It can be a pain in the neck, but the performance evaluation process is critical to clear communication and enhancing the team’s performance.
Through the performance evaluation, you identify employees’ strengths and weaknesses. This allows you to build on their strengths, address weaknesses and help them improve their work performance through feedback. Employee evaluations also serve as a basis for decisions about promotions, salary increases, or terminations.
In this blog post, we will discuss the different ways to evaluate employee performance and some valuable tools that can help you with the process.
Abdication and the perils of skipping performance evaluation
In the E-myth, Michael Gerber talks about the abdication error. MSP owners tend to hire somebody, give them vague instructions about what to do, and expect that person to fill in all the gaps.
Instead of managing them, we abdicate: throwing work their way that we don’t want to do.
Abdication makes nobody happy.
At first, it feels great: you hand off all the work you don’t want and your new hire, eager to please, does it all with aplomb.
Then it starts to fall apart: they can’t do everything you want. You spend way too much time deciding and delegating with. not nearly enough time doing. (Read more about your 4D mix here).
You end up micromanaging. Your employee becomes unhappy because they are overworked and feel like they can’t do anything right. You end up in Gotcha Management.
You end up unhappy because you’re back to doing all the work you thought you were delegating in the first place.
There are two things you need to do to avoid abdication
First, define the roles in your organization.
We call this a hat chart because people can wear many hats, and each hat is a role.
It is okay to hire someone and have them wear multiple hats. What you can’t do is create a job that is a jumble of everything you don’t want to do, call that a job, and then micromanage them to death.
Second, conduct performance evaluations
In the performance evaluation, you set expectations for what you want them to do and how you want them to do it.
Then after a defined period, you give feedback on their progress. The review should include evaluating how well the employee has done their work and an assessment of strengths, weaknesses, and development areas.
We use two tools to evaluate performance.
At its core, we think that performance evaluation entails defining objectives and then measuring people against those objectives. The objectives come from the hats chart and your business plan, which are your expectations of the role. Performance is, well, performance.
We’ve also found that there is a more conversational aspect to performance evaluation, an overview of what is working and what isn’t.
Finally, there should be some formality to the process. Writing down your observations, objectives, and goals brings clarity and gives everyone something to work from.
So we have two tools we use for performance evaluation, the Performance Review Sheet and the Three Sheets Exercise.
The first tool is the Performance Review Sheet
The performance review sheet is a formal document for capturing objectives and reviewing progress. We break this document up into 7 sections, which we break down below.
Section 1: Organizational Information.
This is the space for the date, names, and signatures of the individuals doing the Performance Review.
As a small company, the most important field is the name field since you want to remember whom you evaluated.
But also note your name as the manager or supervisor.
Capturing who gives the evaluation is essential because assessments like this are subjective, biased, and depend heavily on the manager. For example, I am the type who gives a lot of threes and fours. For me to give a five, you have to pretty much walk on water. You may give lots of 4’s and 5’s. Nothing is wrong with that, but you want to know it, recognize it, and track who is evaluating whom.
Section 2: The Performance Plan and Review
This section sets expectations and metrics and allows you to assess results.
We recommend annual performance reviews. You might check in quarterly or every six months, but set the objectives at the beginning of the year (or beginning of employment) and then do a final check-in at the end of the year.
Ideally, the objectives are SMART objectives because SMART targets are easy to assess objectively.
When you get to the assessment period, capture the results and add a rating from 1-5.
Setting expectations and giving feedback is hard. This is not a light and fluffy task. It is useful, allowing you and your employee to agree on what should be done, what has been done, and why.
The ratings are subjective.
Try to be as objective as you can, but the reality is that the ratings depend on the manager/employee relationships. The person giving the rating will bring their understanding of the results and what “outstanding” compared to “needs work” looks like.
Give allowance for changing conditions.
You may find that the objectives changed throughout the year. It shouldn’t happen every year, but it does happen. Try to capture those changes throughout the year, and acknowledge them in the performance review.
If you initially gave someone 5 objectives, then told them to only do one, and they did that one very well, then they probably deserve a favorable performance evaluation.
Section 3, Success Factors
Here you rate your subordinates according to common success factors that apply to everyone.
