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Updated: April 24, 2024

How to run effective performance reviews

Published By:

Erin Ellison

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How good are your employees? You probably praise their work when they do well, and you no doubt correct any mistakes they may make. But do they know how you see their performance overall and know how they can be more effective in their role? Maybe not. In fact, research by Consulting firm Leadership IQ shows that fewer than half of all employees consistently know how well they’re performing. That’s why performance reviews can be so powerful.



Taking the next steps

So, where do you start when you’re ready to start doing performance reviews for your small business? First, it’s important to understand why you’re doing them.

Why don’t all businesses do performance reviews?

The truth is, conducting successful performance reviews requires skills in observation, communication, and tact. It calls on the trust you’ve developed with your team and requires talking about work activities and behaviors that can sometimes be difficult. Not all organizations are up to the challenge.

“Performance reviews are increasingly controversial in serious HR circles. There’s good evidence that unless done very well, reviews can result in more harm than good through de-motivation. Having been on both sides of the desk in performance reviews — as well as having helped develop them — for more than 30 years, I can vouch for the fact that it takes a good deal of care, insight, and character to deliver consistently effective performance reviews,” says Howard Winkler, human capital expert and consultant.

The payoff, though, can be huge. If you use performance reviews as a tool to align and improve employee performance — and ultimately your business’s performance — you can unlock more of your people’s potential.

Doing employee performance reviews for the first time

If you’ve never done performance reviews, start slowly and make sure you have a very clear plan of action. Talk with your staff in advance about your plan to start performance reviews, and don’t be shy about asking for their input.


Consider making your first round of reviews for training and development purposes — as a way of getting aligned on job duties, goals, and functions — and less about personal improvement. Why? Because these initial reviews may be the first time since their interview that you’ve clearly laid out your job expectations, and you don’t want employees to associate performance reviews with bad news.


You’ll also want to understand how they affect the team and how much effort they’ll require. Ultimately, you should plan on doing reviews regularly (whether it be annually, semi-annually, or once a quarter), but you’ll want to make sure they don’t become a burden for you or your team, and that they come at relatively convenient times with regard to the seasonality of your business.

Six steps to a successful performance review

Once you’re ready to put things in motion, you should think of the review process as having six parts, all but one of which being a two-way dialog:


  1. Prepare, prepare, prepare! A performance review that clarifies your expectations, praises an employee’s best work, and outlines steps to improve or develop job skills takes some careful thought and preparation. Take time to review their performance on paper (or in software) before you even begin your conversation. Ideally, you’ve taken notes throughout the year about your employees’ work or kept track of their performance through a spreadsheet or important KPIs. If not, it’s a great time to start now before next year’s review! In a slightly larger organization, your preparation can also include soliciting feedback from peers and direct reports. Getting this so-called 360 feedback can give managers a more complete view of an employee’s performance, but it also can take a lot more work. If you’re thinking about diving in, here are some examples of topics to cover with employees at different levels of your organization.
  2. Start your review with your employee’s job description — and your expectations. How do they contribute to the business? What is the most important thing that they do for your business and how do you measure it? What is important for their success and how do you measure this? Be clear and specific. Ask what part of the job your employee finds most rewarding, and what’s most difficult. Shoot for a genuine and mutual understanding. Misalignment now causes headaches and frustration later.
  3. Next, talk about their strengths and their wins. There are two different things to consider here. Strengths are the experience, skills, and knowledge that contribute to their ongoing success. Wins are specific examples where the employee went above and beyond — won over a difficult customer, made a superhuman effort, solved a big issue, or rallied coworkers behind a critical challenge. If you’re reviewing a full year’s performance, try to find wins that span the entire period. In fact, try to keep track throughout the year so you have a spreadsheet or report to refer to when speaking. Why is this important? Because it shows that you notice, and it reinforces the strengths you’re looking for.
  4. Then review soft spots and misses. You guessed it. After reviewing the good, it’s time to get into the tough stuff. Soft spots are things like shortcomings in experience, skills, or knowledge that lessen overall performance. And misses are specific incidents where the employee may have missed a key deadline, dropped the ball on a project, or lost a customer. Most important in this part of the conversation is to get the employee’s agreement on exactly what needs to improve and why that improvement is important. They can’t fix what they don’t realize is broken.To discuss soft spots and misses effectively, you must come prepared with specifics. Generalities in this part of the conversation won’t be as helpful — and they won’t do you any good at all if an employee disagrees with your assessment.
  5. Now spend some time on job-related behaviors, habits, and traits that boost or tank your employees’ overall performance. There are things like their reliability, initiative, teamwork, adaptability, and performance under pressure. If soft spots and misses are the “what” of your employee’s performance, this part of the review is the “how.”It’s what differentiates employees who may share similar skills but makes one so much more effective than another. Behaviors are sometimes called “soft skills,” but they’re often the main reason why employees succeed or fail on the job. Again, remember to be specific, clear, and job-focused in your feedback.
  6. Finally, talk about the future. What’s next for your employee? Maybe it’s additional training to improve job skills, a follow-up discussion in two weeks to review customer interactions, or maybe a plan to take on added responsibility. Ask for your employee’s goals, as well as their views and feedback. Ask what they need from you to become more effective.


Focus on giving clear feedback in these reviews. Then, it’s important to document the conversation immediately afterward with a note or memo that you share with the employee and put in their file. This step will help review your memory later, but it will also help identify any trends (positive or negative) if they need to be addressed down the road.

How can you stay compliant when doing employee performance reviews?

As you enter your review cycle, you’ll also want to avoid doing anything that can lead to the compliance or liability hammers dropping on you unexpectedly.


Here are a few key tips:


  • Review everyone, not just your poor performers
  • Be kind but candid — a puffed up, glowing performance review can be used as evidence against you if you terminate that employee three months later for poor performance or a disciplinary issue.
  • Limit your comments to only work-related performance, actions, and behaviors
  • Avoid any reference to gender, age, race, religion, or other demographics
  • Avoid any reference to appearance unless it’s directly related to job performance like not wearing a required uniform or not meeting dress code standards
  • Keep reviews confidential, and never comment on another employee’s performance

Make sure formal reviews are just part of your feedback process

Your employees (and your business) benefit when workers know what they’re doing well and where they need to improve. Remember that an effective performance review process should ultimately be the culmination of ongoing, candid conversations you have with your employees.


In a recent survey of Millennials, 62% felt “blindsided” by their performance review, while nearly 47% said their review made them feel like they couldn’t do anything right. Furthermore, 59% of respondents felt their manager wasn’t prepared to give feedback.


If there’s good communication every day, nothing in a performance review should come as a surprise. Instead, your reviews should help reinforce which skills and behaviors to focus on for improvement and what parts of their job are most important to you. Also, the knowledge that you notice more than just their hits and misses sends a strong signal that they’re an important part of your organization and that your shared success depends on their best performance.


Your employees depend on you to let them know how they’re doing and how they can improve. Tell them. Everyone will be better for it.

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Erin Ellison is the former Content Marketing Manager for OnPay. She has more than 15 years of writing experience, is a former small business owner, and has managed payroll, scheduling, and HR for more than 75 employees. She lives and works in Atlanta.