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How to Create a Winning Small Business Performance Review Process

Whether you have one employee or 500 employees, you should conduct performance reviews at your business. I strongly recommend that you complete a performance review for your employees every six months. Yes, doing performance reviews that often stinks, but it’s worth it.

I know small business owners don’t have extra time. I also know you probably rolled your eyes at the thought of doing your small business performance review process twice a year. But, there are five reasons why I think all businesses need to do performance reviews every six months.

How to Create a Winning Small Business Performance Review Process

#1. Employee retention

Employee retention is my number one reason for having reviews every six months. More than once I have discovered a burr under someone’s saddle and have been able to resolve it. If I did reviews annually, it might have been too late. I could have lost a high-demand employee.

#2. Frequent raises

Some people say employee performance evaluations should be separate from the money talk. I say that’s crap. Money is why people come to work, and it’s a great motivator. Having performance reviews semi-annually gives me the opportunity to give small rewards for high performance but more frequently.

#3. Formal documentation

Sometimes it’s necessary to terminate someone’s employment. But to do so, you better have good documentation. Doing performance reviews every six months gives you the opportunity to document problems more frequently. If there are ever any questions about why an employee was fired, you can show your documentation.

#4. Talent recognition

Semi-annual reviews are an opportunity to identify and promote undeveloped skills and employee potential. My business performance review process helped me spot the true potential of a couple ofentry-levell employees, who I eventually promoted to presidents within my companies.

#5. Positive affirmation

Remember, your employees are people. Most people want to do a good job and stay out of trouble. A frequent evaluation system encourages employees to be consistent and helps them do their best.

The small business performance review process

Like many small business owners, I have many people reporting directly to me. Taking time to conduct several performance reviews twice a year is a problem for me. I simply don’t have the time.

To help solve my problem, I designed a simple performance evaluation process that is designed to protect my time. When it comes to figuring out how to do a performance review, there are many steps you can take for preparing, conducting, and following up. But, here are the five steps I use to simplify my process.

#1. Employees rate themselves

Before you review your employees, have them rate themselves. Use a simple scale as the rating system, like we all did in grade school or high school (A, B, C, D, F). Employees should rate themselves in areas such as time management, cooperation, attitude, extra effort, reliability, job skills, technical knowledge, quality of work, quantity of work, results achieved, etc.

Give employees space to leave comments. Some people write a short novel. Others scribble a quick “OK.” Either one is fine with me.

I also give employees the option to rate coworkers and managers, although this is rarely used. I only share the positive comments from coworkers with their fellow employees. But any negative comments I receive can lead me to ask significant questions during the face-to-face discussion.

After employees rate themselves, I look at the reviews when I have time (usually off-site).

#2. I add my ratings

I will rate my employees in the same areas. The way the forms are structured, each employee score is summarized into one single number, their Rating Number. For example, A’s are equal to 5 points, B’s are worth 4 points, C’s are 3, D’s are 2, and F’s equal 1 point. This way, I’m able to add up their ratings into a single number. The larger the Rating Number, the better the employee’s performance has been.

After I add my own ratings, I can compare what I think to what employees think about themselves. By doing this, I can see if there is a possible disconnect between how I think an employee is performing and how the employee thinks they are doing. This is very enlightening. Under-performers often rate themselves very high, which illustrates the disconnect between how they think they’re performing and the reality of how they’re really performing.

#3. I calculate the raises

I use the Rating Numbers from each employee performance appraisal to help me calculate how big of a raise each employee should receive. Employees with big Rating Numbers will receive bigger raises. Having a way to quantify employee raises helps to break the entitlement cycle that might come from frequent raises. The numbers won’t lie, and if an employee doesn’t get a raise, you can justify why.

#4. We discuss the review face-to-face

The most important and time-consuming step of the small business performance review process is sitting down with employees.

Before I bring my employees into my office for their review, I do a quick refresher (e.g., their performance review forms, attendance info, my notes, and the amount of their pay raises). I also eliminate outside distractions and interruptions (e.g., phone calls, visitors, emails).

I use a no-holds-barred style; I tell it like it is (I have a fresh box of tissues on the table just in case). I try to do my reviews in 20 minutes or less. However, there are instances when more time is needed.

I always try to make my employees feel appreciated. I thank them during their reviews. In fact, I thank them every night before they go home. As an employer, you should do this too.

#5. The evaluation forms are electronically stored

At my businesses, we scan a copy of each employee’s performance review and upload it to the employee’s record in our online human resources software. Keep the reviews on file to have thorough documentation of each employee’s performance over time.

Image: Performance Review written on notebook page with red pencil on the right


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Mike Kappel is the president of Patriot Software, LLC., which develops online accounting and payroll software for small business owners. He has also founded four other successful small businesses, and he is passionate about helping other entrepreneurs find their way to success http://www.patriotsoftware.com/

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