Evaluating employees Featured

8:00pm EDT October 26, 2007

When was the last time you conducted formal employee reviews? Not just casual conversations — the “nice work” compliment to a colleague in the hallway or the grudging remark that occurs behind closed doors when a worker isn’t pulling his or her weight.

Unfortunately, in many companies run by hands-on managers who prefer to work in the trenches, the all-important employee evaluation process is brushed aside.

“What happens in some cases is, suddenly, business owners open their eyes and recognize that an employee who has worked at the company for years is no longer the best person for the job,” says Craig Johnson, president and CEO of Franklin Bank, Southfield, Mich.

A formalized system, regular reviews and discussions with your adviser trifecta — banker, accountant, attorney — will ensure that the human capital at your company has the capacity to grow with your organization.

Smart Business asked Johnson what employers should keep in mind when developing a formalized review process and why a review isn’t “just another meeting” on the calendar.

When might a banker or key adviser recognize that an owner has neglected the employee review process?

Many times, an owner’s concentration is so attuned to daily operations that he or she neglects the back-office responsibilities necessary to ensure that a business is prepared for growth. In particular, are the team members that the owner currently employs prepared and/or able to move forward with the company and, even more importantly, has the owner communicated to employees what ‘forward’ is? What are the organization’s goals for the future and has the owner communicated how each player must contribute to make those happen?

Bankers generally notice that an owner is on autopilot, so to speak, and failing to conduct annual reviews to discuss goals and expectations when the accounting support begins to show weaknesses. Maybe an administrator fails to produce timely reports for the bank or, perhaps, a banker notices inaccuracies in those reports. The same bookkeeper that managed financials when the business started up may have done a fine job when the company was small and accounting applications were basic. But as a company grows in financial complexity, an owner may need to re-evaluate whether this employee has the capability of learning necessary skills. Because bankers and other outside advisers view the company from a broad perspective, they often identify these internal deficiencies before the owner — especially if that owner has no formalized review process in place.

Why is a formal review process critical for organizations of all sizes?

An employee review process allows owners to look at where the organization is today and plan for the future. Reviews force owners to step back from daily operations and evaluate what the business needs by way of manpower to continue forward. How have the organization’s personnel needs evolved over time? What needs currently are not being met? Can an employee on staff fulfill those responsibilities, or will the owner need to seek skills outside the organization? These are questions that owners must constantly ask so they are prepared to handle growth.

What should the process involve?

In essence, a formal review process is one piece of the goal-setting puzzle for owners. Owners should meet with employees on a regular basis: annually, biannually or quarterly. Communicate how often these reviews will occur so employees know when to expect them. During the review, discuss shortcomings, positive contributions to the company’s success and what skills the employee may need. Allow employees an opportunity to provide feedback and set their own personal goals. Document these discussions and create a formal rating system or progress report of sorts so employees understand where they have improved or need to sharpen skills.

Getting this information on paper is crucial because people interpret verbal conversations differently. If you put it in writing, ‘These are the five things I want you to improve next quarter,’ there is no confusion concerning your expectations.

Why should an owner involve advisers when creating a review process?

Advisers can help perform needs assessments. Where is a business lacking? If the longtime bookkeeper isn’t equipped to grow with the company, advisers can help owners question whether this employee can be trained or whether a new solution is necessary. Perhaps the owner needs to hire an in-house accountant, or maybe it is more economical for the business to fully utilize the CPA before bringing in a full-time person. A trusted group of advisers can ask you the tough questions while you set goals for your business and address what improvements in your human capital will precede growth.

CRAIG JOHNSON is president and CEO of Franklin Bank, Southfield, Mich. Reach him at clj@franklinbank.com or (248) 386-9860.