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How to Create an Employee Performance Review System

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Performance Review is an essential part of running a business yet reviewing an employee’s performance can be something managers and employees dread the most. Why? For the manager, the conversation feels like it’s just another item on the to-do list. For employees, Jim Harter of Harvard Business Review wrote, “Performance management is often a source of great frustration for employees who do not clearly understand their goals or what is expected of them at work. They may feel conflicted about their duties and disconnected from the bigger picture. For these employees, annual reviews and developmental conversations feel forced and superficial, and it is impossible for them to think about next year’s goals when they are not even sure what tomorrow will throw at them.”


According to a Gallup poll of more than 50,000 employees working in 10 industries, 54% of those surveyed felt their company’s performance management system was not effective.


The Society for Human Resource Management (SHRM) states that many large employers are now quitting the performance review process. Why? Because of bad communication, forced ranking, or it’s just an ineffective, time-consuming process.


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Large and small businesses can effortlessly create a good performance review system. We will review traditional methods of the performance review, as well as a discussion of why reviews are important and how often you should give them. Finally, we will look at some best practices and examples your organization might want to consider as you look at your performance review system.


The Traditional Methods

There are several types of traditional performance review systems. Here are a couple which seem to be the most popular in large and small businesses:

  • 360-degree feedback – This system engages an employee’s peers, direct reports, and supervisor to provide feedback on the employee’s performance. Review the pros and cons of this type of system before implementing it in your organization.
  • Management by Objectives (MBO) – This method is used when goals are developed before the review cycle between the manager and the employee. At the end of the year, the result is compared against the agreed upon goal. For example, “Reduce turnover in department by 25%.”.
  • Rating Scales – This type of review is the most common. To assess performance, the manager rates the employee on items such as behaviors and competencies.


Why a Performance Review is Important

Employees want to feel valued, not criticized. If you have a good performance review process and you effectively communicate feedback, your employee will walk out of that room with a plan for improvement. Make sure you are clear and At the beginning of the review period, discuss with your employees what goals they should be working to accomplish.there is no misunderstanding. What if you walked into a review and your manager just gave you examples of what you are doing wrong and what you are doing right, then ended the meeting. How would you feel? You have probably had several reviews just like this.


The review meeting can be a great time to really spend time with your employee. This could be a time for great inspiration and encouragement. This is the chance to find out what your employee likes and dislikes. They could tell you some of their ideas for the company or your team.

[Learn 50 ideas on How to Motivate Your Employees]


Use the time for the performance review to be something that both you and the employee enjoy. The important thing to remember is that it’s about a conversation and communication is the key driver to make that review great.


Adopt Frequent Feedback Cycles

According to Sujan Patel, co-founder of Web Profits, you should adopt more frequent feedback cycles and give employees context for your feedback, as well as pathways for future growth.


The main ingredient to an effective performance review is that nothing should be a surprise. You should be giving feedback on performance daily. Whether it be a 5-minute huddle at the end of the day or a sit-down meeting. If an employee is not performing well, you should work with that person to get him on track. If performance doesn’t improve, then it is time to start the disciplinary process. The performance review, however, is not the time to discipline. It should be about encouragement and employee motivation so that your employees will look forward to the review. Stop the review period being a dreaded event.


Jacquelyn Smith of Business Insider, provides fourteen phrases to avoid in a performance review. For example, a manager should never threaten a person’s job, humiliate that person, or compare her to her co-workers.


Best Practices and Examples

Here are some best practices and examples of effective and easy ways to give feedback to your employees:

  • Goals:

At the beginning of the review period, discuss with your employees what goals they should be working to accomplish. Choose 3 or 4 goals and ensure these goals align with the company’s strategic direction. For example, if the company has a goal to reduce the number of accidents and injuries in the workplace, your employee who is a manager, should have a goal like this as well (e.g., reduction of injury in department by 10%). This is the Management by Objectives traditional method we discussed above. This is a great system to implement IF the employee has clear based goals that truly align with the organization, they understand and agree to the goals, and the employee goals are achievable. Make sure you understand the pros and cons of this system. 


  • Soft skills:

List 3 or 4 characteristics or soft skills that you originally wanted in the employee when you interviewed for that position. For example, let’s use teamwork, communication, and critical thinking. Talk to your employee about those things. You can also give ideas to help them. Ask them questions about how they think they do in that area and then discuss how you think it could be better if needed. For example, you may have an employee who is great at communication but has trouble managing all of his tasks. You could offer up ideas and talk to him to find out how you can help.


  • Hard skills:

List 3 or 4 hard skills that are primary for that position. Talk to the employee about how they do on these things. Give ideas to make their job better. For example, if you have a carpenter that must use machine power tools but one tool is causing her a problem, this could be an opportunity for equipment updates. She may have a better idea of what type of equipment is needed.


  • Career Paths

Ask the employee where they would like to go in the company and talk to them about a career path. Find out what professional opportunities they are most excited about pursuing. You don’t want to lose your employees. Even average performers play a critical role in your company. People want to know where they are headed and not having a career path can be a reason for turnover in your company. By listening to their interests, you can develop a plan to help them achieve their goals.


  • Company direction:

Talk to them about company direction, answer questions about new systems and processes, and find out what they need to do their job better.


  • Salary reviews

Don’t tie the review to pay. Tom DiDonato, chief human resources officer at Lear, wrote in Harvard Business Review that he believes that annual reviews aren’t being done correctly and salary reviews and performance reviews should be separated. He says, “Performance reviews that are tied to compensation create a blame-oriented culture. It’s well known that they reinforce hierarchy, undermine collegiality, work against cooperative problem solving, discourage straight talk, and too easily become politicized.” At Lear, annual performance reviews were replaced with quarterly coaching sessions. Pay is adjusted only to changing local markets and special stock awards are given to high performers.


[Learn How to Keep Your Employees Happy]


Communicate! Figure out issues together. Be a coach, not a manager.

This type of performance review is key to sharing feedback, getting to know your employee’s strengths and weakness, and most importantly, developing that person to do great things. Instead of a once a year review, how about every 6 months or quarterly? Or, you could meet with them quarterly to see if they are on track to meet their goals and offer suggestions and listen to concerns if they are not on track. Many times, employees feel like they really have to work hard or be on their best behavior a month or two before the review. More frequent performance reviews could help ease that anxiety and prevent this from happening.


The performance review should not be something employees dread. It should be something they look forward to because of the encouragement they will receive and the value of the review.


Small businesses can’t afford production loss, underperforming employees, or turnover. Coaching sessions can help ensure your employees stay. You may have heard the saying that employees don’t leave good companies, they leave bad managers. Whatever method you choose for your performance review system, ensure your managers are conducting performance reviews to really help their employees, not just to check an item off a list. Show them that by doing this successfully they are empowering their employees and minimizing the risk of losing them.


Author: Kimberley Kay Travis

Kim Travis, co-owner of Travis and Adams Consulting Group, has over 20 years’ experience in human resources and leadership roles.
She has specialized knowledge in employment law, employee relations, recruiting, management consulting, leadership development, manufacturing safety programs, and writing business articles and blogs.


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