“How am I doing?” Nearly all employees want an answer to this question.

Who in your business now knows how they are doing? Employers/supervisors in small businesses too often answer in one or more of the following ways:

    • No one.
    • Some do, some don’t.
    • They can all figure it out.
    • The ones who most need to improve.
    • No one — I don’t want them asking for more money.
    • Everyone. I tell others, and the word gets back to them.
    • They all know they are doing well because I tell them when they aren’t.

      Employee performance reviews answer the “how am I doing?” question for each employee on a continuous basis. Feedback to employees helps improve their performance, decreases turnover, motivates self-improvement, builds trust and creates a paper trail useful in litigation.

      Several often-heard reasons for not doing employee evaluations need to be dismissed. Examples of such faulty reasoning include:

      • Good employees know they are good.
      • Poor employees don’t want to know how they are doing.
      • Employee reviews interfere with personal relations.
      • They make people unhappy and jealous of each other.
      • Some things are better not said.
      • They take too much time.
      • Supervisors don’t want to do it.
      • I don’t know how to do it.

      Each of these objections contains a bit of truth. None makes the case for ignoring an important management tool.

      Decisions to guide employee evaluations

      Eight questions guide the decisions for effective employee reviews. The questions outline the discussion that follows.

        • What are my objectives for employee performance reviews?
        • Who will be reviewed?
        • What will be the mix of individual and group reviews?
        • Will the reviews be formal or informal?
        • What will be the mix of objective and subjective measures of performance?
        • How often will the reviews be done?
        • Who will conduct the reviews?
        • What review processes will be used?

          Objectives of employee performance reviews

          The specific reasons for doing employee performance reviews vary among small businesses. Objectives should help build a commitment to do the reviews, build enthusiasm for the reviews within the management team, and gain support from employees. Possible objectives include:

          • Help employees improve their performance.
          • Help employees with their career planning.
          • Take advantage of employee insights for improving the business.
          • Identify training and retraining needs.
          • Encourage and motivate employees.
          • Promote teamwork and employee cohesiveness.
          • Provide information for compensation decisions.
          • Increase supervisor satisfaction with their human resource accomplishments.
          • Identify needed changes in human resource management practices.
          • Provide information for the redesign of jobs.
          • Eliminate legally indefensible personnel actions.

          Such a list can be a starting point for discussion in the management team and with key employees. Their support will be critical to success with employee reviews. Facing misunderstanding, skepticism, fear, and outright rejection comes most easy early in the planning process. Consensus building on objectives can be used to promote honest discussion.

          Who Is reviewed?

          Few people complain about having too much information about their performance. Few people complain about receiving too many sincere compliments and too much thanks. Therefore, everyone should be reviewed including members of the management team.

          Starting with reviews at the top of the organization is best. Set an example. It helps for the person being reviewed to know that the person doing the review has already had his or her review. Even in the smallest of businesses with only one manager, a spouse, customer, key lieutenant, or manager of a neighboring business can provide a helpful review.

          If reviews for everyone are ruled impractical, first focus attention on new employees. They deserve more attention than other employees. Feedback can help immensely in helping them grow into the potential they demonstrated when hired. They will appreciate feedback at the end of the first day, end of the first week, at regular intervals during the probationary period, and several times during the first year. Employees having learned the value of feedback during their first year will expect it to continue. Employee reviews thus become less of a chore and more of an opportunity to benefit everyone.

          Long-term, dedicated employees who have never had reviews must be handled with care. An unexpected review out of the blue is likely to cause fear and loss of trust. Even the best employees will ponder and worry over questions such as: “Why now?”; “Why me?”; “What have I done wrong?”; “What are you really trying to tell me?” Carefully build the case for reviews. Aim for understanding of how everyone will benefit. Starting only with new employees is one way of handling the potential problem of suspicious experienced employees. Simply wait for experienced employees to hint at their desire to also benefit from reviews.

          Individual or group?

          Employee review typically is person by person. Keying on the individual can detract from teamwork and cooperation among employees. Employees easily see the dilemma created by promoting teamwork while reviewing and rewarding individual effort.

          When teamwork is the backbone of a business, reviews must first be done at the team level. A second step can be a review of individuals with emphasis on contribution to team success, increased ability to contribute to team goals, and fitting into the team. No matter what is done in individual reviews, teamwork increases peer pressure. In true teamwork environments, satisfying teammates becomes more important than satisfying a supervisor.

          Formal or informal?

          Formal reviews occur on a regular schedule, e.g., twice per year. They usually include filling out a form or providing some other type of written report to employees. Employees usually have a chance to comment or respond to the evaluator's assessment. They often include discussion of needed changes in performance. Helping the employee think through career interests and opportunities can be incorporated into supervisor/employee discussions. With formal reviews, an employee’s file contains a paper trail of training, progress, retraining, development, and, in some cases, disciplinary action.

          Informal reviews occur on an as-needed basis. They reflect a commitment to continuous and open communication with employees. The supervisor and employee confront problems as they occur. Praise is given as it is earned. Questions are asked as they arise. Both supervisors and employees work to create an open environment that emphasizes mutual support. Little or no paper trail is generated.

          For most small businesses, a combination of formal and informal reviews of performance works best. Depending exclusively on one or the other means some objectives of employee performance reviews mentioned earlier are unlikely to be accomplished.

          Objective and/or subjective measures of performance?

          With an objective approach, performance is evaluated against specific standards, e.g., number of new customers per month, times tardy for work, days worked without injury, returned orders, customers trying a new product, and yields. Job requirements dictate the standards of performance. If it isn’t important to the job, why should it be measured? Objective standards can be explained, measured, adjusted as the job changes, and used to identify training needs.

          Subjective measures of performance are based on the evaluator’s judgment, intuition, and feelings, e.g., attitude, cooperativeness, initiative, aggressiveness, flexibility, friendliness, and openness. Informal performance reviews depend primarily on subjective measures. In small businesses, where supervisors and employees know each other well and interact often, feelings toward each other often override objective measures of performance.

          Employees not receiving regular formal reviews of their performance are still being judged subjectively by their supervisors and co-workers. They are simply missing the benefit of concrete measures of how they are doing, which parts of their work are best, and which parts most need improvement.

          Realistically, subjective measures cannot be avoided. The challenge, therefore, is to effectively combine objective and subjective measures. All jobs can have some objective measures of performance.


          Formal evaluations should be conducted at least once each year. A supervisor can designate a period of time, e.g., the first two weeks of February, in which all reviews will be done. An alternative is to spread reviews throughout the year by doing each person’s review on the anniversary of their employment.

          When starting a formal review process, employers often promise reviews more often than is feasible, e.g., every three months. Formal evaluations more than two times a year are not feasible in most organizations. Sticking to the announced schedule is much more important than how often the review is done. Some employees, e.g., the best performers, may eagerly look forward to their reviews. Postponing the reviews, or worse, simply letting the date pass without scheduling the reviews, may be disheartening to the employees most valued in the business.

          Who conducts the evaluation?

          Employees’ immediate supervisors are most often in the best position to do performance reviews. Employees will not take seriously evaluations from people who are not well acquainted with what actually happens day to day in the workplace. Supervisors can seek supplementary information from co-workers, other supervisors, customers, and, in some cases, people supervised by the person being reviewed.

          Editor’s note: Check back next week for the final part of this series, where Erven covers the proper procedure for holding performance reviews — as well as what to do with the information you learn from them.

          Bernard L. Erven is with the Department of Agricultural, Environmental and Development Economics, Ohio State University.