curve for budgeting purposes. Most people will therefore receive an average rating. Without fail, majority of people will therefore feel unhappy about their rating - it’s what humans are wired to feel.  Managers will then need to justify why an individual has received a lower rating and the focus will be on negatives which results in unhappiness and low morale. \
  2. One size does not fit allPeople come with all their characteristics and imperfections that they orchestrate in an attempt to perform at their best. In traditional performance reviews, employees are measured along a predetermined checklist. In almost every instance, what’s being measured has more to do with the checklist than the individual’s actual performance. Political behaviour and trying to present the best impression at the meeting often ensues. 

  3. Time wasted filling in forms and collecting feedback: In small businesses, it takes time to collect feedback as well as provide feedback for everyone in the business. This time could be spent on value-added activities like growing your business or getting people excited about the direction your business is going in. 

  4. Surprises at the review meeting: Unless feedback has been given throughout the year with successes recognised as they happened, surprises and sometimes disputes are often inevitable. People may not understand why they received the ratings they did. Managers leave the meeting feeling deflated.

So what’s the alternative? 

  1. De-link performance reviews with pay decisions
    Pay market rate for salaries where you can. Once you have budget for pay increases, review salaries in light of market conditions and make adjustments accordingly. Pay should not be a major motivating factor to perform. If you do decide to operate a bonus scheme, ensure the criteria are based on objective results that are tangible. For example,  increase client retention by 75%. It is a clear objective, is outcome focussed and can be measured. If there were extenuating circumstances, you can make a judgement call. If objectives are not easily measurable and bonuses don’t make a significant improvement to performance and ultimately your bottom line, reconsider the value of a bonus scheme to your business. 
  2. Don’t wait until the end of year to provide feedback
    Even in Founder led businesses where people have autonomy and are not ‘managed’ as such, people should be clear about what they need to. Use daily scrums or weekly WIPs to provide on the spot feedback: what’s going well? What you need to do to go from good to great? What support do you need to make that happen? Provide lots of clarify and ensure people are clear about what they need to do and feel supported.

  3. Recording objectives and key successes through quarterly checkpoints
    You may feel some process is necessary for capturing key successes throughout the year and outlining objectives. You can have quarterly or monthly checkpoints. Keep it lightweight as possible. Perhaps dedicate a few hours a quarter for everyone to stop and reflect on key successes and think about how they’d like to develop professionally.  Friday afternoons work well, maybe get pizzas in. The point is, the process should be as pleasurable as possible.

  4.  

    Keep communicating your vision/ strategic direction People need to be aware of your vision so objectives can be tailored accordingly. Keep communicating this and ensure people are on track to help you get there. 

  5. Focus on progression and professional development People want to develop and grow. Give everyone the opportunity to reflect on how they would like to develop professionally and support them to get there. In a small business, there are many ways people can grow and assume more responsibility so help them broaden their roles.

 

 

 

Going from Entrepreneur to Employer

It’s happened. Your startup has just been funded. You need to go from a group of visionaries who care deeply about the product to an employer.

Where do you start? How do you stand out?

Whilst it is attractive to work for a start up, you are competing with a mass of others trying to attract from the same very small talent pool. 

Almost everyone offers free lunches, beers on friday, pool tables and even ‘bring your dog to work’ day!

Get the basics in place

Contracts

Ensure they are in the spirit of a good working relationship.  Let the tone be worded in a way which conveys the sprit of your business (instead of an overly legalistic draconian tone) but be very clear about: 

Hours: Be clear about core office hours and manage flexible arrangements locally. If output is more important than being at their desk for 9am, be clear about that in your handbook and your expectations. With a small team, it’s relatively easy to be flexible and give people the freedom to manage their own time but it gets more complicated as you grow and having everyone turn up at a time which suits them is not sustainable long term. So it’s important to include core office hours in your contracts to avoid issues later on.

Salary: Obvious point to include but also be clear about when deductions to pay would be appropriate e.g. for loans. Also be clear about when salaries are reviewed and how long you need to have worked to be eligible for a review. 

Bonus: anything included in your contract needs the employee’s consent to change so best to allow discretion in bonus clause wording.

Benefits: It’s now a legal requirement for businesses to automatically enrol all employees onto a pension scheme so it’s worth adding details into the contract. Keep the rest fluid as benefits may change with time.

Holidays: In the UK you are legally obliged to give employees a minimum of 5.6 weeks paid leave including bank holidays. You need to give part timers the equivalent pro rata. Be clear about whether holidays are inclusive of bank holidays or not.

Also be clear about the holiday year, whether days can be carried over and if so, any rules around the operation of this.

Data protection: You will hold personal data so in accordance with data protection laws, make that clear so the employee is aware and consents.

Confidentiality: You need to protect your commercial interests so ensure that you specify that everything the employee comes into contact with during their course of employment needs to be treated confidentially.

Notice period: Specify how long this is and the duration during the probationary period (if you include a probationary period). Dependent on role, the probationary period can be anything from 3 to 6 months. After 2 years of continuous employment, the notice needs to increase by 1 week per year up to 12 weeks maximum.

Post termination restrictions: Be clear about how you will protect yourself once an employee leaves your business by specifying how much time from their termination date needs to lapse before they can work for a competitor, poach staff, deal with suppliers or start their own business. 

People guidelines or employee handbook

A well defined set of guidelines/ expectations about your workplace is vital so everyone is clear where they stand. Yes, it’s not cool to have bureaucracy and people seldom read them but it’ s important that new joiners understand the full terms and conditions of their employment before they sign up and existing people know where they stand to avoid misunderstandings later on. 

