Ask Addi P.: How Do I Start Performance Reviews?

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Dear Addi,

We are growing and have enough employees that we're thinking about starting to do formal performance reviews. What should we consider and how do we get started?

— Growing Pains in NYC

Dear Growing,

The performance review process is an involved one, but, when executed correctly, it can be very valuable. When considering whether reviews are right for your small business, the first question to answer is: Why are you doing them? Performance reviews usually have two main purposes.

The first is to determine compensation and raises. Since we like to reward great work with increased compensation when possible, employee performance and compensation are often tied together.

The other purpose is to track, evaluate and coach employees on their work. This part of performance management is closely related to the relationship between employees and their managers. A performance review should be part of that relationship but never a substitute for regular feedback, encouragement, coaching and recognition.

Understand Your Mission

Before you can gauge how well an individual employee is doing their job, you must define what constitutes success in your company and how you compensate employees based on their performance. What matters most in your organization? What behavior do you want to inspire? Often, these things are not directly related to profit or money. But since money is how you pay people, you need to find a way to translate your mission into financial incentives.

After you understand your overall strategy, then you can figure out how to measure whether people are aligned with it and improving. This is where you come up with criteria to measure and compare performance so you can allocate the funds available for raises. There are lots of different approaches and software programs available to help you decide. But don't go shopping until you really understand what you want to encourage and reward.

Manage Your Managers

Don't just run out there with a checklist and start checking boxes. First, check in with your managers to make sure they understand the evaluation process and how to measure performance. Help them understand how the company provides feedback, rewards strong performers and encourages good work.

Truly effective managers demonstrate the ability to help their reports improve and succeed in their roles and advance in the organization. In addition to focusing on employee development, make sure managers feel ready and equipped to teach, supervise, communicate and lead. Prepare your managers to effectively evaluate and understand what you are trying to accomplish and how you plan to do it.

Find the Right Performance Review Approach

There are lots of great ways to conduct performance reviews once you know what skills and competencies your organization values, promotes and rewards.

If you want to build your own process, figure out how often you should have review discussions and what they should look like. The basic categories are:

  • How are you doing?
  • What do you need?
  • What can we do better?

The traditional method is to focus on the employee and ask questions such as "what did you do well?" and "what needs improvement?" But the reality is that work is a relationship between the employee and the organization, and performance management should be a conversation. So, focus on the relationship as well as individual contributions.

Make sure your performance review process will work for all your managers and employee positions. If the standard format does not make sense for a particular position or function, see if it can be tailored by job function. Make sure that job-specific questions and feedback are consistent with the organization's performance review objectives and any data tracking or benchmarks. Also, run it by your legal adviser to make sure you're not creating an inconsistent or unfair process that could result in biased or discriminatory treatment.

And remember, you don't have to create your own process if you don't want to. Software programs from simple forms to complex coaching and reward systems are available and can be customized to fit your situation. When some small business owners hear this, however, they like to skip the whole "what do we want?" analysis and go straight to shopping for software. Don't do that.

You know best how your organization works and what is important. Deciding what you want and why you want it is the key to effective performance management.

The Big Picture

So, congratulations, Growing! This is a big milestone for any organization. Beyond performance reviews, here are some other things you should be thinking about at this juncture:

  • Whether you need another layer of management, such as an HR director
  • What data and information you want to keep and track to understand your staffing needs, costs and scheduling
  • Whether you want to or your employee threshold requires you to start offering benefits, and if so, which ones
  • Whether you should consider technology or outsourcing to help with all of this

Planning ahead for growth and starting to create systems and processes for handling it can help save lots of time, money and especially stress down the line.

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Addi P is a digital character who represents the human expertise of ADP. The questions and challenges come from professionals who manage people at companies of all sizes. The advice comes from ADP experts who have a deep understanding of the issues and a passion for helping leaders create a better workplace. If you have a challenge you'd like to pose for Addi P, complete this simple form.

The information provided here is for general informational purposes only and not legal, insurance, financial or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of a professional who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed.