White-in-article.pngMany small businesses forego formal annual employee evaluations. But, you should think twice.


By Sherron Lumley.


For many small business owners, employee reviews rarely get a second thought, and when they do they all too often fall into one of two versions—“Way to go!” or “What were you thinking?” For some, their reticence to formal reviews involves the time required. For others, it’s the potential for confrontation and an uncomfortable employer-employee relationship. And then some believe they’ve already identified their top-quality and sub-standard performers, so why bother? However, the reasons for doing a formal year-end evaluation outweigh the drawbacks.


Performance management is the way a small business owner takes his or her goals from strategy to reality by communicating with employees. One of the most important elements of this is the annual employee evaluation. It’s a vital opportunity for feedback that promotes better teamwork by motivating and encouraging employees and offers insight for improving the business. Put simply, it aligns your day-to-day operations with the larger goals your company aims to achieve.

“Employees always want to know what management thinks of their performance,” says Harvey Baron, founder of Remantech, a custom manufacturing technology company in the Pacific Northwest. “It also lets the employer know why some departments are doing well and why others are not.” 

Callout3.pngHere is a look at three of the key objectives of the formal year-end review process:  better outcomes through two-way feedback, increased employee satisfaction and retention, and documentation of employee performance and achievements to support compensation decisions and for legal purposes.

Improving employee performance through two-way communication

“If the criticism, if any, is constructive there should be a marked improvement in the employee’s attitude and work,” says Baron. “Sometimes an employee doesn’t even know everything that’s expected of them,” he says, noting that employee evaluations are valuable because they establish measurable goals for the employees and provide an opportunity to review the job description.

And to really make the most of it, Baron recommends thinking of the review process as a two-way street.  “When I allowed my folks to also evaluate their immediate supervisor, I was able to get a more complete picture of the employees’ performance,” he says. 

Today, the big trends in evaluating employees involve comprehensive performance management and two-way communication, building commitment, and enthusiasm. It’s a way to decrease turnover, motivate self-improvement and develop trust, says Barry Silverstein in his best practices book, Evaluating Performance.


Increasing employee satisfaction and retention

BayView Building Maintenance employs over 80 part-time and full-time employees who provide janitorial and building services to high security commercial office and medical facilities in Oregon and Washington. The company’s high rate of employee retention is a selling feature to their security-sensitive clients, who count on seeing the same familiar service staff year-round. The employee performance evaluation process contributes to Bay View’s success by promoting a positive and rewarding environment where attractive compensation is directly linked to better performance.


According to founder Denise Coy, listening to the employees is important for several reasons. Not only does it tell us how they feel about their job and if they are happy, but it also lets us know if they have any questions,” she says. “It tells us if they are right for the job and if they can advance,” she adds.


Creating a paper trail

Discount Fabrics in San Francisco is a family-owned business founded in 1967. “For several years, things were very comfortable and business was easy,” says owner Linda Blake. “Because the stores were run by either family or people that had been with us so long they were treated like family, most employees were long-term and there were not evaluations or written schedules and very little was put into writing.”


But now that Discount Fabrics has grown to include three stores, many more people are working for the company and it experiences higher employee turnover. Consequently, the three-generation family business has begun conducting written performance reviews. Documented schedules, time cards, evaluations, and write-ups became a necessity.


“Truly I feel the written evaluations are much more helpful to management than to the individual employee,” says Blake, who says it is an important part of a comprehensive employee file, serving as a record of an employee’s performance and history with the company to support management decisions. The year-end review establishes a paper trail for legal purposes and is also used by Discount Fabrics to fairly determine employee bonuses, benefit eligibility, and compensation.



Free employee evaluation resources:

Microsoft Office Employee Evaluation template.

Microsoft Office (short) Employee Evaluation form.

Inc’s (long) Employee Review template.