Performance Management

Performance management is a partnership between you and your employees. The desired outcome of this partnership is to jointly achieve success.

The best analogy to use when explaining this rather esoteric assertion can be found in something most of us are acquainted with at one level or another: sports, and the relationship between coaches and players. The job of a coach is to get each of his/her players as ready as possible to execute the plays of their assigned positions, with each player having a good understanding of the overall team strategy for the particular game. This is what makes performance management a partnership; success is interdependent - all the players must effectively play their positions for the team to consistently win. It is the coach's job to prepare his/her players to play well.

Coaching is an ongoing process that takes time and commitment to the team and each of the players. Each player must believe that they can successfully fulfill their assigned roles and that the team can win-can be successful-and it is the coach's challenge to instill this confidence and belief in players and the team.

Most people at one time or another have been part of a team. Think about the good coaches you have had in your life. What were the attributes/behaviors/skills that made them good coaches?

  • Did she/he genuinely care for you as a person, and all of the team members?
  • Did he/she publicly praise you and your teammates when you played well?
  • Did you believe she/he truly wanted you (and the team) to be successful and accomplish as much as possible-go as far in the "playoffs" as you could go?
  • Was he/she honest with you about how well you played your position in the team context?
  • Did she/he prepare you well for what was demanded of your position?
  • Was he/she enthusiastic about what the team was doing and the progress you were making both as an individual and as a team?
  • Did you think she/he was fair to you and your teammates?
  • Did he/she know the game and did you learn from him/her? Did you believe that the coach could make you a better player?
  • Did she/he set clear and realistic expectations by not demanding that you do something for which you hadn't been prepared or for which you didn't possess the required skills? Did she/he know you and your team's capabilities as well as your limitations?
  • Did you trust your coach to the point that you could go to her/him and reveal your problems and doubts, and/or ask for help?
  • When you made a mistake, did she/he ridicule you in front of your teammates or did she/he walk you through what you had to do differently to overcome the mistake and put you back in the game?

If you are not a skilled coach, or if your people don't see you as a good coach or if you don't provide a coach's leadership, it is highly unlikely your team will "win the game." ACHIEVE SUCCESS THROUGH THE PERFORMANCE OF YOUR EMPLOYEES.

In Human Resources terms, Performance Management is an ongoing process, where:

  • You have explained your business process/plan to your employees so they understand it (and it is not a bad idea to ask them if they have any suggested improvements)
  • Your people clearly and precisely know their roles (individually and collectively) and what is expected of them
  • You and your employees agree on what is expected of them
  • You have a feedback mechanism that celebrates people (team and individuals) doing things correctly on an ongoing basis (almost daily) and you keep your people informed on how things are going (the score in the game)
  • You have a process that teaches/trains in a non-judgmental way when a business problem needs a solution (please note that this is NOT characterized as fixing unsatisfactory individual performance)
  • You and your people have defined/agreed upon standards, values, and acceptable behaviors in terms of how everyone is to do their jobs and work together

In Human Resources terms, Performance Management is NOT and should NEVER be used for the following:

  • A tool for discipline or termination (Note: Few people are actually terminated for unsatisfactory performance. Terminations usually happen because of unacceptable behavior.)
  • A one-way street where you as the "dictator" lay down the law or performance demands on your employees
  • A "once-a-year" dreaded, formal, written process where you collect all the mistakes of your employees (of course you wouldn't tell them at the time they made a mistake so they could immediately correct it) and "grade" their performance
  • A surprise to either you or your employee
  • The sole justification for a pay raise (or not)


What is the best way to do Performance Management for a small business owner? What would the specific process entail? The following 6 Steps will help you create a win/win team environment that focuses on mutual success through understanding and cooperation.

Step 1 - Introduce/Discuss the "Game Plan".

Meet with your people to openly discuss the company's future ("openly" means it is a dialogue with the opportunity for questions/comments/discussion). Here is the information everyone needs to understand so they clearly see how what they are doing fits into the game plan and why they are integral to success.

