Whether your business is just getting off the ground or you are a well-established small and growing company, managing employee performance is a key ingredient to a productive and happy workforce.

What is Employee Performance?

Employee performance is the job-related activities expected of an employee and how well those activities are executed. Many small business owners assess the employee performance of each employee on an annual or quarterly basis in order to help them identify suggested areas for improvement.

Key factors that play into employee performance include a small business’s culture, retention, employee engagement, performance reviews, and conflict resolution. Each role has a direct effect on the way employees perform and execute their daily activities.

The sections outlined on our navigation bar provide more information about employee performance.

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Employee Engagement: A Key Part of Employee Performance

In this section, we’ll discuss how employee engagement impacts job satisfaction, why employee engagement affects employee morale, and what methods to use for better engagement.

Job Satisfaction

As an employer, it’s important to ensure all employees are happy and satisfied with the company. As such, employee job satisfaction should be extremely high on a small business owners’ list of priorities. It will lead to a successful and productive company, is important for employee retention.

Employees that are satisfied tend to work harder, too. They become an integral part of what makes a business so successful. And hard-working, satisfied employees will stick around much longer - creating less turnover and higher retention. It’s important to learn to consistently look for new and creative ways to ensure employees are satisfied.

Employee Perks

When you ask someone what they love about their job, many of them will tell you about the employee perks. Knowing this, make perks your company’s forte. Don’t be afraid to offer something exciting and new. Find out what your employees want, then invest time and resources strategically - it doesn’t have to cost a lot of money if you’re creative with it. Here are ten popular perks for employees:

  1. Half-day Fridays
  2. On-site fitness center
  3. Casual Fridays
  4. Work from home days (when applicable)
  5. Pizza day
  6. Movie day
  7. Employee of the month
  8. Free carwash day
  9. Cost-saving healthcare options
  10. Department lunch trips

Company Morale

Why do small businesses need good morale and what is it? Morale is the satisfaction and well-being of employees. Small businesses need good morale in order to be productive. In order to improve employee morale, small business owners should follow these steps.

Step 1 - Help Employees Capture the Vision

You’ve got a vision for your small business. Think of it right now. Now, ask yourself, do your employees have the same vision as you? If not, this is your first task.

In order for your employees to even begin to feel they are a part of your business, they too will need to capture the vision you have. Start by telling it to them, then have open discussions about why the vision is important and how it can be achieved.

Step 2 - Show Them You Care

It’s not difficult to show your employees you care - and the best part is, it doesn’t have to cost a dime! In other words, as you ask your employees how their day is, how you can help them be the best they can be - all while having a genuine interest. Your employees will begin to see you’re the boss to have.

Step 3 - Look for the Good

Speaking of showing your employees you care, one of the best ways to improve company morale is nestled in a positive attitude - and it’s contagious, too. So, start with yourself. Do you constantly look for the good in your employees? If not, start today.

Even if you have an employee who is performing poorly, your ability to show them their strengths will result in making their weaknesses stronger. Why? Your employees will catch your positive attitude and have an amazing outlook on their job - including their weak areas.

Step 4 - Learn Why Benefits are Essential

Benefits can be intimidating to small businesses. But they don’t have to be. You can even offer benefits on a budget as a way to improve company morale. How? Explore affordable health benefits, dress-down Fridays, fun hat day, or rotating leaving an hour early during the week. Each of these benefits become part of your small businesses culture and have an impact on the morale of your employees.

Step 5 - Promote Employees

As you grow your small business don’t always hire management from outside of your small business. Promote from within. Employees who have shown their dedication and hard work deserve to be promoted, they know the ins and outs of your business, and, it’s a huge boost to employee morale, too.

Step 6 - Make Time for Fun

If you really want to know how to improve company morale, remember one word: fun. Don’t be scared to have a little bit of fun with your employees. It loosens them up, and more importantly, it loosens you up. Of course, there is moderation in all things, so be sure to have fun when appropriate. It’s a great way to put a smile on your employees’ faces and will even improve productivity as fun is a stress reliever.

