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Appraising the Performance Appraisal

If you've got something to say to employees, spit it out--don't wait for their annual reviews.

Opinions expressed by Entrepreneur contributors are their own.

Q: I've been in business for a couple years and have never done performance appraisals for the few employees I have. I'm beginning to think I should, as I have one or two employees who are not performing to my expectations. How should I handle this situation?

A: I read recently that Jack Welch, former CEO of General Electric, said that if you want a high-performing company, you should fire the bottom 10 percent of your employees each year come performance appraisal time. We have 55 employees. That would mean that I should fire five or six people every year. Is this effective in a small business?

No, this practice doesn't work for either a small or a large business. Given its tremendous success over the years, GE obviously does a lot of things right-but that is not one of them. If employees are not doing their jobs, that should be dealt with in a timely way. You should certainly not wait until performance appraisal time to terminate someone who isn't performing satisfactorily.

And do not copy the performance appraisal methods of large companies. I know of none that do it well. Some large companies have done such a poor job of dealing with poor performers, they've resorted to paying them to quit. A large bank did this recently and was sued by an employee who claimed that he was a poorer performer than someone who had been terminated. His suit claimed that he deserved the "firing bonus." Any organization that has to resort to these methods of dealing with poor performers has serious management issues.

Some experts, in fact, recommend eliminating the performance appraisal altogether. I agree. The people who get them don't like them. The people who give them don't like them. Why would we do something that no one likes or thinks is effective?

More important, the research on performance appraisals has never shown that they improve performance. Why, then, are they so prevalent in the workplace? The answer I get in my seminars is that they are a way to document poor performance-in other words, a step in the firing process. This practice is coming under increasing scrutiny. Class action lawsuits being brought against several large companies claim that appraisal systems are discriminatory. I believe the companies will have a difficult time proving they aren't when they have mandated that a fixed percentage of employees be given the lowest score-and fired. In most organizations, it would be almost impossible to show that there was a significant difference between the first person to be fired and the lowest-scoring person who was kept on the payroll.

Let me suggest that the best performance appraisal is one that is done every day. While this may seem onerous for a small business, it's becoming increasingly necessary, not just as a way to justify a raise or a termination, but because it will allow you to do things that will increase performance and morale. Measurement allows you to see small changes in performance so that you can do things in a timely way to either correct performance or to provide positive reinforcement for improvement or for a job well-done. The best outcome for your company is to have all employees doing their best every day. Your success should be measured by the percentage of employees that you make successful, not by the number that you fire.

Aubrey C. Daniels, Ph.D., founder and CEO of management consulting firm Aubrey Daniels & Associates (ADA), is an internationally recognized author, speaker and expert on management and human performance issues. For more about ADA's seminars and consulting services or to order Aubrey's bookBringing Out the Best in People: How to Apply the Astonishing Power of Positive Reinforcement, visit www.aubreydaniels.com, or contact at (800) 223-6191.

The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.