  • The key markets you serve in terms of products and services and what the customers in each market want/need
  • The competition-their strengths and weaknesses
  • Your company's strengths and weaknesses vis-à-vis the competition
  • The three to five key things you want to accomplish over the next business cycle (six to 12 months) in terms of the big strategic goals and/or major tactical objectives
  • Describe your current business process and then specifically share what needs to change or improve and share your ideas on how to accomplish your new strategic goals/tactical objectives. Be specific in terms of how roles and responsibilities might need to change and how decisions will be made on resource expenditures to meet these new initiatives.
  • Share the way you keep score-tell your people how you will determine if the company is making progress, using the "measurables" that are key to your business (i.e., market share, revenue growth, operating income, new customer additions/sales, retained customer sales, cost per unit and/or revenue generated per service dollar spent, etc.).
  • In general terms (not using any employee's name) define the key roles in the business process
  • Talk about the importance of smooth business-process handoffs (i.e., the sales people must let the operating people know what is important to customers in terms of product specifications, ordering process, delivery lead-times, promises sales have made to customers {not written in the customer agreement} etc.), and have an open discussion of these handoff-points, who is responsible, and how things are currently working. (Author's Note: Having been involved in four major business turnarounds, after "wrong cultural norms" the next biggest contributor to "un-success" was internal business process handoff failures, sloppiness, indifference, etc. Business processes have to be well-defined, practiced, clean, etc., or the baton will be dropped.)
  • Conclude the meeting by telling all participants what you (as the owner/coach) are personally going to do to achieve these goals/objectives.
  • Give the participants a written summary of the key points of the meeting and let them know that they are to use this summary as the basis for individual discussions you will have with them. The purpose of the individual meeting is to discuss what they will need to do differently to achieve the new goals and objectives.

Step 2 - Be Their "Coach".

Meet with each of your employees. Start each meeting by asking good questions and listen/learn/encourage/teach.

  • What did you think of the new business plan discussion? Was it helpful?
  • With the new business plan/goals/objectives we discussed, how do you see your role changing?
  • What tools/resources do you need to be successful in helping us (the team) meet our new goals/objectives? Any training?
  • What are your key "handoffs", (both as a receive and as a sender)? Is there anything we need to do differently to improve the handoffs?
  • Do you understand our key measures of success (our score card)? Do you think it is the correct score card? Do you know how we are doing as a business in terms of our key business metrics?
  • Ask your employee to write a brief summary of his/her primary roles and responsibilities. Also ask the employee to write down the specific things they will have to accomplish (in his/her position) to help the team achieve the new company goals and objectives.
  • Let your employees know that you will review their write-ups and you will meet with them once more to finalize this document.
  • Ask them if they need any additional training or coaching to be successful in accomplishing these new goals/objectives.
  • Review each employee's write-up to make sure there are no business process gaps at the key handoff points. If there are gaps, have the work process "senders" and "receivers" get together to review the handoff to see if it can be improved. Review their suggested improvements.
  • Finalize each employee's write-up and return a copy to the employee.
  • Meet with the employee to gain agreement on the final write-up.
  • Once there is agreement on the individual write-ups, get all of the participants together, provide a copy of each employee's write-up to the entire team, and let everyone know that, in your opinion, if the team accomplishes as a whole what each employee has suggested for him/herself, you believe the company has a great opportunity to achieve its strategic goals and key tactical objectives. Have an open discussion for understanding and questions or comments and at the end, reinforce that this is a group (team) plan and ask the team to commit to making this plan happen.

CONGRATULATIONS! You have just completed both a Company and an individual employee written performance plan for your next business cycle.

Step 3 - Feedback/Score Board-How Are We Doing? How Am I Doing?

Everyone wants to know how he or she is doing and how the team is doing. In sports, feedback is almost continuous. Not only do you know who is winning, you also know how many points you scored, how many points you allowed your opponent to score, whether you followed the rules and played the game appropriately (standards, values, and acceptable behaviors in terms of how everyone is to do his/her job and work together), etc., and how much longer the game will last (measured by time, distance, score, etc.). "How am I doing? How are we Doing?" are almost existential questions because if what one does in life is meaningful, a positive answer to "how you are doing" validates the person. As a small business owner you know this. You get your "how am I doing" answered by the survival, growth, and financial success of your business. (You might also get it based on your employees' feedback of how you are performing as the "coach" if that's important to you and you ask the question.)

