Why Shouldn’t Small Business Owners Use Annual Performance Reviews to Manage Employee Performance?

You might be thinking, “Wait, isn’t that what a performance review is for?” Unfortunately, performance management – or, as it has also been called, “performance review” has long had a negative connotation attached to it, when, really, it should be a positive and constructive experience. In fact, through my years of HR experience, I have seen how powerful and profitable a good performance management strategy can be for small businesses.

Employee management and development is best accomplished through a performance management process.

You can influence employee performance and motivation with positive processes.There are several questions to think about in regards to creating a performance management process, but let’s begin with the first question, which would be “What is your current process?”  If none, then you have to ask what it is are you wanting to accomplish by creating a performance management strategy. In order to give you a solid understanding of some of the elements that impact employee performance and development so you can answer that question, I want to share three reasons why annual performance reviews shouldn’t be used to manage performance.

  1. Employees feel devalued: It has a significantly negative influence on employees when they interact with leadership day-to-day and only uncover in the performance review conversation that they weren’t meeting expectations. The employee immediately feels that they aren’t valued and, even more so, feels leadership doesn’t care about their contributions. Employees feel blindsided, and they also feel that these issues could have been addressed sooner. They were not provided the opportunity to change their behavior. And, most often, that would have been the case if only they would have known. Hearing that you haven’t done well when your expectation was that everything was going along well is vastly disheartening. This is especially true if you expect to be compensated accordingly. A recent Fortune article states that one of main reasons why employees leave their place of employment is because of money. Consider that an employee’s departure could potentially be prevented if time was taken to discuss performance issues and concerns – and therefore the impact on their wages – when the issue arose, rather than having waited until it was time for the “annual performance review.” Likewise, it delays, or eliminates benefits to the business as well.
  2. Missed opportunities for recognition: If an employee is doing a good job, why wait to recognize and reward them based upon an annual review? Take time and recognize their contributions immediately. One of the keys to retaining employees is for them to feel like they contribute to the company’s goals and objectives. In the same Fortune article, it states another reason why employees leave their jobs is because they don’t enjoy their work. Part of enjoying their work is feeling that they are recognized for what they do and what they contribute to the company. It fuels employees to continue to do well. Remember the quote you hear from time to time:

“A person who feels appreciated will always do more than is expected.” – Author unknown

  1. A year is too late: Just like someone should be recognized immediately for good work and contributions, when there is an issue with performance, it, too, should be addressed immediately. The issue with most employers, managers, and supervisors who perceive performance management in a negative light is that they communicate in such a way to their employees that it causes their employees to shut down or get defensive. One of the most important elements of performance management is to mold the message to your audience. Put yourself in the shoes of your employee. How would you – and they – like to receive feedback? When behavior isn’t meeting expectations, give suggestions on what can be done differently. That does not mean you should micromanage, but that you should monitor the behavior with positive reinforcement. Instead of just stating “Suzy doesn’t want to do her job” did deeper, ask the employee for more information. If the behavior doesn’t change, ask Suzy to explain what she feels is derailing her. Then help her navigate through an improvement process. I’m pretty sure there is more to it, and you might be surprised by the end result.

Good luck with implementing your 2016 performance management strategies. If you have any questions or concerns, contact an HR expert at The Payroll Department. I am here to help small business owners and their employees find success! You can email me at

-Gerilyn Davis, The Payroll Department HR Services

Posted in: Hiring and Firing, Human Resources, Policies and Procedures, Staffing

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