What is a performance review?

A manager completes an employee performance review form.

Performance reviews are a popular management tool used by businesses of all sizes. But what exactly are they and how should you go about conducting them as a business owner or manager?

In simple terms, performance reviews are formal assessments in which managers evaluate how well employees are doing their jobs. These assessments are used to identify workers’ strengths and weaknesses, provide detailed feedback and establish goals for the future. They’re typically part of a broader performance management strategy and they can be used to inform decisions on everything from pay and bonuses, to training, promotions and redundancies.   Below, we go into more detail about what these evaluations involve and why they’re important. We also offer in-depth advice on how to carry them out. 

Is there a difference between a performance review and performance appraisal?

You might have heard people referring to these assessments as both performance reviews and performance appraisals, but does this difference in phrasing signify a difference in the assessments themselves? In some cases, people do draw a distinction. For example, while performance reviews typically emphasise development, performance appraisals may focus more on whether or not specific objectives have been met. However, for many organisations, the terms are used interchangeably and essentially refer to the same thing. Other terms that are often used for the same type of assessments include performance evaluations, employee evaluations, annual reviews and employee reviews.

What is a 360 performance review?

Typically, performance reviews involve managers assessing the performance of workers. However, there are other ways to conduct these evaluations and one is referred to as the 360 method. This involves getting feedback on an employee from a number of stakeholders who interact with them on a regular basis. This can include colleagues on the same level, subordinates and managers. It can also include customers and suppliers, as well as other third parties. The idea is to give employees a fuller, more accurate picture of how their work is perceived by the organisation as a whole.

The term ‘360’ simply refers to the fact the performance feedback comes from all directions.

Why are performance reviews important?

Being an employer comes with certain responsibilities. For example, when it comes to business insurance, you might be required by law to take out employers’ liability cover. It’s also important that you support workers in their roles and help them to fulfil their potential. This benefits not only your employees themselves, but also your business as a whole. Performance reviews can be a vital part of this process. Here are some of the specific benefits associated with this type of assessment:  

Improves communication between workers and managers

A strong system of performance reviews encourages good communication between workers and their managers. It provides a setting in which people are encouraged to say what’s on their mind and to ask questions or raise issues that they may not be comfortable to in an informal chat. This can be particularly important for employees who find communication challenging. Without these sessions, many important points may not be raised. In turn, this could lead to unnecessary frustration and resentment among workers. Ultimately, this could have a detrimental impact on employee morale.

This is a key issue for all workers, and it can be particularly vital in the case of those who work from home. Maintaining strong lines of communication is an essential part of keeping homeworkers motivated and engaged.

Encourages growth and development

These assessments present the ideal opportunity for workers and their managers to identify training and development needs. By highlighting any gaps in knowledge and skills, they make it easier to determine what sort of professional development might be required. This has obvious benefits both for workers and businesses. It can make people better and more confident in their roles, enhancing professional satisfaction. At the same time, it helps to make companies stronger.

Ensures rewards are transparent and fair

These reviews can play a key role in determining rewards, including pay rises, bonuses and the awarding of certain perks. When done correctly, they provide a consistent framework against which employees can be assessed. In turn, this helps to keep rewards transparent and fair. Everyone understands how and why they may have achieved or missed out on certain benefits, and what they can do in future to earn the rewards they want. Of course, they may not always agree with the outcomes, but at least the process of appraisal is clear.

Makes it easier to identify problems quickly

Without regular employee reviews, there is a risk that certain problems will go under the radar for long periods of time. If this happens, they can escalate and become more difficult to deal with once they are eventually identified. For example, if a worker is struggling to carry out their duties, this may go undetected in the absence of performance reviews, and this could have negative effects on the individual in terms of a loss of confidence, increased stress and so on, as well as impacting their colleagues who may have to deal with the consequences. This can obviously have a negative effect on the business overall too.

In contrast, carrying out regular performance reviews helps ensure issues like these are picked up on quickly, limiting any fallout.