We refer to this section as success factors because they encourage the way of being necessary for your business to deliver extraordinary results.
We recommend five standard success factors, and these are:
Achieve objectives of your role: This refers to the person’s effectiveness in delivering results as defined in the role description and as established in 30 and 90-day action plans.
Value Others: This refers to the person’s effectiveness in maximizing the styles, backgrounds, and experiences of others. The desired result is an atmosphere of respect for people and an eager exploration of differences of opinion and potential contribution.
Manage for Results: This refers to the person’s effectiveness in accelerating the implementation of the organization’s objectives. At top performance levels, the individual can quickly achieve excellent results consistently against continuously increasing performance standards.
Develop Self and Others: This refers to the person’s effectiveness in providing others with feedback, resources, and encouragement to improve their performance and prepare for more significant future contributions. This scale usually applies to supervisors, though it also applies to team leaders and those who play a coaching role.
Foster Teamwork: This refers to the person’s effectiveness in managing across the internal boundaries of the organization. At top performance levels, the individual can increase the organization’s performance by initiating and carrying out “win/win” work arrangements with other work groups.
You may want to use these or change them for your organizational language or needs. But keep them consistent throughout the organization. This helps you determine who stands out and, well, who doesn’t.
Give your subordinate a rating from 1 to 5 on each. Again, remember that these are subjective measures – one manager will rate their people differently than another manager will rate theirs.
(If you’d like to take an organizational view, you could normalize the ratings, but that is outside this paper’s scope.)
Section 4: Finalizing the Performance Review
This is how we boil the whole thing down to one metric (that rules them all…).
First, determine the weighting: in this case, we weight the performance as 60% of the total score and success factors as 40% of the total score.
You can use these or determine your weighting. To turn this into a normalized percentage, follow these steps:
- Sum the performance weight x performance rating points earned and success factor weight x success factor ratings points earned.
- Divide that by the sum of performance weight x performance rating points available and success factor weight x success factor rating points available.
- Multiple the results by 100 to get a percentage.
This percentage is the overall rating.
How to use the overall rating
Remember that this rating has significant subjectivity built into it, so the exact amount should not be treated as a grade: 65% does not mean, necessarily a “D” rating.
A low rating may mean that it was a challenging year or that the employee has much to learn. It may also be that you are a hard grader.
Also, if someone is in the 90s, you may not be challenging them enough, so perhaps this is an opportunity to add additional tasks or expand the role.
The number becomes more relevant over time. You’d like to see someone’s overall rating increase. Or, if you’ve stretched them into a new role, you might expect a decrease followed by an increase.
It is the conversation that is important rather than the exact value.
Section 5: the fit analysis
Core values are the essential glue that ties your team together. We believe you either have or don’t have core values – this isn’t something you work on or try hard to get.
But we also know that a team requires shared core values. Sometimes perceived performance is a fit issue.
While we don’t think that core values change, conversations around fit and expressing the values are an essential part of the performance evaluation. If someone is, not fitting in, then this core values explanation can expose the reason why.
Also, sometimes someone does share the values but doesn’t feel comfortable living the values. This is an excellent place to have a conversation about living values.
Section 6: Strengths and Development Plan
In this section, you give an overview of strengths, weaknesses, and opportunities for development.
Section 4 is a plan for the future. It is easy to get stuck in doing what we did the year before – but people generally want to develop. As an MSP owner, you want to hire people you can develop and grow.
In this section, you start by recognizing strengths, list development areas or weaknesses and then identify some actions to take to address those weaknesses. These actions can be anything: training, travel, stretch projects, working with mentors… the key is to capture them and make them a part of next year’s work.
Section 7: Comments
The final section is free-form comments: add any other comments you’d like, anything that doesn’t fit anywhere else.
Ask the person you are reviewing to do the same.
Let these comments be honest ones. It is okay if you disagree or see things differently – note that here then come back to it throughout the year. Noting the differences will help you in your day-to-day work because it gives you a better understanding of each other’s perspectives.
The second tool is the three sheets model
This tool is much quicker and simpler.
It consists of three sheets (clever, right?).
On Sheet 1, you capture everything you like about the person and their work. What are all the things that go well?
