Year-end reviews — Pain or panacea?
By Steve McCombs, for SBT
Every year at this time many business owners attempt to evaluate their employees’ performance, make decisions about a promotion, raise or bonus payout, make suggestions for improvement, or begin to formulate an exit strategy.
Some see it as a necessary evil and others see it as an opportunity to improve the company and the employee at the same time.
Employers that don’t do a thorough job of goal setting and measuring see the process as a real pain. They find it as frustrating and distasteful as do their employees.
Employers that do a good job of keeping track of their staff’s performance find it relatively easy. For those employers, all that is needed is to compare the goals set forth in the previous year’s review with the employee’s performance and determine if they fell short, met or exceeded the goals.
However, both types of employers may be missing an opportunity.
The component of a performance review that is often ignored, or at best, given short shrift is the development of a performance plan for the employee for the next year.
Many small business owners do a good job of establishing the goals for their employees prior to the review and measuring performance against those goals. However, it has been my experience that the performance management process typically stops there.
The problem may lie in the name we have given the process: Performance review. Ever try to drive a car forward while looking only in a rear view mirror? That’s similar to focusing only on past performance and expecting future performance to improve.
If you want your employees to move forward, you (and they) need to focus forward. A good rule of thumb is to spend only about 20% of the time in the meeting reviewing performance and 80% setting goals and establishing a plan of action to achieve those goals.
Another concern I hear from employees is that when performance shortcomings are brought forth and the reviewer asks the question, "What could be done to help you improve your performance?" the employee makes suggestions which seemingly go unheard. Often what the employee mentions are things that may cost money, be impractical or are just plain beyond the reviewer’s control. However, all that may be needed is a little empathic listening and some honest, creative problem solving.
Let’s take these issues one at a time and look at ways to improve the process and move it from pain to panacea.
First, examine how you set goals with the employee. There has been an acronym floating about in management circles for about 50 years — SMART goal setting — (see sidebar) which is a great measuring stick to determine how rational your goals are. I’m not sure of its origin but I first heard it almost 25 years ago in a sales training class, attributed to Zig Ziglar:
Specific: Simple, succinct and to the point
Measurable: It must have a number, preferably an objective metric
Attainable: It must be within the employee’s reach
Relevant: It needs to be relevant to the company’s and employee’s success
Time Framed: Of course, the goals need to be accomplished by next year’s review, but you should also make incremental monthly or quarterly measurements
Goals such as "improve proficiency" or "expand sales territory" are too vague and extremely difficult to measure, if at all.
Next, you need to determine, with the employee’s input, what he or she will need to accomplish those goals. In other words, develop a performance plan that includes action by both you and the employee. Do you need to make a conscious effort to assign certain jobs to the employee so that enough experience is gained to demonstrate the skill and meet the goal? Will the employee need to schedule training or learn how to operate new equipment to reach the goal? What kind of information and resources are at the employee’s disposal? Are there conditions beyond the employee’s control that create an obstacle to achievement of the goal? Can you or the employee examine ways to remove or reduce those obstacles?
Here is an example. Your accounts receivable are an average of 45 days with some as much as 60 to 90 days past due. Your collector calls delinquent customers as soon as they are five days past due and every 10 days after that until payment is received, or up to six months, at which time you consider external collections. Some customers pony up right away, others get angry but pay, and still others express their anger by making you wait even longer, or not paying at all.
The collector hates making the calls, your customers hate getting the calls, and you have even acquired some uncollectables as a result.
Let’s say you want your accounts receivable collector to reduce receivables from an average of 45 to 35 days, and uncollectables from 3% of sales to 2.7% by Aug. 7. Let’s further assume you already have a policy of offering a discount of 3% if invoices are paid within 30 days, net 31. Develop a performance improvement plan this way:
Train the collector to schedule and call 10 frequently delinquent customers 15 days after invoicing. Together, develop a well thought-out script to remind customers of the discount at the time of the 15 day call. Try this new program for about three months.
