PERFORMANCEMANAGEMENT

BEST PRACTICESFOR SMALLBUSINESSES

This document is a review of performance management best practice for the management team at a small business. The aim is to provide a complete guide with examples appropriate to different levels of a company ’s growth.

The rationale is that it is a very different proposition being a micro business of less than 10 employees compared to a more established business of 50+ staff. These companies are often grouped together as SMEs but the amount of time available and management focus required to do performance management is very different.

This is the second document in a three part series:

The Basics – for the small business owner;

The Next Level – for the management team at a business with 20 to 50 employees;

The Ultimate – for the HR management at a business with 50 employees.

Introduction

THE NEXT LEVEL:To p t i p s f o r t h e s e n i o r m a n a g e m e n t t e a m

The ease at which tasks and a company vision can be relayed to staff becomes more difficult as an organisation grows. Thus when a company has grown beyond twenty employees, there is an ever increasing need to redefine the performance management process. While one-to-one and appraisal meetings covers the basics of a micro business, a growing business will need to introduce cascading company goals and individual employee objectives to meet those goals.

The simple truth is that more employees means that you will have a greater need for a sound structure to communicate the company ’s mission throughout the organisation. To do this you may need to refine your processes and focus all teams on the company ’s goals. At the core of this effort is the need to create a culture where good performance is acknowledge, encouraged and incentivised.

C a s c a d i n g C o m p a n y Go a l s

The best way of designing a performance management system in a company is to start at the top with the company ’s goals. Establish what you want to achieve over the next 3 to 5 years both financially and also in terms of new products or markets to be developed in order to achieve the financial target. From this you will create a business plan which outlines what steps need to be taken to achieve your goals, and a realistic timeline of when the steps need to happen.

Implementing the plan will require that all the steps will need to be disseminated down through the company and divided up into departments and then individuals’ roles and responsibilities (i.e. job descriptions). This ensures your employees’ expected activities are all aligned with the company goals.

Though this sounds like a major project it can be quite simple for a smaller company because much of the process is likely to be already in place and may just need reviewing to bring into line with current goals.

However in order for this process to be effective in the longer term it is important to review job descriptions regularly to ensure they stay up to date. As a company evolves, so too does the requirements you place on your employees.

O b j e c t i v e S e t t i n g

Taking the roles and responsibilities for each individual – the next step is to break these down into objectives over a time period such as 6 months or a year. Setting objectives is an important step to take with each employee and should be agreed with the person concerned.

An example of good objective setting is in a structure called the Personal Performance Plan developed by Si Conroy of Scarlet Monday. This structure is currently being implemented by breatheHR. The part relating to objectives is referred to as “3+1s”. The idea is that each employee, with the help of their manager, identifies 3 objectives which are linked to a strategic goal of the business, and also one personal development focus for that time. So the 3 objectives are business related, and the development goal is for the employee’s personal progress – it should be something of personal interest that brings greater maturity to the business in the longer term. Each of these 3+1s should run for around 3 to 4 months depending on business needs. So the 3 objectives are

business related, and the development goal is for the employee’s personal progress – it should be something of personal interest that brings greater maturity to the business in the longer term. Each of these 3+1s should run for around 3 to 4 months depending on business needs.

T h e P a y R i s e s

Being able to offer pay rises to employees is an important part of recognition of the employee’s development and the company ’s growth. It is considered a hygiene factor – if you don’t do it people will lose motivation over time, but don’t rely on it as the sole method of achieving employee satisfaction as numerous research projects have shown the positive benefit of a pay rise is short lived and other factors have a much greater influence on staff satisfaction.

But… don’t confuse the pay rise with the appraisal. If you give pay rises at the same time as an appraisal the employee will be so concentrated on the pay rise that they may not engage effectively in the appraisal. It also means that if something unexpected comes up in the appraisal you may want to review the pay amount. So it is sensible to do appraisals for employees when needed and separate it from pay rises which can happen once a year for everyone at the same time.

This gives a chance to budget for the pay rises as part of an annual forecast. Keep it as a completely separate process but obviously the quality of performance as assessed in the appraisal feeds into the decision about how much of a pay rise they will get.

Bo n u s e s a n d C o m m i s s i o n s

There is a lot of media discussion about bonuses especially relating to bankers but it is very important to get the right structure in place for each job role. All bonuses and commission schemes are likely to skew the way staff behave so think carefully about the consequences of a scheme before introducing it. A couple of important principles are:

1. Set a time limit for review of the system you introduce up-front. This gives you a chance to change it if it is causing bad side effects without upsetting the staff.

2. Treat it like another part of their contract. Write down the details and share it with the staff members. Include Terms and Conditions such as “The Sales Director has final say over what sales are due for commission”, or “no commissions are payable after employment is terminated”.

It is normally sensible to confine bonuses to those who exceed expectations. In other words, no bonus should be paid for any employee just doing their job, but if they go above and beyond expectations then that should be rewarded for their extra efforts. So an objectives system such as the “3+1s” sets the standard of expectation and if an employee achieves all these to satisfaction they cross a threshold into a bonus scheme. Then it is for the managers to decide the size of the bonus pot and percentage any member of staff could receive.

O t h e r I n c e n t i v e s

It is often forgotten that there are many ways of incentivising a team and often non-monetary incentives are more effective than bonuses and pay rises. Each company is unique in what will work but it is worth thinking about some examples.

If you set regular company goals you can also define a reward for achieving them. For example “achieve sales of £500k this quarter and the company will pay for a meal at a local gourmet restaurant”. Or perhaps for an individual achieving a goal you could give them and their partner a dinner for two voucher. Small achievements can be celebrated spontaneously with doughnuts, cakes or even balloons or banners etc.

Company/team events often go down well and engender a good team atmosphere. A great idea is to find someone with a particular interest and give everyone a chance to try it out. For example breatheHR has taken employees sailing for a weekend and also put on a day ’s kayaking adventure.

Many people love to try something new, and so long as it is done in a light hearted way it can create a great team spirit.

worklab is a fast-growing blog community dedicated to providing SMEs with the latest news, information, and opinions on better people management and business practices.

worklab is a part of the breatheHR family. Determined to make HR about people management—not paperwork—the experts behind breatheHR created an HR software dedicated to the process of centralising information and simplifying monotonous HR admin tasks. breatheHR aims to help SMEs grow by giving them the space in their working day to become leaders, build relationships, and ultimately create great places to work. After all, better people management begins with better processes.

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