Aligns individual and business goals

Another benefit of these reviews is the fact that they can help to keep individual worker goals aligned with the strategic objectives of the business overall. For companies to thrive, everyone needs to be pulling in the same direction. Performance reviews present an opportunity for employees and managers to agree on targets that benefit both the workers and the company as a whole.

How often should performance reviews be conducted?

How often you conduct these reviews will depend on a number of factors specific to your business. Typically, organisations carry these assessments out anywhere from once per quarter to once every year and a half. However, it’s generally recommended to conduct them roughly every six to 12 months, depending on what works best for your company. This may be impacted by considerations such as how long it takes you to carry the reviews out, how far into the future you want goals to stretch and how often you would be able to increase wages.

How to conduct a performance review

There is clearly a strong case for doing performance reviews, but if you want them to benefit your business in the ways outlined above, you’ll need to make sure you conduct them properly. Below, we offer advice on how to get ready for these assessments and how to handle the meetings themselves.

How to prepare for a performance review as a manager

If you’re new to giving these reviews as a manager or small business owner, it’s important to be aware that there are certain things you’ll need to do in order to prepare for them. For example, try to schedule the meetings in advance so that both you and the employees are ready for them. You’ll want to give yourself enough time to look into workers’ performance and potentially to source feedback from other people. You should also give employees time to make notes before the meetings and to prepare any comments or questions they may have. Try to choose meeting times when neither you nor your employees feel rushed or distracted.

When deciding on a location for the meeting, make sure you choose somewhere private where your conversation won’t be overheard. This could be your office or a meeting or conference room, for example. It’s important that both you and the workers you’re reviewing are able to speak freely and openly.

Before the meetings, make sure employees have a clear idea of what will be covered during the discussions. For example, if you make notes about performance, targets and so on, share these with your employees so they have had a chance to read and digest the information and don’t feel as though you’re putting them on the spot.

How to complete a performance review

When it comes to the reviews themselves, it pays to bear the following pointers in mind:

Have a meaningful conversation about current performance

You want your feedback to employees to be specific and meaningful, so steer away from talking in vague, general terms. Depending on the types of jobs your employees do, you could use quantitative and/or qualitative measures of performance. For example, in the case of call handlers, feedback may be based on metrics such as records of call length and outcomes, as well as qualitative measures such as feedback from customers and observations from other members of staff.

Provide constructive feedback (using examples)

Try to make all the feedback you provide constructive. You should never criticise employees without offering suggestions on how they can address any shortcomings and become stronger and more effective in their roles. Also, when identifying areas for improvement, provide specific examples so that workers know exactly what you’re talking about. For example, if you’re scoring an employee down for their ability to manage their time, give examples of when they missed deadlines.

Allow the employee to voice any concerns or complaints

Performance reviews should be two-way conversations. So, as well as getting your points across, make sure your employees have a chance to share their thoughts and to ask questions. For example, give them a chance to outline their strengths, as well as any challenges they face. When you provide targets, ask if your employees agree with them or whether they can foresee any problems.

If employees feel uncomfortable opening up, you can ask them certain questions to encourage them to engage. For example, you could ask queries such as:

  • If you could pick one achievement you’re most proud of since your last review, what is it?
  • Which areas do you feel you need more support in?
  • Do you feel there is any training you would benefit from having?
  • Are there other ways I can support you to meet your goals?

Set future goals and expectations

When setting targets, use the SMART method. In other words, make sure objectives are specific, measurable, attainable, relevant and time-based. If the goals you provide are too vague or difficult to quantify, employees may struggle to know how to approach them. You might also find it hard to know how to assess their progress in the next review. And if objectives are unrealistic, they can demotivate workers rather than spur them on to achieve more.

End on a positive note

It’s always important to try to end these meetings on a positive note. If you’ve had to address failures and negatives during a review, it’s useful to shift the focus at the end to talk about the future and any plans for improvement, and to emphasise the support the employee will receive. This will help to keep worker morale up and show your employees that you’re on their side and want them to do well.

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