Developing a Performance Review System

Performance reviews are an essential part of business, as they provide employee feedback and help determine raises and disciplinary actions. However, useful valuation systems seem few and far between. If your company’s assessments are no longer useful or you’ve never had an effective review process, you may need to try something new. There are a number of things to consider when creating a fresh approach.

Two Birds With One Stone: Should You Review and Give a Raise in the Same Meeting?

The first consideration should be whether you intend to have one system or two for both aspects of performance assessment. One system may seem ideal in terms of effort. Managers assess their employees and report their findings both to human resources and the employees. At the performance review, they also inform the worker what type of raise he or she can expect.

Unfortunately, that system tends to have negative effects on the feedback process. Rather than holding two meetings (one to discuss performance and the other to handle salary and bonus concerns), the manager has to spring all of this on the employee at once. If the salary news is good, it will likely override any information related to what should be improved. If there is bad news in either dimension, the manager may spend much of the review justifying his or her decisions.

Identifying the Ring Leader for Your System

Once you decide how to manage the performance review system or systems, decide who will be making the decisions on what will go into the new method. Will this be a committee from one division of the company or will all parties be represented? What levels of the hierarchy will be accounted for? What type of expertise will creating the new system require?

The last question can be the most difficult to judge. A process may be developed by experts, but it needs to be usable by regular managers. Depending on the approach you take, employees may also need to use the system. Because transparency is important to the performance review process, rather than shutting these people out, you should keep them informed about the process.

Finding Out What Really Matters: What Factors Are Important to Assess?

After deciding on “who,” you need to focus on “what.” Your committee needs to decide what will be measured and whether it’ll adequately describe all divisions of the company. Some qualities might be very important for certain operations and irrelevant for others. Work with all members in your organization to determine department goals and how progress and results can be measured in relation to those objectives. For example, sales numbers aren’t as useful of an assessment tool to the HR department as they are to marketing. On the other hand, the sales department won’t benefit much from an employee compliancy rating.

This might mean you have to use separate forms catered to each division. Whether you decide to implement something like this or just use one document for all departments, consider the consequences. Separate forms will make it easier for management but harder for human resources. Using the same form will reverse this problem.

Deciding on what to measure also includes defining the terms to be evaluated. The details should be as precise as possible in the interest of clarity. If you have one form, publish different usages for your sections to make the completed process easier on your managers.

Choose Your Tool: How Do You Plan to Measure Results?

Once you’ve determined what will be measured, decide how it’ll be assessed. This includes details such as rating scales and measurement types. It also encompasses who will be performing the assessments. You might want a single-rater system, which usually falls back on the manager. Or you might decide that you want more data, so you’ll need multiple people assessing each employee. It depends on whether you wish to err on the side of simplicity or complexity.

If you have dual assessment systems, you also need to figure out how to relate the two methods once they begin taking shape. The easiest way is to use the same basic form, but change the parameters. You should also begin considering how the feedback system will translate to the salary system. Holding annual performance reviews midyear and salary reviews at the end of the year can be an effective way to connect them.

Determine How to Address Positive or Negative Ratings

During this process, discuss the consequences of different ratings. Deciding what to do about a quality performance is usually simple. Good performances warrant bonuses and raises in every company. What to do about bad performance is the tricky part – particularly after several years. It can seem unfair to terminate an employee after one poor annual performance, but when do you decide that the individual has been given a fair shot?

Obviously, you need to agree on the consequences before the program is implemented. That way, you can give employees fair warning about the penalties of poor performance. You also need to ensure that everyone understand what’s considered “poor” under the new system. Otherwise, your warnings aren’t useful.

Lift Off! Putting Your Review System into Action

Once you’ve developed your new program, implement it. If you have a focal point review system, this is relatively easy. You can train supervisors in the new approach before the annual review and let them go about their business. For an anniversary date review system, decide how the transitional year’s implementation and data collection will be handled. After implementing your system, determine whether or not it worked. There are a few ways to do this:

  • See if employee satisfaction improves. Dissatisfaction may be part of the reason you transitioned to something new. Employee engagement as assessed by increased interaction with the manager and more focused goals for the coming year can also prove to be useful metrics.
  • Look for any improvement in corporate earnings and performance. A more engaged workforce will experience increased productivity. Performance will likewise develop when employees are more engaged in the business.

If your new process doesn’t seem to be having the anticipated effect, wait before changing it again. Many programs take a few years to get their feet under them. Give the new review process some time. If it hasn’t improved after three or four years, reevaluate your options.

Similarly, don’t assume an assessment system that improves your company’s performance massively during the first year of implementation will continue to be successful. Comprehensive reviews cannot sustain huge gains indefinitely. Understand why your method has the effect it does, and keep realistic expectations for the future. Sign up for our performance review creation tool for a personal approach to this process.

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