The annual employee evaluation is a great human resource management tool for small business managers. It allows owners to improve employee performance and productivity while keeping morale high and turnover low — that is, if you do the evaluation right.

An annual employee evaluation should accomplish several things. First, it should offer praise and encouragement for employees in areas where they do their jobs well. Second, it should address any shortcomings or problem areas that need improvement. Third, it should offer employees a means for addressing any problems that keep them from performing their job efficiently and profitably. And finally, it should serve as written documentation of future goals to be evaluated during the next review.

5 Quick Tips for Employee Evaluations

  1. Don’t complicate the process. Keep the form simple, using a checklist or rating scale to record the employee’s progress over the last year.
  2. Be constructive in your criticism. You don’t want the review to be an awkward or unpleasant experience, so stay positive. Instead of listing all the ways the employee has done something wrong, focus on the job and work together to find solutions.
  3. Before their annual reviews, ask employees to jot down ideas they have for improvements and ask them to set one or two goals for the coming year. Discuss those ideas during the review.
  4. Keep the review confidential. In some workplaces, employee reviews are conducted with input from other managers and peers — sometimes called a 360-reivew. In a small business setting, this approach can be problematic because of the more intimate work setting.
  5. Be flexible. If your evaluation forms aren’t working, change them up or toss them out entirely and start from scratch. Ask other business owners in your network for ideas. You might suggest swapping forms and discussing ideas for improving the entire evaluation process.

Handling a Bad Review

Not every performance review you conduct will be a good one. If you know a review has the potential to go south, it’s best to be prepared.

First, don’t shy away from expressing your concerns to your employee, but do your best to approach the situation without being threatening. Outline your expectations for the position, and then explain how those expectations weren’t met.

Next, give the employee time to talk. There might be other explanations for poor performance, including issues with your current systems or procedures. If the employee believes that current systems are hindering her performance, work with her to implement solutions to those problems.

Re-evaluate the issue at the next review. If necessary, consider scheduling another review at six months instead of twelve so that you and your employee can evaluate whether the changes have improved the situation and whether additional steps should be implemented.

Sample Employee Performance and Evaluation Forms

If you have never conducted a performance review and need some help getting started, you might find these resources helpful:

What evaluation methods do you use to track employee performance?

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