All companies require performance reviews, yet rarely are people satisfied—even when they are positive. Properly done, a review is a source of satisfaction for both manager and subordinate: A record of growth and achievement, as well as a plan for future growth that inspires the person and the company to ever-greater success.

To achieve this, performance reviews must be thoughtfully and correctly prepared—which means that you must commit adequate time to do it right.

Performance reviews cover two separate areas:

• A relatively straightforward analysis of an employee’s performance against specific objectives defined during the previous annual review; and
• an analysis of the intangible performance covering things like communications skills, organization of work, attitude, balancing of priorities, etc.

These two types are combined in some ratio to create the total review. For example,

• individual contributors, where personal interaction and exercise of management judgment is very slight, might have 90% of the review based on performance against objectives; whereas,
• executives, whose exercise of management skill is very important, would have the proportion be more like 60%.

It’s difficult suggest the proper mix of objective and intangibles since even jobs at the same level can be vastly different in the needed mix of management and technical skills. However, the important thing is that the employee understands the ratio at the same time as she receives the objectives.

Companies frequently review employees on their anniversary dates, but for the purpose of calculating salary increases and stock options, people need to be compared against their peers to achieve a proper ranking.

Everyone looks great when viewed in isolation and most people achieve something during the review period; managers are human and want to be liked, so there is a tendency to view these too positively. It’s only when everyone’s achievements are viewed against each another that weak achievements are noticeable and extra effort is clearly seen.

Since employees are hired throughout the year, you need to plan to bring their reviews onto a calendar year basis with all other employees.

• If an employee’s first review is on his anniversary date, his second review would be at the end of the year immediately following along with the other employees.
• In most cases, people hired before June 30 have enough time to perform, show what they are capable of doing, and be reviewed at the end of the year with other employees. Salary, bonuses, and stock options are prorated to fit the actual period covered by the review.
• The work of newly hired knowledge workers usually requires at least six months to evaluate properly, so a person hired after June 30 (for a calendar year company) should not be reviewed at year-end— instead, the first review should fall on her anniversary date. This is the sole exception to the rule that employees should all be reviewed at the end of a year.

Reviews are best linked to the company’s annual operating plan, budgets, and objectives (PBO) so that everyone’s individual goals and objectives for the coming year flow naturally from it. Since the budget also provides for salary increases, managers will have a specific raise budget target to meet as they complete their reviews.

The typical timetable for companies operating on a calendar year basis is:

• the next year’s PBO is completed by mid-December;
• reviews completed by mid-January for the previous calendar year;
• salary increases and stock awarded shortly thereafter, but retroactive to the beginning of the year.

Summary:

• All employees should be reviewed at the same time;
• goals and objectives tie directly to the PBO; and
• salary increases, bonuses, and stock options awarded within 30 days after reviews are approved.

If the employee’s objectives have been generated and updated as described in the previous years PBO, it’s a simple matter for the manager to complete the portion of the review dealing with performance against objectives.

A negative review about the person’s shortcomings that is objective, fair and unemotional is usually received with full comprehension and is seldom resented.

In fact, it is entirely realistic to allow employees to review themselves. Most people are harder on themselves than their managers would be!

Too often, managers write a flowery, positive review of the employee, but give out a below average increase of salary, bonus, or stock. This is the action of a weak and underhanded manager.

In reality, the manager is critical of the employee’s performance, but is avoiding the face-to-face confrontation that would result from the discussion of an honestly written review; he’s also setting his company up for a possible lawsuit if the employee is terminated in the future.

Summary:

• There should be a perfect correlation between the review and any salary increase, bonus or stock award.

Many review forms have a section entitled “Goals for Next Review Period.” Without PBO, the manager has only the vaguest idea what projects the next year will bring—it’s like trying to tell a football player who to block before the play is selected.

This is one of the greatest causes of unhappiness with reviews, since the manager may later have to give an employee new goals that are contradictory to those previously discussed. This opens the door to disagreement as to whether the employee actually performed the assigned tasks.

Worse, without PBO-based goals, an employee can be left with an objective, but no budget, and so no way to achieve it.

Summary:

• If there is no overall goal setting procedure for the company, trying to specify an employee’s goals during a review is almost impossible.

• Career development is often ignored during reviews, much to the detriment of the employee, manager, group and the company’s retention efforts.

Personal development is intricately tied with improving the company’s efficiency, achieving its goals, and reducing its turnover. Success depends on employees acquiring new skills and improving existing ones. For example, does a technician want to become an engineer? Or does she want to join field service? During the review, she and her manager should discuss and agree on her career direction since both need to take action to achieve it—the tech needs to take classes or other training recommended by her manager, while the manager can provide simple projects to help the tech develop her new skills.

Summary:

• Career goals, and the action items needed to achieve them, should be spelled out in the review and quantified for that year.

• Managers at all levels are responsible for the company’s success.

• The company’s success is dependent on its people and their ability to achieve their full potential.

• Therefore, facilitating that development is a major managerial function, and performance reviews are a critical tool in that development.

You can protest and procrastinate—or use them wisely and well.

It’s your choice.

This entry was posted on Thursday, April 19th, 2007 at 10:21 am and is filed under Business info, Communication, Compensation, Culture, Motivation, Retention. You can follow any responses to this entry through the RSS 2.0 feed.
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