8 Best Practices for Building an Effective Employee Performance Review Program at Your Business

You can thank the government for employee performance reviews.

Reviews weren’t all that common until the Performance Rating Act of 1950, which was meant to help determine which employees were struggling as well as improve the relationship between employees and their managers. That one act established a simple rating system of outstanding, satisfactory, and unsatisfactory, and things have never been less clear since.

Need a form to perform a performance review of your hourly employees? Download this employee performance review template for free.

Microsoft used to use stack ratings, following Jack Welch’s lead at General Electric. The system ended up pitting employees against each other. Employees hated it. Microsoft killed the practice. Yet at the same time, Yahoo! put a similar system in place, where employees were graded on a curve. Remember how much you loved that in high school, especially if you threw off the curve?

Expedia ended its employee ranking system in 2012 because they wanted to “humanize” the relationship between management and employees. Adobe Systems ended their employe review programs that same year because they noticed large numbers of employees would quit after the reviews.

So here we have it: how do you find out which employees are or aren’t struggling without creating fear and dissention among the ranks?

1. Be aware (and beware) of what context you’re bringing to the table.

Before you put any type of employee review program into motion, before you sit down with any employee, check yourself.

Male employers might be misreading female employee’s responses, for example, chalking them up to being emotional and telling them during a review they shouldn’t take things so personally. Misinterpretation can also happen in the reverse scenario. Any time a different culture or perspective is not taken into consideration, the employee review is going to head in the wrong direction.

A reviewer who comes to a review with an stereotypical interpretation of an employee locked in will not have a great end result. To avoid that, you should be sure anyone conducting employe performance reviews has experience or knowledge of:

  • Diversity training. If your company has a diversity training program, your reviewer should definitely participate. Hopefully, the different ways cultures and people work and communicate are part of this training so that a reviewer can understand, for example, that what a low-level manager sees as insubordination might actually be introversion.
  • Asking the right question. When dealing with facts and interpretations, the reviewer has to be able to know how to ask the questions that can help him or her get to that accurate interpretation. Again, one person’s insubordination might be another’s shyness.

In other words, it’s about making sure your reviewer has true cultural competency, which is the ability to ask the right questions while navigating the ever-trickier waters of diversity. It’s also about being able to spot diversity as it truly is: gender, race, age, geographic cultures, personality types, communication styles, and so on. Without true cultural competency, all employees will look like a nail to the reviewer whose only tool (and interpretation of performance) is a hammer.

2. Consider the practice of 360 degree feedback.

360 degree feedback is where each employee receives anonymous feedback from those who work around them. It includes co-workers, managers, and anyone whose paths they might cross. These people fill out a survey responding to questions about the performance, behavior, and competency of the employee. The employee also takes the same survey as a form of self-review.

This method helps guard against misses and abuses that might stem from not fully understanding or correctly interpreting the diversity in your staff. It’s a kind of checks and balances, giving coworkers and others a chance to chip in information and interpretation of what’s really happening in a way you might not be able to do.

However, this method isn’t meant for measuring “hard data” items, such as job attendance or sales performance. It’s meant more as a helpful tool to capture an understanding of those subjective qualities that prove difficult for most managers to get a handle on, such as attitude, friendliness, abilities, teamwork, or listening.

If your performance review tends to fixate on the measurable numbers, 360 degree feedback is an excellent way to broaden those results and discover great employees who really make your culture great even if they aren’t standouts in the numbers game.

3. Make your performance requirements clear in your employee handbook.

Your employee handbook should be clear on how your performance review program works, and what is expected of each employee in regards to performance, attitude, attendance, sales, and so on.

This includes:

  • What your review process is, and the timeline it occurs.
  • What supervisors and managers expect of employees, and what employees should expect of them.
  • What leads to an employee being fired instantly (e.g. theft), and if, in other cases, they’ll receive a written warning for their personnel file before the danger of being fired is real.
  • Performance, attitude, teamwork, ethics, and any other benchmarks that you will cover in a review and that you expect employees to meet.
  • What the end results of reviews might be (e.g. you won’t get fired, you might get a pay raise)

Clearly lay out your entire employee performance review program in the handbook, and go over it with each new hire.

For one thing, making this clear helps reduce fear and dread among employees. It also helps protect you legally, which is why you should work with your legal counsel when developing employee policies relating to firing.

4. Make employee performance review an ongoing process.

After Adobe Systems ditched the traditional approach to employee performance reviews, they went to a new model: check-in.

No more ratings. No more rankings. Instead, employees are given clear expectations and have regular feedback (positive and negative) with managers. These periodic times of feedback are based around a time schedule that works best with the particular job the employee has. Is the employee working in four week shifts? Set the feedback loop at four weeks.

What’s the benefit to this approach?

  • The system is fairer. There is no arbitrary quota to fill in regards to who is considered a high or low performer.
  • You can make micro-adjustments to employee performance instead of trying to push big changes through once or twice a year.
  • You find out about good (or bad) employee performance trends and capitalize on (or put an end to) them early on.
  • You get a better understanding of what’s happening for all employees as it’s happening instead of making shocking discoveries the next time a perfunctory review rolls around.
  • Employees work as a team instead of competing against each other.

