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Small Business Owners Should Focus on Employee Improvement, Not on Ratings and Documentation Failure

By Mark Allen, Ph.D.

Many small business owners report that one of their most unpleasant responsibilities is end-of-year performance reviews. Perhaps that’s because performance reviews often take this form: you, as the business owner, sit across from an employee and confront him or her with a thick stack of papers documenting flaws and failures from over the past 12 months. The employee immediately becomes understandably demoralized. Since the review is ostensibly based on “evidence” and the communication is top-down, the employee departs the meeting dejected, without a clear understanding of how to improve.

But what if performance management looked like this?

You sit next to an employee and have a conversation about goals and objectives, discussing future benchmarks and expectations and outlining clear objectives for the employee to meet. You adopt the attitude of a coach and treat the meeting as a holistic development opportunity. Instead of making your employee feel lambasted by how he or she did not achieve last year’s objectives, you inspire your employee to become motivated to reach those goals in the upcoming year.

Which seems more constructive?

The former scenario is backwards-looking, focused on performance review, while the latter is forward-looking, stressing performance improvement. As small business owners begin 2017 with the goal of improving employee performance, they should leave behind processes that document poor performance, and instead, focus on having ongoing conversations throughout the year that are aimed at driving improved performance.

The reason performance reviews are often synonymous with tedium and awkwardness is because, fundamentally, managers don’t understand what performance management truly is. According to the Human Capital Institute, Performance Management is, “a continuous system of processes, methodologies, and tools that identify, measure and develop employee performance by aligning individual and team objectives with the strategic goals of the organization.”

Given this focus on comprehensive measurement, it should be no surprise that business owners aren’t alone in dreading reviews. A 2014 survey by Guidespark, an employee communications company, found that employees almost universally despise performance reviews. Even worse, reviews appear to be ineffective: 79 percent of employees say that reviews don’t always lead to better performance. In fact, separate research found that 30 percent of employee reviews end up decreasing employee performance.

Unfortunately, traditional performance reviews rely on retrospective documentation to quantify achievement (often resulting in numerical ratings) without providing context for development. And more often than not, documentation tends to focus on past failures. On the most basic level, this ignores basic psychology: humans are more motivated by the desire to succeed than they are by fear of failure. Researchers at Harvard found that employees are most productive when they are working towards meaningful goals.

If employers focus on performance improvement, then management becomes more about hosting regular, ongoing conversations with employees than once- or twice-a-year negative performance reviews. And, just imagine the reduced amount of time spent time spent on documentation!

To be clear, I am not advocating doing away with documentation entirely, but I do believe that many of the reasons business owners claim they need documentation are false. Many employers believe that if they ever want to terminate an employee, they will need a paper trail of documented poor performance reviews to avoid getting sued. This reasoning is flawed for two reasons:

First, in and of itself, documentation doesn’t preclude a lawsuit. Second, and more broadly, rarely does an employer need to fire an employee. What percentage of an employer’s workforce performs so poorly that it might be fired – two, maybe three percent? (If it’s considerably higher than that, you have bigger problems). If fear of litigation is the prevailing force driving documentation, then documenting everything correctly for a tiny underperforming proportion of the workforce does nothing to improve a company’s overall performance, and at worst is a big waste of management’s time. And it forces the same documentation requirements for the vast majority of workers who are performing well.

Instead, the performance management process should be about improving performance for all employees. This process can, and probably should, involve some level of informal documentation, but not the formal and detailed reporting that derails most performance management processes. If businesses work to improve performance, they likely will not have as many employees who need to be managed out of the organization. If, after repeated attempts at improvement, there are still performance issues, managers can embark on documenting and managing out, but only for those who truly aren’t improving.

Perhaps the most fruitful workplace New Year’s resolution is to re-imagine performance management as a future-looking process that is designed to improve performance, not a backwards-facing exercise in ratings and documentation.

This creates an opportunity to re-engage workers in the company’s vision and mission. Business owners who focus on improvements, not spreadsheets, ratings, and rankings, will find that the investment in their employees translates to increased performance.

Mark Allen, Ph.D., is a Practitioner Faculty member of Organization and Management at Pepperdine Graziadio School of Business and Management.