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How to Conduct Effective Performance Evaluations at Your Business

How to Conduct Effective Performance Evaluations at Your Business

Businesses use performance evaluations to assess their team’s work performance. These evaluations also help employers pinpoint deficiencies in work performance and determine the company’s expectations for the future. Written performance evaluations are best because a written evaluation creates a tangible record, which can be reviewed and referenced in the future.

The performance evaluation process generally involves a series of steps:

  • Developing guidelines and standards against which an employee’s performance may be compared.
  • Gathering appraisal information, which when analyzed against the established standards reflects the employee’s performance.
  • Discussing the appraisal information with the employee.
  • Documenting the evaluation process in the employee’s personnel file.

Businesses use performance evaluations for the following reasons:

  • As positive communication tools to help employees improve job performance.
  • In salary administration for determining merit increases.
  • As regular workforce monitoring tools.
  • In the disciplinary process where an employee’s job performance is unacceptable and could lead to discipline or termination.

Whether you’re looking to build a formal evaluation process or improve your existing one, this post will provide the actionable steps you need. In this post you’ll learn:

  • What are the benefits of conducting regular performance reviews
  • What are the types of performance evaluations
  • How to conduct meaningful performance evaluations
  • How to implement a formal performance evaluation process at your business
  • How to ensure your performance review process is legally compliant

What are the Benefits of Conducting Regular Performance Reviews

An effective performance evaluation system can benefit your business in many ways including:

  • Assess Employee Potential. An effective performance management helps business leaders make informed decisions about employee promotions and transfers. A sound performance evaluation system can also help you proactively identify employees with special skills and abilities.
  • Identify Training Needs. Performance ratings help evaluate the effectiveness established training programs. Your business might design and target training programs to better address the performance problems caused by a lack of training.
  • Assist in Compensation Planning. Linking pay to performance is an effective compensation strategy, especially at growing businesses. Reliable, consistent performance evaluation processes enable your business to predict future payroll costs and reward your high-performing employees.
  • Identify and Correct Poor Work Performance. Performance evaluations generate discussions between employees and supervisors that identify poor work habits. During these conversations your and your employees can uncover mutually agreeable ways to correct issue areas.
  • Defend Against Lawsuits. The performance evaluation process allows companies to document poor job performance. Employers depend on this documentation to defend themselves successfully against employee claims of unfair termination or disciplinary action.
  • Motivate Employees. Performance evaluations can motivate employees in their efforts to meet your business’ performance standards. A positive evaluation assures the employee that your business recognizes their hard work and that they will be rewarded for exceptional performance.

What Are the Types of Performance Evaluations

When it comes to conducting performance evaluations, there are several different methodologies your business might opt to leverage. Some of the most popular ones are elaborated on below.

Rating Scales

The rating scale method provides a high degree of structure for evaluations. The scale rates employee traits or characteristics on a bipolar scale where there is a neutral point and the two ends of the scale are at opposite positions of the opinion, ranging from “poor” to “excellent.”

The characteristics evaluated on these scales include employee attributes such as the following:

  • Cooperation
  • Communication ability
  • Initiative
  • Punctuality
  • Work skills competence

An employer can select which traits to rate based on factors that are relevant to performance of the employment position. Proper selection of traits may protect against legal action based on a claim of discrimination.

Essay Method

In the essay method approach, the supervisor or manager prepares a written statement about the employee being evaluated. The essay describes specific strengths and weaknesses of the evaluated employee in job performance. It also includes suggestions for courses of action to correct any problem(s) identified in the evaluation. The statement may be written and edited by the supervisor or manager alone. It may also be composed in collaboration with the employee who is evaluated.

Results Method

Management by objectives (MBO) performance evaluation is results-oriented. It attempts to measure employee performance by examining the extent to which employees meet predetermined work objectives. The objectives are usually established jointly by the supervisors and employees. Once an objective is established, the employee is usually expected to identify the skills needed to achieve the objective. Employees do not rely on their manager to locate and specify their strengths and weaknesses. They are expected to monitor their own development and progress toward achieving the objective.