Employee Engagement

As an employer, it’s normal - if not critical - to constantly be searching for ways to get employees excited about their jobs. While there are a myriad of ways to get employees excited for work, recognition can boost employee engagement. When employees are recognized for their hard work, they are driven to achieve more.

What’s the best way to recognize? When it comes to employee engagement, who does the recognizing matters. Allow different leaders at the company to recognize employees that stand out. This shows the team your leaders are keyed in to the larger company vision, and further reinforces the culture you are establishing. It also engages managers to embrace and communicate the company vision – all important for becoming a successful and engaged company.

There’s no specific way that you have to recognize your employees, just make sure it happens. However, here are some tips for recognizing your employees:

  • In correct context: Make sure your employees are recognized at the right time and in the correct context. Think about where and when they’ll be recognized.
  • Tie into vision: As employees are recognized, tie in your company’s vision and how their great work is helping the company move forward.
  • In the moment: Recognition doesn’t always have to be a large get together. Sometimes, it’s best to recognize employees right in the very moment. A simple “thank you” goes a long way and doesn’t require a public gathering.
  • Be authentic: It’s important that your employees know that their recognition is authentic and not forced or simply fulfilling a requirement. Never look at recognizing an employee as something that you have to do, rather, something you are privileged to do.

How to Make an Engagement Survey

An important aspect of employee performance and engagement is feedback. Happy, loyal employees help boost an organization’s productivity and morale. And yet, one of the worst mistakes made is to assume that employees are happy. Instead, small businesses should create an environment where employees provide regular feedback. One way to measure employee satisfaction and loyalty is through internal surveys.

A popular option for organizations of all sizes is a simple internal survey to measure employee satisfaction. Survey Monkey is a free survey tool (with upgrade options available) that allows small business owners to create a simple survey and track the results. Survey Monkey also provides free templates on employee satisfaction surveys to make things easier.

When creating an internal survey, it’s important to identify the key measurements in order to benchmark and track results over time. The survey distribution should be limited to five or ten questions and should be composed of simple language.

Company Culture: A Key Part of Employee Performance

Building a rockstar company culture. It's more than just "fun shirt Friday" or "hump day happy hour." It's what a business strives to be - it’s the vision of a company, how people are treated, and what a company is all about. It's what makes a small business a unique and desirable employer - an employer of choice.

Focusing on company culture is not just for the "big dogs." It is something that small business owners should also focus on. Whether intentional or not, each company has a culture. It's much easier to mold a company’s culture when it’s still small and growing. Considering most companies fail because of internal dysfunction, it's worth carving out the time to build and foster a culture that helps a business grow.Company_culture_employee_performance

As such, here are 12 tips on how to build an intentional company culture.

  1. Document values and the vision for company culture. Above all else, it’s important to document the company's values and the big-picture vision for the company. Ideas to do this include creating a company culture vision statement or a dream map to share where the company is going.

  1. Hire wisely. Employees are the messengers of a small business’s culture, and they benefit from the culture perks. As such, small business owners should hire with an emphasis on attitude (does the candidate’s attitude fit the company culture, do they exude the vision?) and worry less about their weaknesses.

  1. Evolve as you grow. As a small biz grows and changes its company culture vision will too. Small business owners will try things and they'll fail, outgrow certain activities, and the product or company vision will evolve, too. It’s important for small business owners to not afraid to evolve.

  1. Take a look around. A small business’s physical office space should reinforce the culture being created.

  1. Be open & honest. Small business owners should be transparent with employees about the company culture, especially with where they are and where they’re going. Additionally, they should be vulnerable with employees and keep an open feedback loop with them.

  1. Connect in a meaningful way about company culture. Take discussions about culture off-site. These conversations take time, collaboration, and focus.

  1. Assign a culture king (or queen). Company culture needs to be a collaborative effort, but someone needs to own it. Without a leader efforts will stall.

  1. Get leadership on board. Employees look to leadership to set the example for company culture. Leadership needs to be on board with the vision, reinforce the culture, and lead by example.

