Managing Performance in SMEs

It’s often said that employees don’t leave companies, they leave managers. If this is true, then there’s a lot more managers should be doing to retain their staff, especially as the average cost of replacing an SME employee is nearly £30,000. 

02/10/2015, latest thinking




Key to maintaining an engaged and highly skilled workforce is implementing an effective performance management and appraisal process. One that recognises, rewards and develops employees, and helps managers identify issues as they occur.

The problem with performance appraisals is that they are often viewed as antiquated and overly rigid, by ranking and grading employees without providing them with the tools to develop and improve.

Infamous processes such as General Electric’s “rank and yank”, which called for managers to rank employees and sack the bottom 10%, have caused performance reviews to strike fear into the hearts of some employees, when they should be perceived as a valuable learning opportunity.

However, in reality, employees don’t always perform optimally, and if they are not living up to the company’s expectations there needs to be some form of intervention. The key to intervening successfully and evaluating employees, both their positive traits and areas for improvement, lies in an effective performance review. Getting it right can make a significant difference to organisational performance and the motivation and engagement of an employee.

Here are our top tips for SME managers on delivering effective performance reviews:

  1. Recruitment – good performance management starts with recruitment. Too many SMEs recruit for skills first, but finding employees with the right attitude and behaviours is key. These employees are more likely to identify and buy into the SME’s values, go the extra mile and work effectively in teams. They are less likely to present issues during a performance appraisal, and due to their commitment to the company, should be more receptive to feedback. 

  2. Link to company needs – all performance management should be linked to the needs of the SME, and clearly relate the individual’s contribution to the company’s success. This can be achieved by setting SMART objectives that are linked to tangible business outcomes. Doing so will help employees recognise and understand the value of their role, and therefore increase levels of engagement.

  3. Coach vs critic - the critical approach of judging an employee as “satisfactory” is demotivating and may put them in a situation where they feel defensive and obliged to justify why their grade doesn’t reflect their actual performance. Managers should act as coaches, instead focusing on their employee’s goals and helping them to improve their performance so that they can achieve them. Appraisals should focus on future development, rather than taking a “rear-view mirror” approach. However, learning from past mistakes is vital.

  4. Ongoing feedback  - there’s a strong case to be made for replacing yearly or even quarterly performance reviews with continuous feedback and ongoing development. Neither praise nor difficult conversations should wait until specific points in the financial year. Instead, SME employees should have access to feedback whenever they want it. Frequent “check-ins” with managers will allow both parties to identify issues in real-time, allowing them the chance to talk about them, address them and correct mistakes before it’s too late.

Tags: Business Support , Management, Organisational Performance