On sheet 2, you capture opportunities to improve. These might be weaknesses, projects that didn’t go as well as planned, or other opportunities to improve.
On sheet 3, you capture deal breakers. These are actions and ways of being that are incompatible with your organization and must change now.
Sheet 3 should be a very short list. If you have a lot of sheet 3 items, then something is very wrong – often, it is time to terminate employment or, at least, change your employee’s role.
If it is a short list, then talk about how to change and ensure the sheet three items don’t happen again.
You fill in the three sheets. They do as well.
We like to have both the manager and employee fill in the three sheets about the employee – you will often find much more agreement than you expected.
We have also found that having the employee fill in a three-sheet evaluation of their manager is very revealing. Sometimes their feedback can be tough to hear, but it can also be extremely valuable in your development as a manager.
Use both tools together.
We like using both of these tools, and there are a couple of ways you can do this.
You can use both tools at the same time. Use your annual planning process for employee reviews, and go through both review exercises. Using both tools together works fine, even though it can feel like a lot.
Our preferred way to use these tools is to stagger them by half a year.
Use the performance evaluation around the time of your annual planning, then go through the 3 sheets exercise at the half-year mark.
The staggered approach has two advantages:
First, it reduces the performance evaluation burden at the end of the year.
But more importantly, it provides a natural, mid-year check-in. The 3 sheets exercise is a great “how is it going” check-in that doesn’t feel quite as formal as the performance evaluation.
Don’t wait to give feedback
The formality of this process is intentional. Even in the smallest organizations adding formality to performance evaluations helps emphasize their importance.
But that doesn’t mean you should wait for the formal process to give feedback. More feedback will improve performance and make the performance review process better.
One issue with formal evaluation processes is the delay in giving feedback. You shouldn’t wait for the performance review process to give feedback.
Other types of performance evaluations
There are a few different ways to evaluate employee performance. Here we discuss some of the other methods.
The way we encourage performance evaluation brings together the best of these other methods so that you don’t have to research each one. But we get questions about these all the time, so without further ado, some performance evaluation methods include:
- 360-degree feedback
- Goal setting
- Forced distribution
- Behaviorally anchored rating scales (BARS)
- Management by objectives (MBO)
- Critical incidents
- Assessment centers
360-degree feedback is a popular performance evaluation method in which employees receive feedback from their peers, subordinates, and superiors.
Businesses can use the 360-degree feedback process to assess an individual’s skills, knowledge, or competencies. It can also provide insight into an employee’s performance from all perspectives.
360-degree feedback is a valuable tool for employees and organizations because it provides employees with feedback from multiple perspectives. It also helps organizations identify development opportunities for employees.
The goal-setting method of performance evaluation involves setting specific, measurable, achievable, relevant, and time-bound employee goals.
This performance evaluation method is beneficial because it allows employees to focus on specific goals and objectives. It also provides a way for organizations to measure and track employee progress.
The forced distribution method of performance evaluation ranks employees into categories, such as top performers, average performers, and below-average performers.
This performance evaluation method can be beneficial because it allows organizations to identify their top performers and develop opportunities for their below-average performers.
The behaviorally anchored rating scales (BARS) method of performance evaluation involves rating employees on a scale that measures specific behaviors.
This performance evaluation method is beneficial because it provides a way to measure employee behavior. It also allows organizations to identify development opportunities for employees.
The management by objectives (MBO) method of performance evaluation involves setting specific employee goals and objectives.
This performance evaluation method is beneficial because it allows organizations to measure employee progress. It also allows employees to focus on specific goals and objectives.
The critical incidents method of performance evaluation involves documenting specific behaviors vital to a job’s success.
This performance evaluation method is beneficial because it allows organizations to identify the behaviors critical to a job’s success. It also provides a way for employees to focus on these behaviors.
The assessment center method of performance evaluation involves assessing employees through various ways, such as interviews, simulations, and written exercises.
This performance evaluation method is beneficial because it allows organizations to assess employees through various methods. It also provides a way for employees to be evaluated by multiple people.
This is an interesting article in HBR on performance evaluations, read more here.
Here is an HBR article on the inherent bias in evaluations, read more here.