How to Conduct Meaningful Performance Evaluations

Many businesses have ineffective performance evaluation processes that result in little insights for the leadership team to reward high-performers, address performance issues, and make other informed business decisions. Here are some key things to keep in mind to ensure your evaluation process is effective:

Honesty

In order to be effective, performance reviews must be honest and candid. Although supervisors may be unduly harsh on employees during an evaluation, excessive leniency occurs much more often. It’s a good idea to note and praise good work done by an employee in the past. However, the evaluation must also identify any issue areas in employee performance. Defending a wrongful termination suit is extremely difficult if the reason for termination was a problem that existed for an extended period of time and was not noted on the employee’s performance evaluations. The employer’s case is further damaged when the employee received favorable performance evaluations, including favorable remarks on the categories of performance that are later involved in the reasons for termination.

Uniformity Among Supervisors

An employer should always monitor managers as they conduct performance evaluations, making sure the process is uniform throughout the organization. If your process lacks uniformity, supervisors in one department may give more favorable (or harsh) evaluations than those in another department. When these inconsistencies occur, it is difficult for an employer to defend against wrongful termination because the suit could attack the credibility of the business’ evaluation system.

Strengths and Weaknesses

Each evaluation must include a discussion of the employee’s strengths and weaknesses. Evaluations should include deserved compliments (rather than only criticism) to be fair, balanced, and objective.

Constructive Criticism

Giving constructive criticism in performance evaluations also has advantages. Some constructive criticism of good employees may help lay the groundwork for negative evaluations of those employees in the future if their overall performance deteriorates. This is particularly true when an employee brings a wrongful termination suit after an unfavorable performance evaluation. When defending against a wrongful termination suit, it may be helpful for the employer to demonstrate that the employee was previously criticized for some of those same faults (which triggered the termination) on prior evaluations, even though the problem perhaps was in its infancy at that time and did not warrant an overall negative evaluation.

How to Implement a Formal Performance Evaluation Process at Your Business

If you’d like to launch a formal employee performance evaluation process or refine your existing one, consider providing the following:

  • Clear written instructions to all managers involved in the evaluation process.
  • Relevant training for supervisors and human resource leaders involved in the evaluation process to ensure complete understanding of all employee job duties.
  • A job-related performance evaluation system.
  • Reasonable precautions to guard against improper bias by the evaluating supervisor or manager.
  • A procedure that includes multiple levels of review and approval of the evaluation.
  • Central monitoring by human resources to ensure uniform performance rating standards among all supervisors and managers conducting the evaluations.
  • A procedure that allows the employee to comment or respond to the evaluation.
  • A procedure providing the employee with an appeal process of a poor evaluation, within a reasonable time after the evaluation.
  • A procedure requiring the supervisor to identify specific performance goals as part of the evaluation process.

How to Ensure Your Performance Review Process is Legally Compliant

Federal civil rights and state fair employment practice laws are in place to prohibit employers from implementing performance evaluation systems that discriminate against employees based on race, color, religion, gender, national origin, or disability. To avoid liability, your business must ensure that its supervisors and managers base their performance evaluation judgments solely on job-related factors.

In determining whether performance evaluation systems are discriminatory, courts generally apply the same standards used to determine whether employee selection procedures and tests are discriminatory. Under such standards, a performance evaluation system is nondiscriminatory if it is both valid and reliable. When the system does not satisfy both requirements, the discriminatory impact of the improper factors might cause the system to violate one or more federal or state laws.

Valid and reliable performance evaluation programs normally share the following characteristics:

  • The performance evaluation program is formal and in writing.
  • Ratings are reviewed to ensure that high and low ratings are documented with information demonstrating what the employee did or did not do to earn the rating. Reviews also look for statistical patterns of adverse ratings and evidence that a supervisor needs more training rating employees.
  • The evaluation relates to the particular job in question. This means that employees are not rated on items that are irrelevant to job performance. An evaluator who must use a preprinted form that is not specific to the job should have the option of checking “not applicable.”
  • The evaluator is familiar with the employee’s job duties and actual performance. Evaluators should be allowed to state or check “not observed” when necessary.
  • Employees must read their evaluations, sign the evaluation to acknowledge their reading of the evaluation, and have the opportunity to provide written commentary on the evaluation.
  • Evaluations are not final until employees have the opportunity to comment.
  • Higher-level management reviews all evaluations.
  • Supervisors receive training in evaluating employees.
  • Evaluators receive clear written instructions as to the implementation of the evaluation.
  • Evaluation forms are as clear and simple as possible.
  • Definitions and examples are included to clarify the scope and meaning of various rating categories.
  • Standards or expectations are identified clearly for each aspect of performance and are communicated to the employee.
  • Employees have input in setting performance expectations.
  • The relative importance of each aspect of performance is communicated.
  • The primary goal of the evaluation is to enable employees to improve. Evaluators help an employee recognize strengths and weaknesses and help employees develop plans for improvement.

