With the July 4th holiday coming up this weekend, you are probably more inclined to be thinking about the annual company picnic than annual performance reviews. However, a recent series in the New York Times You’re The Boss blog pierced that festive summer mood with a thought-provoking case study of how instituting performance reviews helped solve the problem of a troublesome long-time employee.

The 5-part series was written by Paul Downs, an average small business owner very much like many of you. He owns a small custom wood furniture business with 17 employees. He started his business in 1986, had an initial growth spurt, then downsized due to the poor economy, and started to see business pick-up again with the recovery. He begins the series with a post that discusses why he decided to reinstitute employee reviews after several years of eliminating that practice.

Performance reviews have a (often deserved) bad rap—employees find them annoying, managers find them time-consuming and unproductive, and small business owners hate the feeling of having employees expect to be given a raise, regardless of how much they have actually contributed. Downs puts it this way, “I hate doing employee reviews. I hate hearing that my workers wish that they had a better job when I’m doing the best I can just to keep the doors open.”

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However, Downs decided to reinstate the reviews after his shop manager suggested that they would be helpful in solving employee morale issues. Downs listened, and took the leap. His second post discusses How We Picked a Format for Employee Reviews. It also begins to detail the history of a “Veteran” employee who had been a great worker, was promoted to shop manager, and was then replaced in that role by someone who Downs (correctly) felt would be more effective. The third post, What We Learned By Doing Employee Reviews, discusses how the initial process went. Downs learned that his employees were largely satisfied with their jobs, but that they wanted higher pay (no surprise there!), and that they had noticed that the “Veteran” was conspicuously unhappy, and that his unhappiness was affecting overall morale. So, as part of the review process, this “Veteran” was moved to a new position that made him feel better about remaining with the company, even though he had been replaced in his managerial role.

The fourth installment, In Our Second Round of Employee Reviews, a Problem Emerges is really less about performance reviews, than it is about a small business owner’s struggle with the realization that his long time “Veteran” employee is not only no longer a good fit for the business, but also actually hindering overall team performance. The final installment, When a 20-Year Employee Becomes a Problem, describes how the problem “Veteran” was finally fired. The dismissal was part of the official review process—and what sealed his fate was that the “Veteran” rated his performance “Outstanding” in all areas, while the small business owner and his management team found it lacking.

Do take the time to read the entire series, as a small business owner you will probably recognize many of the problems Downs describes, as well as empathize with his tough decision process. It also teaches a valuable lesson about not staying in close touch with your staff. When times are tough, it is easy to ignore HR issues in order to concentrate on survival. When times get better, it is just as easy to focus on business growth and to ignore HR issues hoping that everyone will simply be too busy to care.

The following resources will help you implement or optimize a performance review system for your small business. Communication should be ongoing, so it is never too early, or too late, to institute a feedback program.

  1. 11 performance appraisal methods provides a comprehensive overview from more traditional weighted checklists and forced rankings to 360 reviews, along with advantages and disadvantages of each.
  2. Beyond Meritocracy: 6 Ways IT Employee Performance Evaluations Are Changing from CIO magazine examines the benefits of using real-time feedback instead of traditional annual performance reviews.
  3. An old but very comprehensive Gallup Business Journal article reviews the four most common performance review methods, which may be used exclusively or in combination. Part I looks at manager evaluations and multisource feedback such as 360s. Part II looks at staffing reviews in which management alone participates without employee input, and at objective performance metrics to which employees are scored and held accountable.
  4. Establishing Performance Standards examines common mistakes employers make when setting performance standards, and provides advice on how to avoid them.
  5. Entrepeneur.com provides a library of free performance review templates.
  6. Read 360 Performance Review Templates & Instructions, from a 2012 Tip of the Week for advice on that review method.
  7. Get a free QuestionPro account to create online performance reviews and employee feedback surveys. Their Performance Evaluation page provides helpful information about how to create and performance review questions, and the software provides several templates to get you started.

So even though the company morale builder you’re thinking about right now is most likely the company picnic, don’t forget to truly engage with your employees on a regular basis regarding their performance and your expectations. Perhaps you should use that picnic as an opportunity to have a short chat with each one, give an informal pat on the back or make a constructive suggestion for improvement.

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Image Credit: Performance Appraisals by Mediocre2010, on Flickr

Lisa Hephner

Lisa Hephner

My name is Lisa, and I'm the Vice President of Knowledge, responsible for the management of corporate, product, competitor, marketplace, legal, and regulatory knowledge, and creation and dissemination of knowledge tools using these assets to PaySimple prospects, customers, employees, and partners.

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