Eight Ways to Overhaul Your Employee Evaluation System (and Transform Your Culture in the Process)

Performance Review 2.0: Wondering if it’s time to scrap the performance review charade? Don’t throw the proverbial baby out with the bath water just yet. Here’s how to turn the old-fashioned (obsolete) performance review system into one that really, well, performs.

Performance reviews get a bad rap these days. Employees dread them, vacillating between cynical eye-rolls and desperate last-minute bids to suck up to the boss before review time. Managers see them as an obligation to plow through before they can mark one more task off their endless to-do lists. But performance reviews themselves aren’t the problem—it’s the way companies handle the review process that’s flawed.

Performance reviews are necessary. And when they’re done properly, people actually like them. I mean, employees want to know how they’re doing. They want to connect with their managers. And reviews give leaders an opportunity to measure performance results, reward great employees, and move not-so-great ones up or out.

That being said, many companies could stand to overhaul their performance review system. Changing your approach will not only make your reviews more effective, it can have a positive impact on company culture.

So what can you do to make your performance reviews really count? Here are some guidelines:

• Think of them as a process, not an event. Let’s put the traditional performance review in context. It’s “business as usual” all year: Employees go about their work, managers go about theirs, and never the twain shall meet. Then suddenly, once a year, they do meet. That one encounter is expected to yield a productive meeting of the minds, followed by growth and progress on the employee’s part. It rarely works that way. The review is an aberration in the fabric of daily work life, so of course results are lackluster.

Leaders should be laying the groundwork for performance reviews all year long. They should practice weekly or even daily rounding for outcomes. In the same way that a doctor makes rounds to check on patients, a leader makes rounds to check on employees. The technique allows you and your managers to regularly touch base with employees, make personal connections, recognize success, find out what’s going well, and determine where improvements are needed.

Rounding is not about tossing out a casual “How are you?” and then walking off without waiting for an answer. It means asking specific questions in the right sequence: Do you have the tools and equipment you need to do the job? What is going well? What isn’t going well? Is there anyone who’s been particularly helpful to you that I should recognize? Always listen and write down your answers and then follow up—if you don’t do this last part, it negates all your hard work.

When you build your reviews on a foundation of rounding, they become meaningful. They’re the culmination of lots of mini-meetings. Neither party is surprised by what the other party says during the reviews because the issues have been raised before—probably more than once. 
• Hold them four times a year. That’s right. The annual performance review should become the quarterly performance review. If this sounds like a lot of work for managers, it is. But it’s also far more effective than the annual review, which too often reflects an employee’s performance during the previous month leading up to the meeting.

What if that month turns out to be an employee’s one bad month in an otherwise good year? Quarterly reviews are a far more accurate reflection of the employee’s overall performance. They force leaders to pay close attention all year long.

• Link reviews to organizational goals. It may seem an obvious strategy, but surprisingly few leaders structure employee evaluations around concrete, companywide goals. This is a mistake. When employees know they are going to be graded on the progress they made toward goals the entire company shares, they will alter their behavior accordingly. But don’t just impose these goals. Get employee input up front. This helps employees “connect the dots” regarding the impact they have in the organization and makes them feel like an important part of the whole.

When employees are involved in crafting organizational goals, they’re far more likely to understand them, buy into them, and work toward them. And when leaders bring up these goals again and again in performance reviews, it reinforces employee efforts.

• Make review criteria as objective as possible. One of the major criticisms leveled at performance reviews is that they’re based on maddeningly subjective criteria. What do words like communication, organization, and professionalism really mean? And what does it say that Manager A gives Rebecca a 2 in “Communication” while Manager B, who supervised her last year, gave her a 4? Clearly, it says that perceptions—of the criteria measured, of employee behavior, and maybe of both—vary wildly.

What you can’t argue with is hard numbers. Measurement. The medical field is notorious for its measuring—Which department has the highest patient satisfaction scores? Which one has the lowest employee turnover?—and there is no reason other industries can’t take the same approach.

Let’s say you work for an appointment-based business—maybe a tax preparation firm or a spa—and you’ve found that customer follow-up calls increase return business. What you do is ask employees to make a certain number of calls per week. Then, in your performance reviews, you can tie their efforts to outcomes. Look at how many calls are actually being made and how much return business they’re generating. When you keep an eye on these follow-up calls all year long, you can more accurately track what’s working and change the script for effectiveness.