Here are some things to consider for Step 3-Feedback:

  • An old rule of thumb is that it takes nine occurrences of positive feedback to offset one negative comment if you want to foster and sustain a positive relationship with a co-worker (this is also true with kids and spouses). You also need to know that as the coach, your feedback is more important that anyone else's.
  • Go out of your way to find people doing something right/good. It is amazing that this seems so hard for people to do. Remember, you need nine of these positive messages in the emotional bank account if you have to deliver a negative message to someone and still maintain a healthy working relationship with that person. For example, if you hear someone talking to a customer on the phone and they are going the extra mile to satisfy this customer's needs, when the phone call is completed go to that employee and tell her/him how great a job she/he did, how much you appreciate it, and say it loud enough for those around to hear the public praise. Co-workers will invariably ask the employee what that was all about and in the re-telling, your employee will reinforce the customer-service standard for all of her/his co-workers. And guess what? Your credibility as the coach/boss will grow because telling someone he/she is doing a good job really is a "coach-like" thing to do.
  • Caution: feedback/praise must be sincere. If you went to the employee in the example above and simply said "good job" as you walked past, it is unlikely that you would get much mileage out of that attempt at praise/thanks. On the other hand, if you were very specific and took the time to ask a couple of questions about the situation before you dispensed your positive feedback, then the check you deposit in that employee's emotional bank account will be substantial-it won't be a "who cares" non-event and the check won't bounce.
  • For the team, and to satisfy their desire to know if they are is winning (and by how much), it is highly recommended that you have at least a once-monthly get together-doesn't have to be long-to share the key business performance metric results both for the month and year-to-date. Also, give your go-forward assessment of how things are looking for next month as well as the remainder of your business cycle's year. Your team wants to know if they are winning and you need to tell them that, without equivocation and as often as possible/reasonable. Also, if you need to make some minor tweaks to the performance plans to meet changing business conditions, this meeting is a good time to talk about what needs to change.

Step 4 - Non-Judgmental Teaching/Training Process

What do you do if you see someone doing something which appears to be inappropriate or detrimental to the "game plan?" Take a deep breath and don't get upset or angry. You need more information (unless it is blatantly wrong, like someone engaged in some form of sexual harassment, being intoxicated on the job, etc.).

You need information and data before you form any opinion or judgment, so investigate. Take the employee aside (or, if it was something multiple people were responsible for, the group) and in private, ask the employee to explain the situation. You are looking for information and answers and you are not to jump to conclusions or judge or make un-coach-like exclamations like "that was really stupid." You need to understand what was happening, what your employee(s) was/were thinking, and his/her/their explanation of why they did what they did.

If what you learn during this information-gathering exchange makes your first impression wrong, (i.e., what appeared to be inappropriate was not) let your employee know (or the group) and thank him/her for explaining the situation to you. That's the end of it unless you want to circle back to the employee(s) and ask them if he/she thinks there needs to be additional changes to the process in question.

If, following the explanation, you still think what the employee(s) did was inappropriate or it is unlikely the results will improve, tell the employee it was inappropriate/short of what you expected, and be very specific about what the employee needs to do next time to appropriately handle any similar situation, or improve her/his results. To validate that you have effectively communicated the message AND the employee has understood, before you leave, ask the employee to tell you in his/her own words what the employer will do if a similar situation occurs in the future. This employee recitation will not only satisfy the effective communication standard, but it will also reinforce the desired outcome or behavior you want the employee to achieve. Close by poignantly asking the employee if he/she needs any further training or coaching to make the correction/improvement. If not, move on. If training/coaching is necessary in your eyes then, with the employee, talk through what that will entail and make specific plans to overcome the training/coaching shortfall. You have just put this employee in an uncomfortable place, so make sure you circle back often to offer words of encouragement, tangible help, etc. Again, remember, you are teaching and training and improving someone you still believe can do a good job for you, so you don't want to leave that person dangling psychologically because you are not interacting with him/her like you used to (which, by the way, is a big coaching mistake). The message you have to overtly send is that you want to make this work, that you want to support the employee and that you will go the extra mile to get the employee and the business outcomes back on track.