You can make them as creative as possible and they should reflect your culture and founding values. 

They do need to outline your approach to confidentiality, working hours, dealing with poor behaviour, performance, complaints, business ethics, etc.

Paying market rate and stock options

It’s worth investing in some data to understand market rate for pay and benefits for your industry. Whilst money is a consideration, you can offer other things to make the package more attractive like time to work from home, a sign-on bonus, lots of opportunity to develop, stock options, tickets to conferences, etc. 

Pension Auto enrolment

It’s now a legal requirement for all businesses to automatically enrol employees in a contributory pension scheme. You need to do communicate this to them when they join and whilst they are employed with you. For more info, visit 

http: //www.thepensionsregulator.gov.uk/

Probationary periods 

If you decide to have a probationary period, be clear with people what they need to do within the first 3 or 6 months. Keep a track of progress and give regular feedback. If things don’t work out, at least both parties would understand why. 

Welcome newbies

You don’t need to do a formal induction, but it’s helpful for new people to understand your culture and ways of work as soon as possible so they can hit the ground running quickly. A team lunch is a great way to meet people, get them to spend sometime with one of the founding team so they learn the ropes quickly. Once you reach the 40+ people mark, a more detailed approach like time with each time would be useful. You are not a corporate company, so a light touch approach will work fine. 

Bonus schemes/ reviewing salaries

It’s useful to have a practice of when you review salaries, how long people need to be working with you to get a review and  you are open and transparent in communicating this so people understand. Pay is always a sensitive matter and you can create a culture of trust and openness by being very clear about these things. 

Ditto for bonuses. Many businesses don’t offer bonuses as performance can sometimes be difficult to measure. If you do decide to give people a bonus, be very clear about what criteria you will use to decide whether they get a bonus or not and keep the criteria objective and easy to measure. 

Now that you have the basics in place, you need to think about how you can make your workplace stand out as a great place to work. 

How to get HR right for an entrepreneurial small business.

Traditional HR does not work

HR has always been the underdog. A place where employees went to complain with a nice cup of tea and tissues on hand. Business owners have always been weary and only sought counsel if things went horribly wrong. HR swooped in, armed with legislative guidance, best practice notes and an employee handbook! They rarely brought anything commercial to the table.

Professionals have traditionally risen up the ranks from HR Administrator to Head of HR without any commercial experience. The UK’s HR governing body, CIPD offers professional roadmaps and competencies for a “commercial HR practitioner” but does not address the gap in the biggest competency needed to be a brilliant HR specialist - solid business acumen. 

In an attempt to salvage the reputation of a function which worked almost in opposition to business, the HR Business Partner model was born. Essentially, the model works on the premise that HR should be aligned with business leaders influencing business strategy. It is primarily a model which works in corporate organisations where stakeholder management and political management is required.

How can HR add value to a small business?

Take away the corporate behemoths, where does that leave small to medium businesses? What does good HR look like? How can it add value? More crucially, is it even required?

In small, rapidly growing businesses, there are no nameless employees on a spreadsheet. Everyone generally knows each other and you can make a decision by getting everyone in a meeting room. 

Entrepreneurial and technology businesses provide a unique HR challenge - extremely well educated and talented people in comparatively small businesses. People tend to be ambitious and want to see how they are being invested in for the future. They are less loyal than other more traditional firms and tend to be more flexible in terms of career development and growth.!

Loyalty is often a challenge with a recent report citing that 76% of full-time workers, while not actively looking for a new job, would leave their current workplace if the right opportunity came along. Other studies show that each year, the average company loses anywhere from 20% to 50% of its employee base. 

Here a few ways HR can actually add value: 

  • Helping to keep employee relations healthy - offering commercial advice to nip issues in the bud. Growth challenges the status quo and can lead to all sorts of people issues. Good, pragmatic HR should address this by being proactive.
  • Designing and streamlining HR processes so time is spent on value-added activities. Nothing like clunky processes to get in the way of growth and quick decision-making. HR processes should be simple and straightforward in a small business.
  • Designing systems that work e.g. great performance reviews, effective HR technology and incentive schemes that suit small businesses. When time is money and every individual contribution counts, there is no time for outdated performance review procedures that take ages or incentive schemes that don't really motivate people. 
  • Identifying skills and capability needed to grow the business in the future and developing these through blended learning approaches.  This crucial. In order to keep competitive, skills and development need to be future focussed so you have what it takes to grow. 
  • Gearing for growth by proactively building a network of suitable talent and supporting the business with retaining and developing star performers. HR should support this but this is not their remit only. EVERYONE needs to be involved in building and nurturing relationships with great people who could help the business. 
  • Actively managing talent by getting under the skin of employees - how engaged are they? What are the pain-points? 
  • Supporting business change through well designed communication plans. Change is constant. Poor communication, or worse, no communication can be detrimental to morale.
  • Help to make your business attractive to talented people. This can be through creative recruitment campaigns and meet ups to name a few.
  • Helping those new to management by giving them the tools and support they need to really get the best out of people. 
  • Help to develop leadership capability.

Finally

 Everyone approaches HR differently and one size does not fit all. The strategy of your business plays a significant role in what you need from HR. It's important though, to work with someone who thinks differently and brings a commercial perspective.  Whether it’s growth, international expansion, downsizing, the shape of HR needs to reflect your plans.