While you might not be able to make the switch to a check-in type of process in its entirety, you can adjust your employe performance review methods to adopt a progressive and continual approach that is punctuated with a periodic standard “full” review. This makes the review less jarring for everyone involved.

5. Plan ahead and prepare before the review.

If you can plan ahead for an employee performance review, it means you have a system and process you take seriously. In other words, you’re not simply dragging employees into your office on the fly and throwing questions at them.

Planning ahead for the review might mean:

  • You have a copy of the employee’s personnel file with you.
  • You have documentation or notes from previous reviews (if they are not already in the employee file). This includes the goals and objectives you and the employee discussed at the last review.
  • You have any forms or reports you need to fill out ready to go.
  • You’ve spoken with any supervisors or coworkers according to your review process, and have that information handy.
  • You have copies of recommendations (or complaints) from managers, coworkers, or customers.
  • You have performance data (sales, productivity, etc.) relevant to the type of review you are conducting.
  • You’ve gone over all data, comments, and documentation and made notes of possible questions to ask.
  • You’ve told the employee the date and time of the review, giving them adequate time to prepare.
  • You’ve given the employee forms or questions to think about ahead of time based on what your review process allows for.
  • You’ve alerted them to whether or not you expect them to do some reviewing of themselves so they can think about it ahead of time.

Why do you plan ahead?

It’s so you know the ground you need to cover well enough that you can put down the forms and actually listen to what the employee has to say during the review. Reviews, after all, are a conversation, not a lecture.

6. Separate your reviews based on the desired outcome.

Sometimes you want to give an employee a pay raise or a promotion. Other times, though, you simply want to evaluate their performance and help them develop further in their job. Most businesses try to do both of these things with one yearly review.

Michael Beer, a professor emeritus of business administration at Harvard Business School, makes a good point: it’s tough to get an employee to be receptive to listening and talking when they know their bonus is on the line.

When an employee thinks the conversation about their performance and their ideas of what they think should be changed or needs to happen is going to ultimately end with either a yes or no on their pay increase…they’re going to be pretty cautious and guarded about what they say. They won’t hear much of what you say because they’ll be fixated on what comes at the end: do I get the bonus or not?

So consider a performance review as a place to encourage professional development, and create a separate review for promotions and pay increases, even if the latter is held just a few days later.

7. Be sure the reason for the review is a good one.

I’m sure your employe review program is good-intentioned. But what if it wasn’t? What might that look like?

  • You’d make personal attacks on the employee.
  • You’d spring surprise reviews on them and employees would come to see reviews as terrifying or retaliatory. Like a performance pop quiz.
  • You’d use an outside standard or rubric (“this is how Thought Leader X recommends we do reviews”) that might not be a great fit for your industry or this particular group of employees.
  • You use employee reviews as a kind of vague threat.

Not only is this a great way to open the door for legal retribution, but it’s also a good way to destroy morale and your workforce, and get caught up in a constant state of turnover.

Your goal is to evaluate effective employee performance, not effective bullying tactics. If you have an employee who isn’t performing well or is causing problems, deal with the issue and don’t pretend it’s merely a routine review. Keep your reviews for evaluating and encouraging great employee performance; don’t turn them into a disciplinary tool. Reviews are for positive and forward movement, not to stunt growth.

8. Review the end results of your employee performance reviews.

What is your goal for employee performance reviews? The assumption is that you are trying to build a better team, and make sure each person is a good fit for their job, they are performing well, and that no problems are developing.

Are those types of things actually happening?

Remember, Adobe saw employees voluntarily quitting their jobs after employee reviews, though that was certainly not their goal. They also realized that whenever review time came around, managers were distracted from their other work because they had to focus on doing the reviews. Employee turnover and distracted managers was clearly a negative side effect of a process that was supposed to be returning a positive.

Pay attention to what happens during or after employee performance reviews, and ask yourself:

  • Does performance get better afterwards, or is it hampered?
  • Do employees seem more confident, or are they hesitant?
  • Has morale increased or decreased?
  • Are the changes you suggested for improvement happening in a positive way, or even at all?
  • Do you notice employees quitting their jobs at a greater rate after reviews?

If the results of your employee performance reviews leave things worse than when you found them (much like Microsoft, et. al. discovered), it’s time to make a change to your review process.

Employe performance reviews aren’t there to weed out “bad” employees. That’s not their purpose, and if you use reviews as a way to show employees the door by feeling pressured to leave, you’re abusing the process.

Instead, reviews are critical to determining salary or wage increases, promotions, needed correction, and an overall sense of what’s happening in your work force. Whatever approach you take, you can’t stick your head in the sand and skip building an employee review program altogether. By using these eight approaches to the program you build, you’ll get solid results and treat your employees as what they really are: your most valuable asset.

8 Best Practices for Building an Effective Employee Performance Review Program at Your Business