Major corporations employ formal employee evaluation and performance appraisal processes, and so do most small businesses. That's great. But if you really want to focus on identifying your top performers, your poorest performers and the skills and behaviors that matter most to your business, try this: Pretend you have to fire one of your employees. Today.
If you had to fire someone, how would you decide which employee should go? You could take an easy way out, using the seniority system to fire the most recently hired employee. Or you could decide by pay grade and fire the lowest paid or lowest job-grade employee. Then there's letting someone go based on role, where you fire an employee in a function you can most afford to do without, at least over the short term.
Unfortunately the easy way out is usually the worst way. Your best performing employee might be one of your least senior employees. Can you really afford to let a superstar go just because it's easy?
Or you could use another relatively easy way out to identify the employee you should fire: comparing performance review data. I almost did that once. When I worked at a manufacturing facility and layoffs loomed, the HR manager naturally suggested using employee evaluations as a theoretically objective, legally defensible decision tool.
Every manager, including me, pushed back hard. Each of us felt employee evaluations were a fine tool for providing employee feedback but we had no interest in using evaluations to decide something important, like who should be laid off.
(Of course that pointed out the fact our evaluations were less than effective. A few of the employees we could least afford to lose had recently received the worst evaluations. We had all willingly used an evaluation system that failed to measure real, meaningful performance. Yes, shame on us.)
So how will you decide whom you should fire today? Don't take the easy way out. Don't base your decision on "interpersonal skills" or "teamwork skills" or "attention to detail" or other boilerplate employee evaluation categories that sound great but fail to measure key skills and significant achievements.
Instead, choose the person who contributes least to the success of your business. Focus on key performance indicators (like numbers), on actions and on real accomplishments. Focus on contributions to your bottom line. A difficult-to-work-with salesperson may fall short in a number of your standard evaluation categories, but if she is responsible for a major chunk of revenue, you can't afford to lose her.
Then take the process a step further. Rank all your employees based on what they contribute to operations and profits. You may be surprised but some of your highest-ranked employees have received mediocre performance evaluations -- and some of your lowest ranked employees have received the best evaluations. Indeed, you may realize the way you currently evaluate your employees is in large part a waste of effort.
Don't stop there. Change your employee evaluation process so it measures what really matters to your small business: quantifiable results.
Oh, and if the employee you decided you should fire really is dead weight, it's probably time to let him go.