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.