If this is an error, mistake or behavior about which you have previously counseled this employee before and it is not insignificant, please read the related article on the recommended way to start and manage the disciplinary process. Again, give yourself some time to consider the situation and to put some distance between yourself and what might be an emotional reaction (either yours or the employee's) before you do or say anything. Then proceed to begin the discipline process.

Step 5 - Adjusting Performance Plans

No matter how clear or prescient your crystal ball, you will not be 100% accurate in your predictions of the future. At some point, you will have to make modifications to the collective performance plan for the overall business, as well as update and change individual employee-performance plans.

When will you know you need to make a change to the performance plans? When achieving a desired result is absolutely unrealistic, or when the business process must change because of new or different customers or market dynamics, it is a good time to sit down with the process owners (employees) and talk through with them what the new plan/expectations should look like.

There are many other events that require changes to the performance plans. Consider the following list: turnover or staff additions, promotions, significant changes to demand (reductions or additions), the introduction of new technology, and unplanned new product or service introductions required/requested by your customers, etc.

It is suggested that you visit the question "Does anything in our plan have to change?" at the regularly scheduled monthly update (where you tell your people the score). Doing it in this forum reinforces the "we're in this together as a team" message that you are trying to send to everyone in the company.

Step 6 - Formal Performance Reviews

It is probably a good idea to do a formal performance review that you can give to your employees and put in their files. If nothing else, it helps provide some history on them and their roles in the company. As a small business owner, you will probably be able to retain most of the salient information in your head, but you know what they say-"the palest of ink is better than the best of memories" (Mark Twain).

The process for this should be simple if you have followed all of the other steps in this article and if you have been a good coach. To continue the theme of trust and involvement, it is suggested that you ask your employee to write a one-page self-assessment, using the performance plan the employee developed (and probably modified) as the base-line for any comments, narrative or quantitative. If your feedback to the employee has been honest and frequent, there will be very little difference between your view of the employee's performance plan and the employee's self-assessment.

Once you receive the employee's written self- assessment, note any items or comments that you see differently, meet with the employee to iron out these differences, contribute any written comments you want to make (including praise) and you are done.

Congratulations! You've just completed a written performance review and it was relatively painless.

Now start all over again for your next business cycle…

Performance Management and Pay Increases

Author's Extended Note: You've undoubtedly heard all the buzz words that tell you to link pay to performance. As a concept I think it is great. In the real world, I think it does as much (if not more) damage than good to announce that this is your "shining" policy to link pay to performance where the cream will rise to the top and their pay likewise.

In a small organization, this becomes even more problematic as it is doubtful you have people in the same "pay ranges" (people being paid the same general amount because their jobs have the same level or responsibility).

As was noted in this article, performance is team-based. Telling one team member that they get a 2% increase and another team member they get a 5% increase for the same team accomplishment creates a real problem.

As a small business, you may want to pay your people more, but you can't afford to because your competition keeps lowering their price, and to maintain market share you do likewise. Your people have done what you have asked and then some, but you can't afford to give anyone a raise because of factors way beyond anyone's control. Or, a recession eliminates four new customers almost overnight and your revenues drop, so you can't afford to give raises.

The point is that it is almost impossible to be able to "prove" to a skeptical employee that there is a definite link between pay and performance. Not much has to go wrong (a lot of which is out of your control) to scuttle such an altruistic platitude. I can almost guarantee you that the link between pay and performance will not be apparent to your people.

I have been toying with the idea of offering "across-the-board" pay increases based on the budget (what we could afford) and the directional movement of the consumer price index (be careful to never make a 1:1 link between pay and the CPI as there are nuances to the CPI that make it less useable than some people think it should be). In any case, an across-the-board increase seems to be the antithesis of pay-for-performance, but I believe it avoids many pitfalls. To overcome the counterclaim that stars and laggards are getting the same pay increase, I would compensate the stars another way-be it in additional perks, time-off, or one-time bonuses. I am not advocating this approach, just offering it as food for thought.

Whenever money is discussed in the context of employment and rewards/recognition for performance, please note that compensation is NOT a long-term motivator. In fact, it is a fundamental that the motivational effects of a pay increase are transient and there are no discernible positive long-term effects.