There's a good deal of consistency, too, in how the reviews are conducted. Companies with sales of under $1 million are less inclined to commit themselves to paper; 34% do nothing in writing, compared with 25% of the companies overall. But a surprising number of executives -- 61% -- said their reviews were both written and oral.
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What topics are usually covered in performance reviews?
To some extent, the answer to this question is a function of a company's size and its stage of development. Virtually everybody who does reviews uses them to examine employee strengths and weaknesses. And most companies (around 80%) use them to adjust salaries, award bonuses, and frame goals for the coming year.
Smaller companies, though, tend to deal with broader issues. Instead of just focusing on individual employees, businesses with sales of less than $5 million also like to discuss company goals and problems -- far more so than larger companies. One of these is Teletech Resources Corp., a $2.1-million business-communications company in Milwaukee. "We don't want people to see things too narrowly," explains Lucy Kugler, a Teletech vice-president. "Reviews are a great setting for talking about where we're going."
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How often do companies hold reviews?
It depends on the industry. Retail businesses as a group tend to review employees more often than others -- 26% of the retail respondents say they do appraisals quarterly, compared with 12% in other businesses. And smaller companies -- those with revenues of less than $1 million -- also lean toward more frequent sessions; a quarter say they do them four times a year. The founder of an 11-person video-production business in Honolulu probably echoes the view of many of these companies when he says, "We feel that people can operate better with timely feedback."
Generally, however, an annual review is the norm, particularly as businesses get larger. At companies with sales of $10 million and more, 89% perform reviews annually, compared with 63% of those with revenues of less than $1 million.
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Are the reviews just for employees, or do managers get something out of them, too?
An astonishing 98% of those who conduct reviews say they find the process beneficial. The benefits are often hard to quantify, but in addition to providing a forum for communication about performance, they provide opportunities to hear about what's wrong (or right) about a business. "Things come up in these sessions that wouldn't come up in day-to-day discussions," says Bill Bozeman, CEO of Delta Audio-Visual Security Inc., a New Orleans-based electronic-security contractor. "Somebody will say, 'Isn't it time to consider this or that,' and it will set things in motion." In fact, Bozeman notes, comments during a recent review led Delta to restructure its service department.
Do managers find doing reviews stressful?
You bet. Half of our respondents do, in fact. The most interesting comparisons are based on size. Although the stress levels are roughly the same for all industries -- be they service, manufacturing, distribution, or retail businesses -- they seem to become more intense as companies get bigger. So don't expect things to get easier as your company grows.
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Are there ways to reduce the stress?
We've talked with managers who have suggestions for their colleagues who are uncomfortable with the idea of a one-sided conversation that puts employees on the spot. Dan Juhl, for instance, president and CEO of Stanhope Products Co., a supplier to the home-appliance and automotive industries based in Brookville, Ohio, overcomes this by inviting people to talk about how the company can do things better. "They know they can bring up anything that concerns them," he says. And before offering his own comments, Juhl asks employees to tell him how they think they've been performing. "Nine times out of 10," Juhl says, "they're harder on themselves than we would be." His role, at that point, is not to be critical, but to communicate standards he wants them to meet for the upcoming period.
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How about confidentiality? Do employees know what others make?
Officially, they don't, and most CEOs would prefer to keep it that way. There's no question that rumor mills churn away at companies, but most of our respondents prefer that to releasing compensation information. Opening the books, says Larry Brown, CEO of Onions Inc., a restaurant operator in Spokane, Wash., would be a violation of people's privacy. "People would sit around and wonder why others were making so much," he says.
But not everyone thinks that distributing pay information is bad -- or as bad as the rumors. A number of companies (13% of those we surveyed) make salary ranges available to anyone who asks, and 19% say they give employees the actual numbers.
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What do executives know about one another's compensation?
They know a lot more about what their colleagues are paid than do employees. Close to half of the executives we surveyed said salaries were known, while another 8% said only the salary ranges were known. In manufacturing businesses, information about executive pay is more restricted. Bigger companies, too, are less inclined to reveal these figures than smaller ones.
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Do companies go to outsiders for help in sorting out compensation questions?
The bias entrepreneurs have against using consultants is legendary, so it isn't surprising that most of our survey respondents say they try to work things out for themselves. More than 70% say they've never gotten help from anyone. The executives least likely to look for help are those at retail and wholesale companies. People who have been in business for less than five years, no matter what the industry, are also less inclined to get help. At younger companies, for instance, only 22% had ever gotten assistance, compared with 32% of companies five years old and older.