If a significant number take advantage of the discount your collections will improve as will the collector’s performance. When that occurs have the collector drop calls to the customers that are now current and call 10 other frequently delinquent customers. Train the collector to track receivables and determine which customers need more attention and which ones develop the habit on their own after a few months of reminder calls. This type of approach has advantages for both the collector and the customer.
From the collector’s point of view it is likely more pleasant to call and offer a cost saving than to demand a past due payment.
From the customer’s point of view it is likely more pleasant to receive a call that will save money and save face.
Finally, consider what the employees have control over and what is beyond their control. When asking employees what can be done to help, listen with the attitude that you will try to find a way to make it work. One of my retail clients had several employees, in their performance reviews, express concern that policies and procedures were being changed, but those changes were not being passed on to the staff and as a result mistakes were being made. Most of the changes were driven by corporate marketing and only the store manager was informed. Because she had many off-site responsibilities, however, the communication of the changes sometimes fell through the cracks. At the suggestion of a floor worker there is now a store-wide 10 minute briefing twice a week, right before they open the doors. If the manager is off-site, she will attend by phone or forward the changes via e-mail to the acting manager. Almost immediately they experienced a significant drop in transaction errors with customers, as well as a drop in absenteeism and tardiness, and rise in productivity.
When an employee relates a concern, instead of reacting with "No" or "It will cost too much," ask the employee, "How could we make it work?" If you truly can’t do it, explain the constraints to your employee and ask if they can see an alternative way of addressing the issue. Above all, listen.
By setting SMART goals, developing a performance improvement plan and soliciting meaningful feedback from your employees your performance reviews may not shift from pain to a panacea for all that ails your company, but both you and your staff might begin to look forward to the reviews as at least a pleasant experience with benefits for both.
What is a SMART Goal?
Below are six examples of goals my clients have set for employees before and after the application of the SMART model (Specific, Measurable, Attainable, Relevant, Time framed).
Set-up machinist Improve set-up efficiency
Sales rep Expand sales territory penetration
Accounts receivable collector Improve collection rate
Bank teller supervisor Improve employee morale
IT manager Maximize equipment utilization
Telephone customer service rep improve level of customer service
Set-up machinist By June 1, be able to set up class A, B and C castings on CNC machining center and get inspection approval within 5% of the allotted time rate
Sales rep By March 15, in the Midwest territory, maintain an average call to close ratio of 10 to 1 or better based on a 30 call week. Negotiate an average 15% margin, increase revenue by 6%
Accounts receivable collector By Aug. 7, reduce receivables from average of 45 days to 35 days and uncollectables from 3% of sales to 2.7%
Bank teller supervisor By July 1, reduce cumulative absenteeism on the teller line from five days to three days per month
IT manager By Dec. 12, increase mean time between failures by 17%
Telephone customer service rep By May 21, reduce callbacks for same problem from repeat callers by 10%
The above represents typical goals converted into more concrete goals in a variety of occupations using the SMART model.
For the more subjective situations we had to look for indicators that told us, for example, what good morale looks like. If people have good morale they have a tendency to show up for work more often so attendance can be used as one indicator of good morale.
The attainability and relevance, somewhat disguised in the examples, came out of the conversations between managers and employees. In the first example, relevancy comes from the fact that the set-up machinist wants to eventually move into the tool-and-die shop, and the company will need someone in that position within the next two years. Hence, the goal is relevant to the machinist and the company. Getting experience and having success with a variety of castings and set-ups is a requirement for promotion and attainable for this particular employee.
For truly subjective measures you may have to use a rating scale like those found on customer surveys. However, you should always exhaust all other possibilities before going to a subjective scale. The question to ask is "How do I know what the level of performance is? What can I see, hear, touch, taste or smell that tells me?"
Nov. 28, 2003 Small Business Times, Milwaukee