3 Easy Steps to Revitalize Your Performance Review Process
In most companies, both managers and employees dread the annual review process. That used to be the case at Lawline until we revitalized our entire Performance Management Process with 3 easy steps. This article details how creating weekly coaching sessions and bi-annual reviews, removing compensation conversations from performance-based reviews, and creating a profit share plan based solely on the company’s financial results will help any organization revitalize its performance review process.
Step 1: Create Weekly Coaching Sessions that Support Bi-Annual Reviews
During the first 8 years of our business, like most new companies, we had one review per year at the end of December, and no formal coaching program. In the yearly review, a manager would provide feedback on an employee’s self-evaluation of their performance as well as discuss annual raises and whether or not a bonus would be paid for the prior year. The conversation would often be a gut check of whether or not a manager was content with the past 12 months of performance as there was no formal tracking of ongoing feedback. In addition, at times, employees felt unsettled after receiving some critical comments for the very first time.
After seeing the effect that our former review process was having on employees, Lawline took the following two steps to revitalize its review process: implementing weekly coaching sessions and bi-annual reviews.
A. Weekly Coaching Sessions
In order to address the lack of consistent feedback throughout the year, we added weekly coaching sessions between every manager and their direct reports. In these one-on-ones, employees and their coaches would evaluate what they did from the prior week to support the outcomes and KPIs in their job scorecards, and what progress they had made on their quarterly priorities (for more information on scorecards, read Step 2 In Transforming Your Hiring Method: The Scorecard & Core Values Integration). In addition, these conversations focused on what the employee viewed as her biggest accomplishment of the week, what she struggled with, what she was not able to accomplish yet, the larger stucks that prevented her from achieving her longer-term goals, and what she did to support the company’s overall goals. This was a huge game changer for everyone, as both team leaders and their members knew that there would always be a weekly time during which they would spend 30-60 minutes together discussing anything and everything needed to help an employee continue to grow in her position. However, we found that there was a disconnect between the weekly coaching discussions and the end-of-the-year reviews that were using the same self-evaluation forms, at which time the conversation was still focused on potential salary changes and bonuses.
B. Bi-Annual Fall & Spring Reviews
In order to address this inconsistency, we made a significant change in the process by completely eliminating the December end-of-the-year reviews. Instead, we created bi-annual reviews in the Fall and the Spring. The Fall review was the more formal meeting and focused on how well the employee was doing with respect to their job scorecard’s outcomes, KPIs, and competencies. At the less formal Spring review, the manager learned about pain points for the employee, and made any necessary adjustments to their role’s accountabilities. Employees continued to self-evaluate, but in this new format, that evaluation was connected directly to their scorecards and company goals. In addition, between the weekly coaching sessions and the informal Spring reviews, the substantive Fall reviews were devoid of any surprises because they were built on the conversations that had already been occurring throughout the year. Both bi-annual communications focused solely on an employee’s performance, and there was no discussion of salaries or bonuses.
Step 2: Remove Compensation Discussions from the Review Process
As previously mentioned, in the past, Lawline would have one end-of-the-year review that would cover an evaluation of an employee’s performance, as well as whether or not the individual would receive a raise for the upcoming year and a bonus for the prior year. In truth, during this meeting, most of the substantive feedback was not digested by the employee who was unable to focus on it while she waited to learn about her financial fate. We thus made the decision to remove compensation conversations completely from the review process, and moved them to a more natural point in the year - an employee’s anniversary date. When we implemented this change, we did a market analysis of salaries related to every job role that a Lawline employee held, and raised all salaries to what we deemed was the fair market rate for their position if they were not already at that point. Finally, we created the policy that future raises would be given if there had been a change in the market for the salary of an employee’s position, or in the event that an employee’s job duties had expanded.
Step 3: Implement a Profit Share Plan Based on Company Performance
Step 3 of Lawline’s revitalization of its review process was to switch from having an employee performance-based bonus plan to a profit share one based on company performance. The former bonus process we had been using was stressful for managers, as it was unclear how to determine the amount to give, and was similarly challenging for employees who could not understand how their bonus totals were determined. Additionally, we did not see a correlation between an employee receiving a performance-based bonus at the end of the year and an improvement in their growth path for the following year. Finally, most employees had a good understanding of our end-of-year revenue numbers, but had no connection to our profit, and more importantly, the effect of their department’s yearly expenditures on the annual profit total.
For all of those reasons, we created a profit share plan in which each employee would receive a specific percentage of the company’s annual profit regardless of performance. The requirements to receive the profit share were as follows:
1) Team members were required to have been on the job for 3 months to participate and partial first years were paid on a prorated basis.
2) A minimum net profit was required for any employee to become eligible.
3) They must have been employed by Lawline at the time the profit share was paid (no later than the 1st pay period in February of the following year).
These 3 simple steps revitalized Lawline’s Performance Review Process, and can easily be implemented at small and large companies alike. As a result, in part to our new procedures, we have increased our employee retention rate, have more team members who are taking leadership roles, and in 2018, we reached the highest revenue and profit in our company’s history. If you would like to learn more about Lawline’s Performance Review Process or any other of Lawline’s Best Practices for Employee Retention, feel free to reach out to Lawline’s VP of Business Operations, Michele Richman, at Michele@lawline.com.