• Strive to make performance reviews conversations, not confrontations. I endorse the 90-day plan, a coaching tool designed to manage dialogue between a leader and his or her supervisor on progress toward goals and to put specific actions in place to achieve those goals. While 90-day plans tend to involve the management team rather than the rank & file, the “coaching” aspect should hold true for all levels of employees.

The words “performance review” call up an image of a stern judge pronouncing a sentence on the nervous employee. This doesn’t inspire anyone. The best leaders draw employees out, solicit their ideas for improvement, and offer concrete suggestions on how to better pursue the goals you’ve set together.

• Avoid falling back on we/theyism. Let’s be honest. Most employees come into performance reviews with the hope of walking away with a pay increase. Leaders often have to disappoint them (especially in today’s economy). And many of them fall prey to the “we/they” phenomenon—as in, “Well, Rick, I fought for your pay raise but you know those tightwads over in Corporate.” Problem is, we/theyism has a divisive effect on company culture.

This is rarely a deliberate choice but rather the natural fallback position of someone who hasn’t had formal leadership training. Make a conscious effort not to do it. In fact, make an effort to position the company as a united entity. It’s fine to say something like “Sales are down 11 percent and no one is getting raises. But we have a great team, we’re all working hard, and I’m confident we can turn things around.”

• Make sure all leaders are singing from the same choir book. Leaders aren’t born knowing how to hold effective performance reviews. They need to be trained. I regularly decry the leadership variances that keep companies fragmented and unfocused. Standardizing the
review process is a must.

Train your managers in how to do these new performance reviews before you roll out the initiative companywide. Otherwise, you’ll see inconsistent results in companywide goals.

• Use reviews as a springboard to move low performers up or out. Of course, the whole idea behind these reviews is to improve employee performance, right? So what do you do when certain low-performing employees refuse to budge? What you don’t do is let them hang around year after year. Teach leaders how to solve this problem by implementing a structured series of high-middle-low performer conversations.

It’s essential to get rid of low performers. It’s not optional. When they’re tolerated in a company, they tend to pull middle performers down to their level. Worse, your high performers will get disgusted and leave. Get rid of your “bad apples,” and your middle performers will naturally start to emulate the behavior of your star employees. 

The reviews I’ve described—frequent, objective, and goal-driven—enable you to very quickly build a case against your low performers. It’s a good way to gather the evidence you need to fire them if they don’t start improving. 

Admit it: Not having to endure the annual “performance review” charade of old would be a huge relief for all concerned. But the benefits reach far beyond the meetings themselves. In fact, it’s no exaggeration to say that transforming your performance review system can transform your entire company.

The way you motivate and reward employees is everything. When employees believe they are treated fairly, when they are engaged in the company’s mission, when they are coached toward meeting clearly stated goals, well, they’re going to put their hearts into their work. They’re going be passionate about it.

We’re talking about nothing less than changing the culture of your company. That’s a huge, major step toward long-term success. I’ve always said it and I still believe it: A great culture outperforms strategy every time.

About the Author: 
Quint Studer not only teaches it, he has done it. After leading organizations to breakthrough results, Quint formed Studer Group®, an outcomes firm that implements evidence-based leadership systems that help clients attain and sustain outstanding results. He was named one of the “Top 100 Most Powerful People in Healthcare” by Modern Healthcare magazine for his work on institutional healthcare improvement. Studer was named “Master of Business” by Inc. magazine. He is the author of BusinessWeek bestseller Hardwiring Excellence: Purpose, Worthwhile Work, Making a Difference; 101 Answers to Questions Leaders Ask; Wall Street Journal bestseller Results That Last: Hardwiring Behaviors That Will Take Your Company to the Top; and Straight A Leadership: Alignment, Action, Accountability. For more information, visit www.studergroup.com.

About the Book:
Straight A Leadership: Alignment, Action, Accountability (Fire Starter Publishing, 2009, ISBN: 978-0-9840794-1-4, $28.00) is available at bookstores nationwide, major online booksellers, or directly from the publisher by calling (866) 354-3473. Copies also can be purchased online through the Studer Group website at www.studergroup.com.