  1. Listen to employees. While leadership's involvement is vital, it's also important to listen to employees. Usually employees are just as keyed in - if not more keyed in - to the company's real culture.

  1. Stay focused. Staying focused and prioritizing efforts is important, but only possible once once a small business owner has identified the company culture vision (#1) and have an owner to drive progress (#7).

  1. Communicate culture. Always. It’s important to communicate culture regularly both internally and externally. For example, some of the best "about us" company pages describes their company culture. It allows a reader to know who the company is, what their vision is, what the employees are like, and what they can expect when working with them.

  1. Create bonding rituals. Bonding rituals are the fun stuff. Employers should have fun with the bonding rituals, listen to what their employees value, and make sure the rituals are connected to (or reinforce) their company culture vision.

The Benefits of a Great Small Business Company Culture

Knowing how to created a company culture is important, but what are the benefits of having a great company culture? Here are five benefits to small businesses for developing a great company culture.

1. Boost Employee Loyalty

When you have a well defined vision, mission, and code of ethics, you will hire employees who fit well with the company. Employees who fit the culture and are motivated by the company's direction are more likely to be loyal and satisfied in the long-run.

2. Recruit Top Candidates

Prospective employees want to work for a company that aligns with their personal and professional goals. They also want to work for a company they feel good about working for. Create and communicate your company culture, and you’ll have candidates lining up at your door.

For more tips for hiring and recruiting, download this Small Business Hiring Guide.

3. Attract More Customers

Having a well defined company culture helps attract new talent, but it also helps attract new customers. When you treat employees with respect, they treat customers with respect. When employees are all in tune about the company's mission, vision, and products, they convey a consistent message to customers. And if your culture resonates with customers, they’re going to do more business with you (and refer business to you).

4. Simplify Decision-Making

When you intentionally build a company culture, you define your vision for who you are, how you treat people, and what your company is all about. These principles lay the foundation for decision making and set a base for how you make decisions and basic company values.

5. Improve Your Brand

Having a positive company culture gives you a positive reputation in your community. The word gets out to customers, vendors, prospective employees, and fellow business owners about how you run your business and what it is like to work for you.

Retention Strategies: A Key Part of Employee Performance

Hiring the best employees is important to every small business, but retaining employees is equally as important. This section is dedicated to different retention strategies for small business owners and why retention matters.

Why Does Retention Matter?Retention_strategy_company_culture

Most businesses, even the smallest ones, have a strategy for attracting and hiring employees. These recruitment strategies may include outlining job requirements, interviewing, and training and on-boarding over the first 90 days. But once a key employee is on board, how does a small business keep him or her from jumping ship? As our workforce becomes increasingly mobile, a well-thought out employee retention strategy becomes just as important as recruitment (if not more). This is especially true for small businesses who are competing with larger businesses for top talent.

7 Tips for Retention

Tip #1: Understand Why Employee Retention Matters

Employee turnover costs small businesses time and money. Turnover disrupts the flow of a functioning workforce. When an employee leaves there can be a significant knowledge gap left, creating more work as the remaining team members pick up the pieces.

Recruiting and training a new employee requires staff time and money. Every time a business replaces a salaried employee, it costs on average 6 to 9 months in salary. For a manager making $40,000 a year, that's $20,000 to $30,000 in recruiting and training expenses, along with other intangibles.

While some turnover is inevitable, having an intentional employee retention strategy in place mitigates the turnover, and these costs, for a small business.

Tip #2: Benchmark Your Employee Retention Rate

Each employer should know their small business's current employee retention rate. Before thinking about formal employee retention activities, employers should calculate their employee retention rate and track it periodically, such as quarterly or bi-annually.

The calculation is simple. Divide the number of employees who left during a period by the total number of employees at the end of a period to get the percentage.

Here's an example:

Sample Inputs

Sample Calculation

Period of Time: Fourth Quarter

Total Employees at Beginning of Q4: 24

Total Employees Terminated in Q4: 3

24 – 4 = 20

20 / 24 = .88

.88 x 100 = 88%

According to industry standards, 85% or higher is considered a healthy employee retention rate.