If you enjoyed this post don’t forget to register for our upcoming webinar “How to Have a Successful Open Enrollment.”

How to Improve Emotional Intelligence and Become a Better Leader

How to Improve Emotional Intelligence and Become a Better Leader

Your management team’s emotional intelligence level can make or break your ability to build a thriving business. Emotional intelligence, a.k.a. “EQ,” is someone’s ability to understand and harness the power of emotion to build strong relationships, foster trust, mitigate conflict, and more. Teams with a high EQ enjoy higher productivity, better morale, and improved employee retention. On the other hand, teams with a low EQ can suffer from poor work ethic, high turnover rates, and low motivation.

In today’s post we’ll explore emotional intelligence and why it’s important to your business’ success. We’ll also provide strategies you can leverage to improve your EQ. You’ll learn:

  • What is emotional intelligence?
  • Why is emotional intelligence important in the workplace?
  • Strategies to improve your emotional intelligence

What is Emotional Intelligence?

Emotional intelligence is the ability to identify and mange your emotions and the emotions of others. In his book, Working With Emotional Intelligence, Daniel Goleman outlines five categories of emotional intelligence including:

  • Self-awareness: understanding one’s own strengths and weaknesses, recognizing the impact of one’s actions on others, and receiving constructive criticism well.
  • Self-regulation: expressing one’s feelings with restraint and control.
  • Motivation: driven by one’s own ambition, resilience, and optimism.
  • Empathy: having the compassion and understanding to connect with others on an emotional level.
  • People skills: the ability to build rapport and trust with others.

Research on emotional intelligence by Harvard Business Review more broadly segments EQ into the areas of self-awareness, self-management, social awareness, and relationship management. Within each of these areas are several skills which allow for exceptional leadership in business. The graphic below overviews each of these areas and the competencies that fall within them.

Why is Emotional Intelligence Important (in General)

People with strong emotional intelligence are better able to regulate their own emotions and navigate the emotional responses of others. They reap many benefits including:

  • Recognizing and understanding their own emotional reactions
  • Managing, controlling, and adapting their own moods, reactions, and responses
  • Leveraging their emotions to motivate themselves, take action, commit, and work towards goals
  • Identifying the feelings of others, understanding their emotions, and using this information to relate to others more effectively
  • Building strong relationships, relating to others in social situations, leading, negotiating conflict, and working as part of a team

Why is Emotional Intelligence Important in the Workplace?

Emotional Intelligence plays a crucial role in business leaders’ ability to effectively manage and grow their business. Workplaces are, by nature, relationship-driven environments. They are places with a wide range of personalities, interests, and communication styles. Having a good EQ can help business owners better manage their workforce. Leaders with strong EQ reap many benefits including:

  • Being able to provide genuine feedback to employees
  • Fostering trust with employees and customers
  • Resolving conflict between team members
  • Setting realistic expectations and standards for your team
  • Constantly improving your management style

Research by the Center for Creative Leadership (CCL) found that lack of emotional intelligence is a leading cause of failure in executive positions. It identified three main reasons for failure: difficulty handling change, ineffective teamwork, and poor interpersonal relations. Additional research by Egon Zehnder International found that EQ was stronger at predicting executive success than IQ or job experience.

More generally speaking, research by The Carnegie Institute of Technology found that only 15% of financial success is attributed to technical skills. 85% of a typical person’s executive success is attributed to EQ skills such as the ability to communicate, negotiate, and lead. Research by TalentSmart found that 90% of top-performers have good emotional intelligence.

In business, trust is key. Building trust with employees and customers is important for business leaders. In fact, research by Daniel Kahneman found that people would rather do business with someone they trust, even if it means paying a higher cost. High EQ is critical to building genuine relationships founded on trust and mutual understanding.

