There are compliance elements to annual employee reviews, but they’re at the end of this article.

That’s not to minimize their importance; however, they are more “checklist” things.  So first, we’ll discuss the more complicated, and often ignored, employee review.

Many small businesses miss a great opportunity to make their business better by engaging their employees in a formal review process.  Here are a few employee reviews tips.

Timing

Do an evaluation more frequently than once a year.  Who else do you only talk to once a year?  Your CPA?  Your doctor?  Not exactly great relationships!  The procedure is basically the same regardless of the frequency.

If review and assessment take place more frequently than annually, then the interim periods become more detailed, discussing the interim progress, rather than the more strategic annual discussion.

Substance

Make sure you use an acceptable form.  You need to be consistent across all employees, although supervisors or managers will have different content related to how they manage others.  This protects against bias, intentional or unintentional.  The Society for Human Resource Management has a very good library included in its annual membership fee.

Require the employee to self-evaluate based upon a Scorecard developed for them.  The Scorecard should have a clear, measurable mission for their job that lines up with the company’s goals.  It should also have specific, measurable outcomes, upon which the employee can be evaluated.

You should do the same thing with the Scorecard and then compare your evaluation with theirs and discuss differences.  It is important to not argue about “who is right” if you have differing opinions on performance.  Rather use the evaluation process to mutually understand why you arrived at different conclusions.  It’s possible that the outcome was not clear, or that the measurement of the outcome is not consistent.

I have found lots of confusion on things that I thought were self evident, but communication cannot be assumed.

Develop a Plan

After the performance has been agreed to with the evaluation of the Scorecard, develop a specific plan to improve.  Depending on the job and the person, this could be very simple, or it might be multi-staged over a year or more.

When suggesting areas for improvement, do not make it personal.  Stay focused on the Scorecard outcomes, and training that helps the employee improve skills that will “move the needle.”  Be as specific as possible in your recommendations.  Don’t simply say “You need customer service training” but rather “One of your outcomes is 98 percent customer satisfaction rating.  From the reviews it appears that customers say that you are sometimes argumentative.  How about some training on how to deal with difficult customers or conflict resolution?”

Notice how there is no blame, just focus on the outcome and how to improve.  People usually know their weaknesses at some level, and if discussed in a non-threatening way, are eager to improve.  If they feel threatened, they will resist the change.

Alignment: Taking It to the Next Level

In today’s market, employee retention can be a real challenge.  Most people have alternatives when it comes to earning a living, and they want to work at a place where they enjoy the people and enjoy their work.  Understanding an individual’s personal goals, and making sure that they line up as best as possible with their work goals, makes for smooth sailing.  To the extent you line up the employee’s goals with company’s alignment, you will have greater success as an organization.  Perfect alignment is rarely possible and shouldn’t be expected by either party.

But to the extent that you can identify an employee’s desired growth/career path, and help them achieve it, you will keep employees longer.  You might ask, what if my company doesn’t offer the career path they want?  Nothing you can do about it, quite frankly.  Would you rather them leave with a good or a bad taste of your organization?  They’re going to leave, might as well leave happy!

Also show the employee how that fits into the company’s revenue model.  The simplest is to show them how their work contributes to the revenue or net income of the business.  Virtually no small businesses do this for fear of the employees “knowing too much.”  Here’s the thing. If you don’t tell them, they’re going to make assumptions (likely incorrect ones). If the employee hears that the company had sales of $3 million per year, how much do they think the company makes?  That’s right $3 million.

A little education goes a long way to alignment and trust.

Compensation

Notice this is next to last?  The reason is that it is usually the first thing small businesses and their employees think of in an annual review.  Compensation flows from all of the other discussion.  Are you doing your job as expected?  Do you have a specific plan to improve? Are we on the same page as to what your career goals are and how they align with the company’s? Once those questions are answered, compensation becomes a rather simple conversation.

Compensation review should only be done on an annual basis and only after performance outcomes have been discussed and agreed to. Unless the employee is changing positions or is on some type of incentive compensation, there shouldn’t be any surprises by either party.  Many times employees don’t know exactly what their value or cost to the company is.  I recommend detailing all of the employee’s compensation in dollars (i.e. Employment Taxes, Benefits, Paid Time Off, etc.).  Many times. employees are very surprised at how much they receive and/or what it costs the employer to employ them.

Nuts and Bolts

Here are some other housekeeping elements that should be included in an annual employee review:

• Obtain updated IRS form W-4 for every employee
• Obtain signature of review/approval of updated employee handbook and highlight any policy changes made or high risk areas (e.g. harassment, workplace safety)
• Update background check if company policy requires.
• Consider delivering annual training for high risk areas.
• Although not necessary, you might find it easier to align the compliance side of annual review (such as the above) with benefits enrollment. Medical is usually only annually, while others may have semi-annual or quarterly enrollments.

Courtesy: Small Biz Trends