Tip #3: Use Retention Strategies, Not Guesswork

There are several theories in employee retention strategies. Here's a sample of four common theories:

  1. Positive Organizational Behavior is defined by Luthans as "the study and application of positively-oriented human resource strengths and psychological capacities that can be measured, developed, and effectively managed for performance improvement in today’s workplace"

  1. Valence, in Victor Vroom's Expectancy Theory, is the extent to which an employee's goals match the company's goals. The more aligned these are, the higher the employee retention rate.

  1. Abraham Maslow's Hierarchy of Needs theorizes that companies should first take care of an employee's basic needs, such as job security, payment, and health benefits, and then advance to bigger aspirations, like his or her place in the company.

  1. How important is it that employees feel they are being treated fairly? According to John Stacey Abrams' Equity Theory, if a worker feels he is getting what he considers to be fair for the job he is doing in return, he will be happy and remain in the position.

Tip #4: Don't Assume Employees Are Happy

One of the worst mistakes a small business can make is to assume that, because an employee is still there, he or she is happy.

Schedule regular, one-on-one reviews with employees. These review meetings serve as a forum where the employee can receive constructive feedback.

Feedback is important. Even the most productive employees should be given feedback as a part of the retention strategy. Studies show employees not only want acknowledgment for work done well, but also want constructive criticism and routine review of goals and expectations. This makes an employee feel valued and helps keep morale high.

Conduct regular, formal evaluations. Employee evaluations are also a good time to get feedback from employees on what will make them happy. With a retention strategy, always keep a balance between what the employees want and what's best for the business.

Tip #5: Health Benefits Are A Key Part of Employee Retention

Health benefits are a vital part of an employee's compensation package, and thus an important strategy for employee retention.

Work with an insurance agent or broker to evaluate your small business health insurance options including group health insurance and defined contribution health benefits.

If your business can't afford a traditional group health insurance plan, or cannot meet minimum participation requirements, work with your broker to design a defined contribution health benefit. With defined contribution health benefits, your business provides employees healthcare allowances (via a "pure" defined contribution approach) for their individual health insurance policies. This is an alternative to an employer-sponsored group

Tip #6: Provide Different Benefits for Different Employees

Turnover of certain employees may be more costly than others, thus it is common to provide different levels of benefits to different classes of employees. This is routinely done by major corporations. For example, with salary and compensation, employers routinely compensate groups of employees differently. Outside sales representatives are compensated differently than sales managers. Some employees get company cell phones or cars, while others earn bonuses.

Because health benefits are such an important part of compensation and retention, why not provide health benefits that vary by class of employee? Small businesses can do this with defined contribution health benefits.

For example, consider a restaurant who struggled to hire and keep managers in a very tight labor market. Instead of offering the same health plan to all employees, the restaurant used defined contribution health benefits to create a separate classes for wait staff and managers, giving managers $350 more per month in their Health Reimbursement Arrangement (HRA). This large increase helps the company reduce attrition among managers.

As there are no minimum or maximum contribution requirements with defined contribution health benefits, a business can design their health benefits to fulfill its exact recruiting and retention needs.

Providing class-specific health benefits is clearly allowed by ERISA and HIPAA.

Tip #7: Conduct Exit Interviews

Exit interviews provide businesses valuable information on the reasons employees seek employment elsewhere.

Develop an exit interview survey that asks for feedback on the work environment, employee benefits, areas for improvement, training, supervision, and workload.

Employers should evaluate the exit interview surveys and incorporate the feedback into their small business's employee retention strategies.

Performance Reviews: A Key Part of Evaluating Employee Performance

All businesses, both large and small, need performance reviews. Performance reviews are a way for a small business to grow and move forward. This section is designed to help small business owners understand why performance reviews matter, how to prepare for them, and how to conduct them.PerformanceReview

Do Performance Reviews Really Matter?

Many small business owners contemplate whether or not they should conduct performance reviews for their small business’s employees. And while many employers aren’t sure if performance reviews matter, 78 percent of U.S. workers say being recognized motivates them in their job.

