The Importance of Performance Evaluation

The performance evaluation process helps employees and managers clarify expectations about job responsibilities and performance standards, and set goals for the coming year. 

At the beginning of the fiscal year, the manager and the employee should review the job description to determine the key job responsibilities and clarify work expectations. They should also develop S.M.A.R.T. (specific, measurable, achievable, realistic, and time-related) goals for the employee based on the employee’s need for professional improvement, the department’s goal, and the strategic plan of the organization. For example, an effective employee goal could be “increase my sales by 20% by the end of the quarter.” Goal setting keeps employees aware of and committed to what they should achieve.

Employees can identify their strengths and explore how to build on those strengths through performance discussions with their managers. For example, the manager has noticed that an employee demonstrates talent in writing, so he or she may put the employee in charge of handbook writing. Employees can also be made aware of their skill or knowledge deficiencies and receive guidance about personal learning, growth, and development. For example, when the manager says, “Mike, I am concerned about the way you communicate with our customers,” he should always explain to Mike how he could handle the situation more effectively.

A mid-year review can provide positive feedback about the employee’s contribution so far, and also give the manager a chance to discuss problematic performance with the employee and work out a solution. Mid-year reviews also help the manager and the employee recalibrate their objectives, if needed. Perhaps the goal no longer applies because there has been a business strategy shift based on the cultural change of the agency. For example, a social service agency has been concentrating on youth and family services.  But a recent increase in the need for assisted living facilities for senior citizens has led to a change in the agency’s mission. Therefore, performance goals will need to be modified to include development and implementation of senior services.

Accurate performance evaluations help managers promote the right employees. Performance evaluations also help determine pay increases and bonuses for employees. When employers link performance evaluation to pay raises and promotion, it shows that they distribute compensation on a fair and credible basis. For example, if your company has a 5-point rating scale, your policy might be that employees whose performance ratings are below 3 are not eligible for a salary increase; if the rating is at 3, they get a 1% pay increase; if at 4, a 2% pay increase; if at 5, a 3% pay increase.

Performance evaluation provides employees recognition or rewards for their efforts and thus boosts employee morale and increases their job satisfaction. And performance evaluation itself lets employees know they are important to the company when managers take the time and effort to review, document, and discuss performance with their employees. This can have a positive influence on the individual’s sense of worth, job satisfaction, and commitment. One study suggests that recognition can improve work performance and increase business value. (See http://www.cashort.com/Libraries/Employee_Recognition_Programs/Linking_Recognition_to_Performance.sflb.ashx )

On one hand, performance evaluation helps to assess the training and developmental needs for future career growth of the individual employee. For example, a supervisor tells an HR generalist which HR functions he should focus on to move to his next career stage as HR manager. On the other hand, when company-wide performance evaluation results are analyzed, you can get a picture of overall training needs—for individual departments or the entire organization. This helps the company upgrade the skills of its workforce to remain competitive in today’s fast-changing world. For example, organizations can develop training programs for all employees to learn new office software, social media, or equipment based on company-wide performance evaluation results.

When setting goals, managers and employees should align individual goals to the department goal and the corporate goal to make sure everyone works together purposely toward the same objectives and strategy execution. If employees clearly understand how their roles directly contribute to the success of the business, there is a better chance they will develop a greater sense of loyalty and a higher level of employee engagement.

For example, if a business goal is to double revenues from $1M to $2M in the next five years, and the department goal for this year is recommending three new U.S. markets for a product that would generate $150,000 in sales by the end of the March, then an individual goal could be recommending three new U.S. markets for the product through comprehensive market research and analysis by February 1. This kind of planning and goal setting makes employees feel they are truly a part of the company’s success, and can lead to greater motivation and better performance.

Demotion, termination, and other disciplinary decisions are so sensitive that managers need to deal with these issues very carefully. All employment decisions should be based on the results of performance evaluation, which is a strong tool to protect the company from lawsuits. A manager should discuss a performance problem with the employee when it becomes obvious, and develop an action plan for improvement. If the problem persists and the manager decides to discipline the employee, he or she should document everything that could help the organization prove its position in arbitration, including the performance problem, employee feedback from the action plan, and the reason for the discipline. For demotions, terminations, and disciplinary action, one should always remember to dot the i’s and cross t’s. In others words, document, document, document.

Performance evaluation is one of the most powerful defenses for employers against wrongful termination charges. Supervisors should give candid and truthful performance appraisals in a timely, consistent, and thorough manner—and keep accurate records. Charitable or neutral evaluations that don’t communicate important performance issues with employees can weaken the defense against unfair dismissal claims.  For example, if a manager consistently gives a 3 out of 5 rating to an employee who actually has performance problems, then terminates the employee later, the company opens itself up to a wrongful termination charge.