7 reasons why performance reviews are still important for your small business

This article is based on research for our recent eGuide, A small business guide to implementing employee performance reviews.

In the last year, there’s been no shortage of headlines panning performance reviews. Fast Company’s “Why the annual performance review is going extinct” comes to mind, for example, as does Harvard Business Review’s “Why more and more companies are ditching performance ratings.” Perhaps the New Yorker put it best: “Few institutional practices are as old, or have been hated as long, as the performance review.”

The thing is, performance reviews haven’t gone extinct. And nor should they. Especially in small businesses.

Here are seven reasons why performance reviews are still important for your small business.

Reason #1: They don’t have to be annual (or include any paperwork)

In 2012, the news was full of companies abolishing their performance reviews; Adobe, Deloitte, Microsoft, and others were shaking off their rusty, archaic systems. But they weren’t really eliminating them altogether – they were moving to different formats. Some switched their annual system to ongoing feedback. Some paired periodic formal reviews with weekly one-on-ones. Some kept their traditional set-up in place, but removed some of the time-consuming (and soul-crushing) elements, like rankings and write-ups. In short: a performance review can be whatever you want it to be.

Reason #2: Amazing employees can be hard to find

We all want to populate our offices with star performers to set the pace for the rest of the team – but those out-of-the-box overachievers aren’t always available. Plus, firing every employee that doesn’t meet your expectation has a lot of direct and indirect costs. That’s why developing employees is so important – and that’s what today’s performance reviews are all about. While some current performance review systems still include an emphasis on accountability and ranking (some industries simply require them), there’s an additional focus on working with employees to help them improve and grow.

Reason #3: They’re all about goals

Yes, traditional annual review systems have, for the most part, been about holding employees accountable for their past performance (and sometimes, even cutting the bottom-tier workers) – all of which means hours of prep work for managers and sleepless nights for employees. But modern reviews are focused on looking forward. Using annual reviews to set goals, talk big-picture, and get team members excited about their work will have long-lasting impacts on your company’s success.

Reason #4: Employees want to know where they stand

Here’s a reality check: your employees might not know how they’re doing. Even in the smallest start-ups, where one-on-ones are aplenty and ongoing development is a core mandate, you might be lacking in one hot commodity: feedback. Especially in busy companies, it can be hard to give constant feedback, and the formal review can be exactly what employees crave to stay the course – and ask any questions they might not feel comfortable bringing up during a casual chat.

Reason #5: They keep rewards fair and transparent

Compensation and promotions can be tricky. Employees want them, but they also want to know, in extreme detail, why a co-worker might have received something different. Implementing annual rewards into performance reviews makes the process a lot easier. While rankings make this somewhat simpler, many companies have found that the simple act of communication and feedback is enough to ensure that rewards remain objective. For example, when GE overhauled its system, it decided to remove rankings – and they found that compensation and reward levels didn’t change.

Reason #6: They improve communication

A good performance review system is designed to facilitate conversations between employees and their managers. While this might seem like overkill for people that are great at communicating, it’s important to remember that for a lot of people, it’s a muscle that they don’t use regularly. So, a system that encourages discussion – whether it’s every day or once a year – can have long-term positive impacts on manager-employee relationships.

Reason #7: Tools can streamline the process

The old-school performance review is notorious for how much time and energy it wastes. Everyone spends valuable work hours filling out forms, doing surveys, and pulling together a year’s worth of performance data. Now, however, companies can use a feedback app, like Salesforce or Impraise, to gather data throughout the year, saving ample time come review season. This ensures that employees are able to follow up and review feedback as needed, while managers have compiled feedback to refer back to.

When you remove the outdated elements of performance reviews and focus on ongoing feedback and employee development, the benefits of embracing performance reviews become abundantly clear.

Ready to implement performance reviews at your company? Download our free eGuide, A small business guide to implementing employee performance reviews, for tools, tricks, templates, and more.

You can also check out this episode of Safe for Work, the Workopolis podcast:

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