Furthermore, 69 percent of workers say they would work harder if they felt their efforts were better recognized. Recognition is a large part of performance reviews. So, yes, performance reviews do indeed matter to small businesses. They are a great way to recognize employees for the hard work they perform as well as a time to improve and turn shortcomings into fortes.

Preparing for Performance Reviews

It is important to prepare in order to conduct them performance reviews. Preparing thoroughly is one of the best things to do in order to ensure performance reviews are productive and flow smoothly. When conducted properly, employer-employee relationships will become stronger.

How should employers prepare?

It’s imperative to have notes closeby which best reflect the employees’ performance. Ideally, these notes should be accumulated throughout the year, but if reviews are being conducted for the first time and an employer does not have a full year of notes, that’s okay.

Small business owners should write out what their employees have been doing well, and what things they can improve upon. Additionally, employers need to keep in mind that their notes will need to be presented in a professional, friendly, and caring manner to their employees -- this will avoid any hard feelings. It’s important for employers to show they care about the employee throughout the entire performance review.

Employees should prepare as well by writing down what they think they’re doing well and where they think they need improvement.

Positive Feedback - How to Give It

Small business owners have to be careful how they give positive feedback. If positive feedback is given in a strong manner, the negative feedback may be too jarring. As such, give positive feedback in a very calm, respectful manner. Employers can get excited about their employees’ accomplishments -- and they should -- but it’s important to keep in mind that negative feedback is just around the corner. Small business owners shouldn’t go from a high-high to a low-low. They should give specific positive examples to make sure their employees understand what they’re doing right so they can continue to do so.

Employees should be asked what they feel they’re doing well, and be provided feedback on their comments. This way, the employer can add to their comments and help them to see that they agree with them. When disagreeing with something, Employers should save it for the negative portion of the feedback.

Negative Feedback - How to Give It

No one really enjoys giving negative feedback. However, it should be a personal goal to give this portion of the feedback in the best way possible.

The first step is to ask employees what they think they need to improve upon. Many times, they will bring up their shortcomings. At this point, it becomes a discussion which can be built upon.

A good general rule to follow when giving negative feedback is to not give it using harsh words such as horrible, ridiculous, terrible, etc. Instead, use words like lacking, falling short, or needs improvement. Though still negative terms, they won’t register as harsh to the employee.

The purpose for this feedback is to improve, not hurt employees’ confidence. Damaging their confidence, may result in decreased productivity.

Knowing this, after giving negative feedback, it’s important for employers to ensure employees they would love to help them make their weaknesses strengths. To do this, employers can come up with a plan to become better in the areas they are lacking. They should remind their employees of their strengths and tie them into a plan to improve their weaknesses. This way, they can constantly be reminded that they do indeed have strengths as well.

Conflict Resolution: A Key Part of Evaluating Employee Performance

Workplace conflict is common, yet often times it goes unattended. In fact, 85 percent of employees at all levels experience conflict at work to some degree.

As such, small business owners need to understand every angle of conflict for a more thorough resolution. Doing so will help employees have a happier and better work experience - leading to better retention as well.

General Rules to Follow to Handle Workplace ConflictEmployee_perfromance_conflict_resolution

  1. Have an open mind

  1. Consult company manual

  1. Give the other person the benefit of the doubt

  1. Respect differences

  1. Catch the conflict early

  1. Listen carefully

  1. Do not assume

  1. Do not say anything you will later regret

  1. Be sure the problem is resolved

These general rules will help you frame conflict resolution and will serve as a reminder as we go through the below scenarios. Now, let’s take a look at how these rules are applied to workplace conflict situations.

Conflict Resolution Scenario

Scenario 1 - The Rule Bender

Andrew works for a respected engineering firm as an engineer and loves his job. He’s on time to work and puts in his time to make sure he’s seen as a hard-worker. His co-worker Tim is rarely on time, and tries to find loopholes whenever possible in order to do the least amount of work possible. Their company has a policy that if an employee is over 15 minutes late, they must call their supervisor as soon as they sit down at their desk to make sure they know the employee has arrived. One day, Tim comes in 30 minutes late. Out of concern for Tim’s job, Andrew says “Hey Tim, I just wanted to remind you to call our supervisor so you don’t get in trouble.” Tim gets angry and tells Andrew that their supervisor will never know he was late and that it doesn’t matter.