On the flip side, poor emotional intelligence can lead to a toxic work environment. Bad EQ in the workplace can be seen in bullying, harassment, turnover, and demotivated staff. It can manifest as insensitivity, arrogance, aggression, and volatility. Whereas a leadership team with high EQ can build a flexible environment, low emotional intelligence can lead to detrimental inflexibility and rigidity. In order to build a good company culture, emotional intelligence is crucial.

How to Improve Emotional Intelligence

At its core, emotional intelligence is effective communication between the emotional and rational parts of the brain. Unlike IQ, which remains relatively constant throughout your lifetime, EQ is something you can actively work on and improve. Some ways to improve emotional intelligence include:

  • Observe your feelings: as business leaders, work is extremely demanding. It’s easy to become so over-worked that you suppress or ignore your emotions entirely. It’s important to recognize that ignoring your feelings can cause these emotions to become stronger and less controlled over time. Rather than getting caught up in the day-to-day, when you’re having an emotional reaction to a situation, take a minute to recognize and address your feelings. Intentionally taking time to recognize and address your feelings can help build up your emotional intelligence over time.
  • Respond instead of react: recognize the difference between responding and reacting. Reacting is a knee-jerk response driven by emotions. Responding is a conscious, intentional process driven by understanding your feelings and deciding how to behave.
  • Be humble and keep things in perspective: having realistic expectations of yourself and others is a key part of EQ. If you think you’re better than others, you won’t be able to intentionally recognize and work on your own faults. You may also set unrealistic expectations for others, leading to disappointment. Instead, remain humble while recognizing your own unique set of strengths.

As you intentionally integrate these strategies into the way you think, your brain will begin to build new pathways and thought processes. Over time, your brain will adjust to use new EQ-driven strategies in your day-to-day work. Improving your EQ takes effort but is critical for anyone in a leadership position.

Key Take-Aways

In today’s post we explored what emotional intelligence is, why it’s important, and how to improve it. Here are some key take-aways:

  • Emotional intelligence is made up of several components including self-awareness, motivation, and social skills
  • Emotional intelligence provides many benefits including stronger relationships, better control over feelings, and improved ability to resolve conflicts
  • In the workplace, EQ is a stronger indicator of business success than IQ or technical skills
  • Unlike IQ, EQ can be actively worked on and improved over time
  • There are several strategies you can use to better leverage EQ-driven thought processes
6 Creative Comp Tactics to Boost Your Total Compensation Confidence

6 Creative Comp Tactics to Boost Your Total Compensation Confidence

Your employee compensation strategy is an important component of your company’s overall hiring strategy. You already understand that compensation is very important to be able to hire and retain top talent. What you might not know is that there are some simple strategies you can use to increase the value of your compensation without increasing base salaries. In today’s post I’ll explore how to understand your total compensation package and offer six unique strategies to increase the value of your total compensation offered.

Understanding Total Compensation

When considering making changes to your compensation strategy, it’s important to first understand the difference between base salary and total compensation.
Base salary is the amount per hour or year an employee is paid. This is the figure that appears on the employee’s paycheck. This number does not include bonuses, benefits, or any other perks.
Total compensation is everything that an employee receives in exchange for working for your company. This figure includes base salary, bonuses, incentives, benefits, on-site amenities, and any other perks you offer.
Some typical benefits induced in total compensation:
  • Health insurance
  • Vision and dental insurance plans
  • Retirement plans
  • Performance bonuses
There are many creative ways that companies add additional value to their total compensation package. Here are just a few:
  • Gym memberships
  • On-site child care
  • Casual dress code
  • Flexible schedules

Creating Goals for Your Compensation Strategy

When you’re considering making changes to your company’s compensations strategy, there’s a couple of key things to keep in mind:
  • First and foremost, employees must feel they’re being compensated fairly. If employees don’t feel this way, high turnover is inevitable.
  • Your compensation strategy should ensure employees are invested in the long-term success of the company.
  • Communicating your company’s benefits and perks programs to employees will help them better understand the value of their total compensation package.
When creating your total compensation package you should set one or two goals. This helps make sure that as you add incentives to the package, they’re in-line with your overall compensation goals. Here are some examples of goals related to total compensation:
  • Recruit great talent
  • Motivate employees
  • Reward top-performers
  • Reduce employee turnover
  • Improve your career brand

Six Creative Compensation Tactics

Now that you understand total compensation and have set some goals for your compensation strategy, you can get to work building your total compensation package. Here are six unique compensation tactics you might opt to include:

