Up For Review

Do you really need to give employees performance evaluations?
Magazine Contributor
7 min read

This story appears in the February 1998 issue of Business Start-Ups magazine. Subscribe »

Q: How often should I do employee performance reviews?

A: As often as you can--but at least once annually. Reviews aren't just busywork, although that's often how they're treated. Done right, reviews tell employees where they're succeeding, where they're falling short, and what they need to do to put more money in their paychecks. Fancy forms aren't required; what is required is thought--about the worker, his or her job, and the opportunities that lie ahead. Reviews are scorecards in the game of , and without a scorecard, there's no telling where the players stand.

Q: Should I offer benefits to employees?

A: If you don't, you're not positioning yourself as an employer of choice--that is, a business where people want to work. Medical insurance nowadays is a must for attracting quality workers. So are vacation and sick days. One current trend is to lump all such days into a single pot where workers get, say, 15 paid days off to use at their discretion--for vacations, illness, personal business and so on.

Other benefits--life and disability insurance, retirement plans--sweeten the deal, but their unavailability may not drive away good job candidates. And there are many no-cost or low-cost benefits you can offer, such as flex-time or holiday parties. An important tip: Don't offer a cookie-cutter benefit plan copied out of a magazine article or book. Survey your employees about what they value--and give them as much of what they want as makes sense for your business at this stage of its growth.

Q: Should I give annual pay raises?

A: Performance-based bonuses are becoming increasingly popular. Raises are too often viewed as "entitlements;" employees think they are owed them just for showing up. But tell an employee exactly what he has to do to earn a bonus, and you'll be surprised how often the bonus is earned. Bonuses work best, especially for midlevel employees and those below, when awarded on at least a quarterly basis. It's hard to stay focused on a longer-range bonus, and when it comes, the worker may not even know why he or she got it.

Q: I can't afford to pay top dollar to employees. Will I only get cast-offs?

A: Top workers are motivated by many things--and money is just one of them. Underpay workers, and you won't keep good people long--not if they feel victimized. But if they are adequately compensated in other ways, the chance of earning a few extra dollars a week at another job won't lure people into quitting if they feel their present job is satisfying, personally enriching and challenging. Designing interesting jobs is much more effective in keeping good people than is designing the most lucrative pay plans.

Q: Does my business need a mission?

A: A clearly stated, well-understood mission is key to keeping good employees enthusiastic and on track, a point vividly proven by entrepreneurial superstar businesses like Tom's of Maine, The Body Shop, and Ben and Jerry's Homemade Inc. People want to feel there's a reason they come to work every day--and they want a more compelling reason than just earning another day's pay. Big social issues can be missions--as with Tom's, where respect for the environment, "natural ingredients" and making contributions to society are stressed by the owners. But a good fight can also be a motivator, as seen in 's battle against 's dominance over our computers. Either way, a mission that can be articulated in a sentence is a large plus in keeping good people.

Q: Where can I find top job candidates?

A: In a tight labor market, small businesses often bemoan the quality of job candidates. But don't perpetuate that negativity. You'll find ample good hires if you make your company a fun, rewarding place to work. One excellent source of candidates: current employees. When vacancies occur, make sure your workers know and encourage them to bring in friends for interviews. Another tip: Wherever you go, talk up your business and the opportunities you offer employees. This enthusiasm can be contagious, and good people may soon start seeking you out.

Q: What's the secret to turning workers into peak performers?

A: One proven way to inspire employees to consistently give their best is to offer job autonomy, which means letting workers determine how their jobs get done. Don't "mother hen" your employees, and don't micro-manage, either. Establish clear goals and objectives, then get out of the way so employees can do their jobs as they see fit. If problems arise, speak up: Give more direction and a lot of encouragement. Then get out of the way again. This may be the surest way to motivate your employees to get their jobs done.

Q: What should I do when an employee makes a mistake?

A: It depends. Did the mistake result from sloppiness or laziness--or from an honest effort to try out new ways of doing the work? If the goof is honest, make sure the employee understands how he or she messed up, but take equal pains to applaud the creative impulses that led him or her to try out new approaches. If the mistake stems from laziness or indifference, however, it's critical to communicate that lack of effort will not be tolerated in your business. With a one-time or rare lapse, don't chew out the employee too roughly--make your points, pat the worker on the back and move on. If it's a consistent pattern, write up the employee and think hard about initiating a termination process. One bad employee can drag a down.

Q: Why don't my employees know how to do their jobs better?

A: Probably because they haven't been adequately trained. A secret of consistently high-performing companies, such as and Hewlett Packard, is that year in and year out, they make substantial investments in employee training.

You don't have the budget? Much training is available free--makers of everything from phone systems and copiers to assembly-line machinery readily provide on-the-job training. Many more classes are available at little cost; community colleges, for example, often offer classes in phone etiquette, customer service, selling and other key business skills. Send employees to classes, and you get two big payoffs: They come back knowing how to do their jobs better, and they feel you're investing in them. Employees who feel their employers care about them and their future are that much more likely to put out effort when it's needed.

Q: How can I make my employee teams work more effectively?

A: Before asking how, ask whether you need teams at all. The use of teams has swept through the American workplace, but in many instances, they are not the best way to get the work done.

The classic test is interdependence. When employees must work closely together to do their jobs--firefighters are a case in point--teams make great sense. When workers don't need that much interaction, such as long-haul truckers or outside sales people, for example, teams may simply be a burden. Ask yourself: Will the work be done better, faster, smarter if the people interact on a regular basis? If the answer is yes, set up a team.

As to why many teams lag behind management expectations, the reason is that to succeed, teams need to be backed by team-based, not individual-based, compensation systems. But many businesses have implemented teams while retaining older pay programs. If you decide to create teams, give raises and bonuses based on the team's effort, not the individuals'. Do that, and your teams just may start to shine.

Robert McGarvey writes on business, psychology and management topics for several national publications. To reach him online with your questions or ideas, e-mail rjmcgarvey@aol.com


More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Are you paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.

Latest on Entrepreneur