Effective Performance Reviews In 8 Steps

There's a bandwagon rolling through town with "Ditch the Performance Review" painted on its side.  Have you jumped on already?  Are you tempted to?

I understand the appeal of this bandwagon.  Most people don't enjoy giving feedback and receiving feedback can be awkward. Furthermore, the review process can take up an exorbitant amount of time and pull us away from daily work.

But people need feedback. We need it at home.  We need it at work. We need to know how we're doing, and how what we're doing fits in with what others need and want. Generally speaking, people are conscientious and that's where the desire comes from.  (If someone is adamant that they don't need feedback of any sort from anyone, I think that brings its own concerns.)  Can we agree that people need feedback?  And beyond just meeting needs, well-executed reviews can build trust and engagement in your company. The issues comes around how reviews are done...let's look at that.

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In my experience, the biggest failings with performance reviews stem from three points.

1. The review system has been thought of as an isolated, tactical activity rather than a strategic element of operations. It doesn't correlate with company goals, values and culture, so it means little.  The tie between the review and compensation is poorly conceived and/or not understood, which breeds resentment and misunderstanding.
2. People are not equipped to participate in genuine two-way conversation about performance.  The manager doesn't know how to deliver feedback and invite conversation. The employee doesn't know how to participate in a way that feels safe.
3. Reviews of the past don't carry into meaningful planning for the future.  This leaves people feeling dumped on and hopeless (if they got negative feedback) or glossed over (if they got positive feedback).

Performance reviews coupled with performance planning can be highly motivating, engaging and rewarding for both managers and employees.  Here are seven steps to make that happen.

1. For each role, establish 3-5 Key Performance Indicators (KPIs) that correlate with business goals.  A KPI answers the question, "What do we look at to determine if someone is doing well at this job or not?"  Make sure people know their KPIs at the start of the evaluation period. No surprises!
2. Establish the 3-5 critical behaviors that correlate with company values/culture. If you've not done this before, there are great ways to engage employees in establishing the list. Make sure that people know these expectations long before it's evaluation time.  Again, no surprises!
3. Performance reviews should include reflection on performance of KPIs and critical behaviors.  Whether you use paper & pen, electronic forms or conversation, make sure both manager and employee give their perspective on both areas.
4. Keep the scale a simple 1-4 (4=Exceptional  3=Excellent  2=Needs improvement 1=Poor) with 3 (Excellent) being the expectation.  Any 1, 2 or 4 requires explanation to the employee.
5. Provide training to managers on how to have meaningful performance conversations and make yourself a role model.  For the first round or two of a new performance system, consider having inside pros or an external consultant observe reviews and provide coaching.
6. Hold a performance review meeting and then a separate performance planning meeting. This gives both parties time to reflect and prepare.  The performance planning meeting accomplishes establishing KPIs for the next period and any work to be done to improve behaviors, skills or knowledge.
7. Think through the performance and compensation ties carefully and be transparent about this.  I'm a fan of bonuses tied to company profits.  No profit = no bonuses.  That's business.  Any 1 or 2 ratings (see #4 above) disqualify one from a bonus.  Wage increases are a separate matter and tie to cost of living or change of position scope (or change in position).
8. Avoid surprises.  Develop a culture of ongoing feedback such that the formal reviews don't hold surprises, but rather an opportunity to step back and look at performance as a whole.

With a bit of upfront effort establishing a strategic system and articulating expectations, you can be well on your way for a strong performance feedback process that is positive for your employees and benefit for your company.