The end of the year is fast approaching, and if you’re an employer, it’s almost time for annual reviews for your employees. It’s critical that you take time out of your busy schedule to let your employees know how they’re doing, get their feedback, and award the appropriate raises.
Although year-end reviews are often tied to an increase in compensation, employees and employers alike don’t look forward to the process. Many employers find the one-on-one meeting awkward, even when the conversation is mostly positive. And small business owners, whose resources are often tight, must balance the desire to reward employees and retain the best ones with other business needs.
As for employees fearing repercussions, most are afraid to be honest about their own performance, the competence of their supervisor, and whether they are satisfied or have complaints about the workplace.
Without a dedicated human resources department or person to handle the employee review process, trepidation surrounding year-end reviews amplifies. Not surprisingly, a busy small business employer may be tempted to dismiss the need for any type of meaningful performance review.
Many small business employers feel that the intimacy of having a small workforce means everybody already knows where they stand, and there’s simply no need to sit down for a formal review backed up by documentation. Year-end reviews in businesses with only a handful of employees (or fewer) often consist of a pat on the back and, “Good job ___, your raise is $XXX.”
Despite the fact that annual reviews are not required, it is important for even the smallest of employers to commit to some sort of review process. The best employees value feedback and the chance to participate in the development of the criteria for their appraisal, and those are the employees you want to hold onto. Conversely, year-end reviews are an opportunity to give poor-performing employees a documented warning to shape-up and the chance to redeem themselves.
What to consider when reviewing employees’ performance
The basis of the year-end review is how well an employee performs his or her job. The required duties of a position are the objective yardstick by which you can measure an employee’s performance. Use a job description and/or analysis to create the standards for a position, which, of course, must be communicated to the employee.
Meeting goals represents another important component of a meaningful review. A goal should be a specific and measurable accomplishment to be achieved within a fixed time frame. Goals are ideally developed through a collaborative effort between the employer and the employee and achieve the result of enhancing the employee’s job performance.
Example: The goal set for one of your employees is: “Adele must become a better writer.” This goal is not specific enough because it doesn’t state the action that Adele can take to achieve her goal or the time frame it should be accomplished in.
A more specific and measurable goal for Adele would be: “Adele should enroll in and complete a college-level business writing course during the first half of next year and earn a grade of “C” or better.”
Communicate duties and goals to employees. Be sure that the criteria for their appraisal are communicated to your employees, preferably in writing. Effective communication means that employees know what is expected of them.
Composing the review. Before you sit down with an employee for the year-end review, you’ll need to create an appraisal. Evaluate the employee’s success in fulfilling the duties required for the position the employee holds, as well as whether goals have been met within the time frames specified. Use your personal knowledge and records and documentation regarding the employee’s performance to create a thorough and objective appraisal.
Ideally, you should be keeping notes on your employees during the year. While the inclination may be to record only the negative, positive behavior and achievements should be noted as well. This will make it a lot easier for you to put together a review that encompasses the entire year rather than just the last month because that’s what is fresh in your mind.
While the review doesn’t have to be in any type of specific format, it should be in writing and clearly explain the basis for the results.
Warning: Be careful to avoid language that could be considered discriminatory. Similar to the rules that govern interviews, written records, in particular, can be used against you in lawsuits.
Hold a meeting with your employees to discuss reviews
Once you’ve composed the review, it’s time to have a face-to-face meeting with your employee. Depending on the type of written record you create, you may want to give your employee a copy of the review before your meeting so that he or she can be prepared to discuss it with you.
Have the meeting at a time that is good for both you and your employee, and allow for feedback in both oral and written form.
Tip: While it can be uncomfortable to discuss performance, this is particularly true when criticism is delivered. And things can turn downright ugly when dealing with a problem employee. Properly documenting a poor performer’s performance is particularly important if non-improvement is the basis for termination.
Setting future goals. The year-end review meeting is a good time to set employee goals for the next year. You and your employee can create goals to build on the employee’s strengths and improve performance where it is warranted.
Consider having two or three “mini” reviews with your employees during the year. Doing so will go a long way toward opening the lines of communication with your employees so that they—and you—can voice any concerns, provide accolades or document problems regarding job performance and progress towards meeting goals.
In addition, holding reviews during the year can result in a more positive year-end result for employees by clearing up any confusion as to how they’re doing and what’s expected of them.
How to determine year-end raises
Year-end reviews are often accompanied by raises in compensation. If you plan to raise employees’ pay, you must decide how to calculate who gets what. Two popular methods are basing raises on performance or giving employees the same raise across the board based on percentages.
Tip: You don’t necessarily have to time your raises with year-end reviews, particularly if raises aren’t tied in with performance. Other popular choices include awarding raises mid-year or on an employee’s anniversary hire date. Choosing an alternate time to award increases in pay allows you and the employee to use the year-end review to concentrate on an assessment of the employee’s year-long performance and helps ensure that reviews will take place more than once a year.
Also, keep in mind that if you raise compensation on each employee's hire date, you won't have to take the financial hit of increased payroll all at once. For small businesses with more than a couple of employees, this can be a real advantage.