Done right, employee performance reviews can have a big impact on a small business

Not giving timely or thoughtful feedback can result in worker dissatisfaction and lead to higher employee turnover. This is a potentially major issue for small businesses, particularly in these times of tight labor.

Yet as important as employee reviews are, many weren’t doing such a great job even before the pandemic. Only 13% of the 48,000 employees and managers surveyed in 2019 by research firm Leadership IQ thought that their organization’s performance appraisal system was useful. And now, as we seem to be emerging from the pandemic, many employers — about 30%, according to another study from McKinsey & Co. and LeanIn.org — are overhauling their employee review process.

What are they doing?

For starters, many are conducting more employee reviews more frequently. Conducting annual reviews is quickly becoming a thing of the past. Employees — particularly younger employees — want feedback as often and as quickly as possible. That means ensuring that managers are communicating with their subordinates both formally and informally throughout the year. Many companies today have a formal sit-down employee review process, but these sessions are best when there are no surprises and really serve as a recap of the feedback an employee has already been receiving.

“In some ways, performance reviews can be ineffective because they don’t really deal with the everyday issues,” said Alexis Waiters, the director of human resources for Atlantic City. “If your reviews are on a regular basis, it becomes something that is easier to manage, especially for those employees whom you have problems with. It allows you to start with corrective behavior before you get to the point of discipline.”

Michelle Luecker, a human resources director at UPL, a maker of crop-protection products and specialty chemicals in Exton, agrees. She said that her company has an annual review process but it’s supplemented by interim reviews during the year.

“We ask our managers to meet with their employees on a quarterly basis regarding performance,” she said. “And then before their annual review they have two documented review sessions to review goals, initiatives that they’re working on as well as regular performance feedback.”

Next, goals must be set and documented. Luecker said that she’s seen a shift toward goal-setting in the time she’s been in the profession because younger generations are interested in performance, but also where they are heading.

“If a territory sales manager’s goal is to someday be the head of one of our U.S. divisions, we try to determine what skills and knowledge are needed in order to be able to achieve that career goal and then we make a plan,” she said. “It might be that we sign them up for extra training or spend time in other areas of the company — like marketing — in order to get the skills needed and to be more well-rounded.”

Employees need to clearly know what’s expected of them both in the short and long terms. Managers and their teams must agree both on the objectives that they want to achieve for the company as well as personal goals that each employee desires to reach during an agreed-upon period.

Once agreed on, the goals, along with feedback from conversations throughout the year, should be documented in a cloud-based HR system that can be accessed by employees from wherever they’re working. Many affordable platforms, such as those offered by Paychex, Gusto, and BambooHR, make it easier for both employees and supervisors to leave notes, update goals, schedule review meetings, and document job progress using both desktop and mobile devices.

At the Jewish Federation of Greater Philadelphia, director of human resources Melissa Gabillon has a process similar to Luecker’s for goal-setting. “Employees need to feel good about what they are working toward and understand how their contributions benefit the organization,” she said. “Taking time to explain how each goal will positively impact the business helps our employees stay focused, motivated, and engaged.” Gabillon also ensures that the goals set by managers and their employees are well-defined and measurable.

Collaboration brings a performance review all together. Unlike at a large corporation, people working at a small business regularly work with employees in different parts of the company, whether they’re on-premises or working from home. A good review process is open to collecting feedback from people other than just a direct supervisor.

Why is collaboration like this so important? It’s because of balance. This was confirmed in a recent study from Temple University’s Fox School of Business, which found that feedback on a performance review tends to be more critical when it is just from a supervisor, marred by favoritism and differences between how men and women rate each other. So collecting as much information from as many sources as possible will help make for a more relevant review.

To this end, Gabillon said, she uses a “360 performance review system” that includes not only feedback from peers but also direct reports from managers. Luecker likes to use a “multi-rater” form from the Society for Human Resource Management. She said membership — particularly for a small business owner — is valuable because its many resources include how-to guides, forms, and (most important) training for both the employee and their managers.

“How an employee receives the feedback is very important, too,” she said. “It’s OK for individuals to get constructive criticism and let it digest for a while before resuming the review. That’s all part of the process. You learn that through good training.”

Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.