1. Delayed signing bonuses

Many companies offer a large signing bonus as a particularly enticing component of the compensation package. However, a highly-effective yet often-overlooked compensation strategy is to offer a deferred bonus. For example, offer a $5,000 signing bonus up front with an additional $5,000 bonus granted at the six-month mark. This way the signing bonus works not only as a compensation tool but also as an employee retention tool.
2. Think Beyond Cash Incentives
Rather than offering a performance-based cash incentive, consider offering a different incentive such as an annual company trip. Other great ideas for incentives include: bonus vacation time, sports-related activities such as group outings to a game, or free catered lunch. Any of these incentives can add variety to total compensation and provide tangible incentives for employees to work towards.
3. Employee Stock Ownership Programs (ESOPs)
In an employee stock ownership program you offer employees stock in the company as a benefit or performance-based bonus. This program helps align an employee with the long-term company vision, as they become personally invested in the company’s growth.
4. Phantom Equity
Unlike ESOPs, phantom equity does not transfer any of your company ownership to employees. Rather, it’s a contractual agreement which gives your employees a right to a certain percentage of the profits/proceeds of your company. This process allows you to incentivize long-term commitment and high performance without giving up any ownership of the company.
5. Employee Discount Program
An employee discount program is a great way to provide additional incentives beyond an employee’s base salary. Employee discount providers will partner with your organization to offer your employees competitive discounts on retail goods, phone bills, hotels, and much more. Studies show that Millennials, who are often on a tight budget, are particularly enticed by attractive employee discount programs.
6. Paid Training Stipend
Including a training stipend in an employee’s compensation package accomplishes three things:
  1. Shows your employees that you want to invest in them and their career success. According to a study done by Deloitte, most loyal employees believe their company offers a lot of training and support.
  2. Develops your employees, so they can perform their job more effectively and become strong leaders.
  3. Increases the total compensation value of your employee benefit package.

Employee Compensation Key Takeaways

Here are some key take-aways from today’s post:
  • When thinking about compensation, you must consider the total value of your compensation package, not just the employee’s base salary.
  • When discussing compensation strategy, it’s important to have clear goals in mind.
  • A competitive compensation strategy will help your company attract, develop, and retain the best talent.
  • Continuous communication around the total compensation package is key.
5 Employee Retention Strategies to Retain Your Top Performers

5 Employee Retention Strategies to Retain Your Top Performers

Employee Retention Quick-Facts:

  • It costs nearly 20% of an employee’s annual salary to replace a current employee.
  • Roughly 63% of employees are actively looking for a new job.
  • Engaged employees are 87% less likely to leave their organization.
  • The majority of turnover (52%) occurs in the first year of employment.
  • One in four employees would leave their job for a 10% raise.
  • Only 17% of organizations are aware of the costs of employee turnover.
  • About 65% of employees believe they can easily find a better position that pays more.

5 Strategies to Retain Your Top Talent:

  1. Know who to retain. How do you identify top performers at your organization? Pinpointing rising stars is crucial to your overall retention strategy. Look for employees with the following traits: dedication to high-quality work, desire for growth, self-starter, decision-maker, critical thinker, and great communication skills.
  2. Provide realistic job expectations. Be explicit and clear on the responsibilities entailed in a position from the beginning. Employees should have a clear understanding of the scope of their position and have a general idea of what their day-to-day will entail. Unrealistic/untrue expectations lead to employee disappointment, frustration, dissatisfaction, and ultimately attrition.
  3. Get compensation right. Compensation is a critical component of your overall retention strategy. If you can afford to compensate over-market, you should. You should also factor in the value of your total compensation package, which includes all the benefits you offer. It’s important to make sure the value of your total compensation package is clearly explained to new employees. Your current employees should also be continuously made aware of the benefits offered to them.
  4. Provide clear career-pathways. Annual performance reviews can be stifling for goal-oriented, fast-moving top performers. Instead, design an individualized career-path with clear goals and quarterly performance milestones for each employee.
  5. Connect employees beyond their manager. In a study completed by The Herman Group, 75% of employees leaving a position claimed they left due to a bad manager. This figure demonstrates the importance of helping employees connect with the organization beyond their direct manager. Some effective ways to do this include providing each employee with a mentor, implementing 360 degree performance reviews, or leveraging peer reviews.