Employer’s Part

Do - Know what’s going on in your company. As the small business owner, it’s your responsibility to make sure you’re monitoring your employees. In this scenario, if Andrew were to come to you and suggest a re-visit to company policy, you need to realize that it’s probably for a reason. Rather than putting Andrew in a situation where he must tell you about Tim’s tardiness, you can simply thank him for his input and schedule a quick meeting for you staff. If problems continue after the meeting, you must take corrective action.

Don’t - Disregard the situation. Ignoring the problem won’t make it go away. Additionally, make sure you’re sticking to company policy and regularly making it a part of trainings.

Employee’s Part

Do - Communicate and give the benefit of the doubt. Andrew is probably upset considering he is to work every day on time and Tim is not. Yet Tim appears to be on time simply because he doesn’t report his tardiness. So, how should Andrew handle this type of workplace conflict? First of all, Andrew should speak to Tim and let him know he is concerned for his job and wants to ensure he doesn’t get fired. If Tim does not respond in a positive way, Andrew should remain calm and try to understand why Tim feels he doesn’t need to follow company policy.

Next, Andrew should not assume the reasons Tim is coming in late. He should give him the benefit of the doubt by observing the next few days to see if Tim is late again and not reporting it. If Tim continues to do so, Andrew can go to the supervisor and suggest that the company goes over policy together to ensure everyone is clear on what they should and should not do. The supervisor will handle the problem from there.

Don’t - Be a tattle-tale. It can be tempting for Andrew to immediately go to the supervisor and tell on Tim for his actions, however, this isn’t the correct thing to do. Andrew must realize that there are many reasons why Tim may not be following the rule and should let their supervisor handle the problem. Additionally, Andrew should not act as a supervisor and monitor everything Tim does. If Tim does not fix his mistakes even after being reminded by the supervisor, his situation will be taken care of by the supervisor. It is not Andrew’s responsibility to enforce company policy.

Additional Reading on Employee Performance

11 Life Hacks to Increase Employee Retention

It’s always nice when you figure out little life hacks to make your things easier. When you do figure them out, it’s as if a light has been turned on and choirs of heavenly voices sing, isn’t it? So, when it comes to your small business, we’ve rounded up eleven life hacks to increase employee retention. Read more.

Small Business 101 - Managing Employee Performance

Whether your business is just getting off the ground or you are a well-established small and growing company, managing employee performance is a key ingredient to a productive and happy workforce. Read more.

Employee Retention - The Real Cost of Losing an Employee

For businesses to thrive in today’s economy, finding and retaining the best employees is important. This is especially true for small businesses and nonprofits competing with larger businesses, and larger budgets, for top talent. Read more

Employee Retention - How to Keep Millennials Motivated and Happy

One way small or growing businesses can gain a competitive edge is to focus on employee retention. Frequent voluntary turnover has a negative impact on employee morale, productivity, and company revenue. Recruiting and training a new employee requires staff time and money. Read more

Employee Retention – Best Practices for Small Businesses

As our workforce becomes increasingly mobile, a well-thought out employee retention strategy becomes just as important as recruitment (if not more). This is especially true for small businesses who are competing with larger businesses for top talent. Read more.

Do Retention Bonuses Work?

With so many suggestions out there for employers to retain their employees, bonuses are a common practice among them. But, do retention bonuses work and how can this be determined? If they do work, when are they most effectively used? Read more.

5 Benefits of a Great Small Business Company Culture

Having a great company culture isn't just reserved for big companies. Small businesses and start-ups who take the time to build an intentional company culture will see the benefits to hiring, employee retention, and sales. Here are five benefits to small businesses for developing a great company culture. Read more.

Want the Best Company Culture? Focus on Communication

Want to know how to have the best company culture? Make communication your focus. Read more.

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