A basic Human Resources best practice is to perform regular employee performance reviews. Larger companies devote significant HR resources to gathering, synthesizing and reviewing feedback from managers and then presenting the results to employees. They try to ensure that feedback is objective and not discriminatory or offensive. They strive to rationalize how evaluations relate to decisions on employee compensation.
Many emerging growth and entrepreneurial middle market companies see the value of feedback—but lack HR resources to support an elaborate process. Some may fear that positive reviews will be seen by employees as warranting pay raises that the company can’t afford. Others may see performance reviews as only necessary when building a case to terminate an employee.
How should smaller companies with limited resources provide feedback that will lead to improved performance and productivity? We asked Newport partners, who as CEOs have managed large and small workforces, to discuss what they think emerging growth companies should do to evaluate the performance of their employees and provide feedback. Here’s what they had to say:
Kim DenneyKim Denney is an experienced Houston area leader with a record of solving top-level problems as an executive with broad responsibilities in the Chemical, Petrochemical, Energy, and Manufacturing industries.
“The form and format of company reviews of individual performance varies, but well-run organizations want to assure clear goal setting and communication. Individual targets should be set each year (preferably tied to some form of variable compensation). Those metrics should be monitored throughout the year and regular feedback given. A review after year-end should document company and individual performance verses the metrics, clarify things that went well and areas needing improvement, and document targets for the coming year—to assure the company and the employee are on the same page.
If there is open communication, nothing about this discussion should be a surprise to either the employee or the company. In reality, some supervisors are very thorough and others use few words or fail to complete this activity at all. This is a struggle for large and small organizations alike. An annual review is also a good time to discuss career goals, to understand where the employee would like to go in the company, and to document where the company sees the employee adding the most value. This rigor avoids miscues and can reduce the risk of misunderstandings or even future legal action. Is it worth the time and effort? I say yes, wholeheartedly.”
Ferey FaridianFerey is a senior strategic investment professional with 25 years of experience spanning management consulting in 12 countries, investment banking and principal investing, as well as serving as CEO/President of high-technology ventures.
“I’ve seen companies use a formal, written annual review with submissions from employee, manager and any input from peers, followed by one on one meeting to get alignment and set goals.”
Tom HenricksTom Henricks began his four decades in aerospace as a fighter test pilot in the U.S. Air Force before being selected by NASA to become an astronaut. After leaving NASA, Tom has held a series of senior level positions in the aviation industry.
“Large public companies have a formal review process and use it to identify high potential candidates and to document low performers on the way out. Small companies run by a founder that knows every employee may treat all fairly yet have no formal reviews.”
William KrautWilliam Kraut is an accomplished, Board-savvy advisor on strategic and financial issues to firms ranging from start-ups to mature private and public companies. He is a respected expert on risk management, fraud risk, audit committee responsibilities and regulatory compliance.
“There should be ongoing multiple feedback over the year (documented), with bonuses that can be earned more often than annually (such as after completion of a stressful time/project). A 360-degree review should also be used, which includes upward evaluations.”
Kevin McGonigleKevin's professional experience has focused on helping mid-market and large corporate clients to address their most critical business issues. He is a seasoned executive and advisor who helps C-suite executives tackle key strategic, operational, financial, and human capital challenges.
“The traditional performance evaluation is based on historical (or rear-facing) metrics. Companies tend to decide what today's (or even worse--yesterday's) job requires and then define metrics to see if someone did well. The whole approach looks backwards.
There are two things that high-performing companies do. First, they determine what each job and employee should be doing in a few years and then define metrics that set aggressive, forward-looking goals for each. Competencies used to rank employees are geared to the desired future state. Second, these companies recognize that the metrics are not static. If priorities or aspirations change during the course of the year, then the metrics might change. The stereotypical 'static' template and measurements tend to make the performance review process merely a box-ticking exercise, rather than a dynamic, forward-looking, and person-developing process to keep folks aligned to the company and their own highest and best use.”
Art MediciArt Medici has a diverse background as an executive leader in e-commerce, high tech, telecom and information companies. His experience spans startups, high growth small/mid cap firms and global leaders like Thomson Reuters.
“There tends to be a very mixed application here. Many small companies ignore the value of employee performance evaluations. Larger, older firms do a much better job of ensuring employees are fully informed as to how their performance is perceived. I encourage all my clients to survey employees (and customers) annually and execute a staff review process. It is absolutely certain that a prospective acquirer will want to see employee reviews. This should compel owners who envision a exit to make this part of the regimen.”
Ted ParrishTed Parrish has a strong background as both an operating executive and an advisor. He brings to Newport extensive background in financial services strategy and operations.
“Most middle market companies do not worry about this process as a high priority. The infrastructure and time required to do it properly are perceived as big company luxuries. That having been said, performance management can pay big benefits. Middle market companies need a simplified method and process to insure a focus on performance management. The successful mid market companies I have worked with keep objectives simple, measurable, and clearly identified. Evaluations do not occur in the context of a major annual process but in the context of daily communications between employees and supervisors.”
Doug PayneDoug Payne is an experienced executive leader and Board member with a successful track record of building growing profitable companies.
“It is absolutely essential that smaller companies evaluate their people on a regular basis. Employees deserve the feedback to know where they stand, and the process can lead to performance improvements that can positively affect the bottom line. While employment laws vary from state to state, employers in non-right to work states must follow the right process to document performance deficiencies as a prerequisite to terminate non-performing individuals. Not doing so can lead to needless liability for the company.”
Kevin PooleKevin Poole is a seasoned leader with diverse experience as both a senior advisor to CXOs of middle-market firms, and as an operating executive at a Fortune 500 company.
“Given there’s a strategic imperative for emerging growth companies to shift away from a "culture of loyalty" to a "culture of accountability," I would argue that performance reviews are actually more important for emerging growth companies than large corporations. By failing to introduce a robust performance management system, it is very difficult for the founder/owner to move away from a culture that emphasizes employee loyalty to a framework that evaluates an employee's contribution to the organization based on on-the-job performance.”
Mark RosenmanMark is a co-founder of Newport Board Group and its Chief Knowledge Officer.
“Smaller companies may not be able to afford a complex process of collecting, synthesizing and reviewing feedback. They should consider a formalized process that is nonetheless very streamlined. They should explain to employees in advance that a good review is not necessarily going to lead to a pay raise. And they should get advice from an HR professional—for example, well intended feedback about an employee’s unprofessional appearance can be construed as offensive and even lead to legal liability.”
John SullivanJohn has delivered top- and bottom-line results running a wide range of companies and dealing with challenges like acquisitions, lean manufacturing, supply chain optimization/low cost sourcing, new product development and brand and channel management.
“Most emerging and entrepreneurial companies recognize that at least one annual performance review is needed. Some do it more frequently. Many value 360 degree reviews of superiors, peers, and subordinates.”
Eran TagorEran has diverse experience in executive management, venture capital, private equity and M&A, including turnaround, restructuring and special situation transactions.
I see companies doing annual or semi-annual reviews of performance that includes self-grading. This is then shared with supervisors and they go over the review together, setting up goals etc. I have also seen companies where employees review themselves and their team members, including their supervisors. The latter is for top management, so they can see how managers are doing in the eyes of their team—to try to improve the culture and the team development process.
