Situation: A CEO is evaluating her company’s employee review process and seeks input on alternative practices from other companies. What are best practices for employee reviews in terms of frequency, format and structure?
Advice from the CEOs:
Company A conducts annual reviews. They ask for written input from the employee, peers, and manager. The review is a sit-down meeting between the employee and manager.
Company B conducts formal annual reviews, with informal 6 month reviews. The annual review evaluates the employee’s performance on 15 key variables, and is prepared by the manager. The review is a sit-down meeting between the employee and manager
Company C does not conduct reviews. They have tried several formats over the life of the company, but found none satisfactory. Instead the company continually monitors key metrics on a green, yellow, red scale. As soon as yellow appears on a metric for an employee, the supervisor meets with the employee to discuss the situation and to formulate corrective action. The result is that reds do not occur.
Company D conducts annual reviews on the employment anniversary. They request written input from both the employee, and manager. The employee, manager and President meet over lunch, off-site. The objective is to communicate plus and minus points, taking a long-term approach in a conversational setting.
Company E conducts annual reviews, with quarterly self-evaluations. Both reviews and evaluations include a key question: “what can management do for me to improve my performance?” The review is a sit down meeting between employee and manager. Results of reviews are tied to quarterly profit sharing.
All companies agreed that, generally, in evaluating the options, the most important questions to ask are:
Why are we doing reviews?
What is the objective?
The answers to these questions help to evaluate review options.
Situation: A company has historically given Christmas bonuses at the rate of 10-20% of salary in a good year. The CEO is concerned that employees may stay until their bonus is received, and then leave for another job. What are your plans for 2011 bonuses?
Advice from the CEOs:
First, what is your objective in granting bonuses? Which among the following are you trying to achieve?
Acknowledgement of effort.
Effort above and beyond the norm.
Once you determine your goal, design a structure that will effect this goal.
What practices are typical for your industry – your competitors, vendors and clients?
Background research on industry practices provides a basis for your own practice. You can then evaluate whether varying from industry practice can give you an advantage.
Company performance should be a factor in determining bonus payment. So should performance against individual employee goals and objectives.
How much discretion should be given to managers for setting bonuses for their direct reports?
Talk to your managers and get their input on how they would handle bonus evaluation.
A number of companies give managers a pool guideline, and have them produce a spreadsheet of recommended bonus distribution for executive review and approval.
Individuals should not decide their own bonuses. Bonuses for all employees/managers should be decided by their direct supervisors.
Should the CEO be concerned if an employee takes their bonus and then leaves?
If an employee has earned their bonus, then you are granting them an earned reward. Their departure likely has much less to do with whether or not they receive a bonus than other factors.
Human resource research consistently demonstrates that compensation is at the bottom of the ladder of reasons that workers remain or leave – particularly workers who exercise critical thinking and judgment in their jobs.
Situation: The Company has both an annual and a 5-year plan. These are discussed in both company meetings and in 1-on-1s with managers. The CEO fears that he’s starting to sound like a broken record. How do you maintain the focus to stick with your plan?
Advice from the CEOs:
Break the 1-year plan into quarterly objectives. Don’t just divide annual objectives by four. Vary objectives for each quarter so that the total sums to the annual plan.
Divide your broad plan into a series of milestones. Celebrate the achievement of each milestone. This helps to maintain momentum and keeps everyone engaged.
Establish metrics to assess your progress against the plan. These will enable you to evaluate progress against plan and the degree to which you are above or below plan. It will also help you to evaluate whether underperformance is a matter of externalities or a flaw in the plan itself. If there is a flaw, fix it as soon as you find it.
Evaluate your “worst case” scenario so that you know the implications. This enables you to compare current performance against “worst case.”
In his book “Good to Great,” Jim Collins found that an important difference between G2G and non-G2G companies was the ability of the G2G companies to maintain faith and to slowly build momentum regardless of the apparent obstacles faced. This allowed good companies to establish the momentum that eventually made them great. Non-G2G companies continually changed direction and never built sustainable momentum.
Key Words: Plan, Annual, Long-Term, Objectives, Milestones, Celebrate, Momentum, Engaged, Underperformance, Worst Case, Good to Great