Employee performance appraisals or performance reviews are an employer's way of communicating job expectations to an employee and how well he or she is doing on the job to meet those expectations. Many times, performance reviews are used to support important HR related decisions concerning merit pay increases, promotions and terminations.  Merit pay is generally defined as a raise in pay based on criteria set by the employer. This usually involves the employer conducting a review meeting with the employee to discuss the employee's work performance during a certain time period.

Performance Appraisal Steps at a Glance:
Clarify the job and set performance guidelines. Employees need to understand the job and know which tasks are critical. They must also understand acceptable performance for the job in terms of quantity, timeliness and work quality. The standards should be consistent for all employees with the same job.

Plan ahead for the appraisal period.  At the beginning of the appraisal period, employee and supervisor should work together to develop a plan to help guide the employee’s work during the appraisal period. The employee should clearly understand which tasks are most important, the conduct and results required, and the performance standards against which he or she will be judged.

Overseeing employee performance.  During the appraisal period, the employee and the supervisor should both be actively monitoring performance against the standards established. Providing feedback to the employee throughout the appraisal period can reinforce good performance and help to correct any issues which may arise. The supervisor should encourage discussions to address problems that surface during the appraisal period.

Conduct the performance appraisal.  At the end of the rating period, the supervisor should complete a performance appraisal form and conduct an appraisal interview with the employee. In the interview, the employees should be told how he or she is doing compared to the standards set at the beginning of the period. The information should include job-related responsibilities he or she is doing well and areas that can be improved, why the performance is rated as good or deficient in specific areas, and steps the employee can take to improve or maintain quality of performance.

Reward employee performance.  A good performance appraisal is generally rewarded. Pay increases can often be determined based on performance appraisals. The reward system should be capable of differentiating between different levels of performance i.e.,  the best performing employees will receive a greater increase as compared to those who do not perform as well.

Who Should Conduct the Performance Appraisal?
A traditional, top-down performance appraisal is usually conducted by the worker’s immediate supervisor. Input from the employee is important, as well.

How Often Should a Performance Appraisal Happen?
Some companies choose to assess employee performance once a year. Others find that the information is more meaningful, and the goals of the assessment monitored more effectively, with more frequent conversations. Informal, abbreviated reviews that happen regularly encourage open communication between staff and supervisors, allowing each to solve problems while they’re small. Companies that opt for annual reviews may conduct them near the anniversary of the employee’s start date. Others, especially smaller employers, may find it convenient to conduct appraisals for all employees within the same few weeks each year.

Before the performance review interview:

• Give the employee sufficient notice of the date of the performance interview.
• Ask the employee to self-assess using defined job-related criteria.

During the performance review interview:

• The supervisor should come prepared to give the employee specific examples of what he or she did well during the assessment period, and how these impacted the business.
• Ask the employee to relate examples of his or her own good performance.
• Encourage the employee to discuss any problems he or she is experiencing on the job.
• Follow up with assistance in areas that need improvement.  Ask the employee what help is needed to improve performance in specific areas. Any suggestions made by the supervisor to assist the employee should focus on job performance rather than personality deficiencies. Limit the discussion to two or three issues at a time, to avoid overwhelming the employee and to increase the likelihood of success.
• Discuss plans for the next review period. Set objectives and outline steps to improve on any problem areas or to further develop the employee for greater responsibilities within the company.

After the performance review interview:

• Follow-up with the employee throughout the next appraisal period for less-formal discussions.
• Address any problems that arise.
• Track the employee’s progress against the goals that have been set.
• Identify any impediments keeping the employee from reaching those goals.

Finally, it is vitally important that a company have a performance appraisal system that is accurate and fair. This is especially important as a negative review can affect an employee’s employment status i.e., pay increases, promotions or discharges. Each review must be based on job-related criteria rather than any issues that can be construed as discriminatory.

Done correctly, employee performance appraisals can be effective tools to keep your employees on track. Take the time up front to carefully plan each review; it will pay off in the end. 

According to the MetLife study  of benefit trends focusing on small business, one of the key strategic areas that drives employee retention and loyalty is your employee benefits program.  In challenging economic times, these benefits – and the security and protection they help provide – may become even more valuable. Recent difficult economic times have made employees more aware of their own personal risk exposure, causing 53% of employees to report that they value their workplace benefits more than ever before. Nearly half of employees (43%) say that because of recent economic events they are taking a greater interest in understanding the employee benefits they receive through the workplace.

According to the study, benefits are rated highly as reasons for employee loyalty. In terms of importance, 71% of employees surveyed consider health benefits important, followed by retirement benefits at 68% and non-medical insurance benefits such as life and disability insurance at 66%.

Voluntary Benefits Appreciated
According to the study, 88% of small business employees are interested in their employers providing a greater choice of benefits that they can choose to pay for on their own. Many voluntary benefits, including life, dental and disability options, can be offered to broaden your range of benefits. As employees are more sensitive to their own personal risk exposure, and are increasingly looking to the workplace for help, voluntary benefits can be an effective way to create goodwill and help provide additional benefits.

Emphasize Wellness with Helpful Resources
The MetLife study reports that employee interest in health and wellness is high.  For example, 73% of employees who participate in wellness programs said the top reason to participate is “I want good health.” At a time when small businesses say they are spending about 60% of their total benefits dollars on medical insurance, there are many wellness programs that can be implemented at little to no cost to the employer including:

• Check community resources, like local health clubs and gyms, as well as weight loss centers. These sometimes offer group discounts, so you can pass them along to your employees.
• Provide access to health information websites such as http://www.healthfinder.gov that provides health related news as well as information on topics such as nutrition and fitness.

Effectively Communicating Your Benefits Program
According to the MetLife study, only about a third of employees at small businesses report that their company's benefit communications effectively educate them on their benefits options. Developing ongoing communications with employees can convey an employer's commitment to employees and increase involvement in the benefits program.

One way to communicate effectively for small businesses, which may not have the staff to develop formal communications materials on their own, is a simple letter from the business owner or an “open door policy” with the person in charge of HR. Communications can go a long way towards enhancing your employees' satisfaction with your benefits program and increasing retention. 

In these challenging economic times, participants may seek hardship distributions from their retirement plan. Before making hardship distributions, review the steps below to make sure you follow both the legal requirements and your plan’s requirements.

The law states that some retirement plans (for example, 401(k) and 403(b) plans) may allow participants to withdraw certain amounts from the plan because of a financial hardship. IRS regulations provide guidelines for plans to follow to ensure they satisfy the law’s requirements. A plan can make a hardship distribution only:

• if permitted by the plan;
• because of an immediate and heavy financial need of the employee and, in certain cases, of the employee’s spouse, dependent or beneficiary; and
• in an amount necessary to meet the financial need.

Step 1 - Review the terms of your plan, including:

• whether the plan allows hardship distributions;
• the procedures the employee must follow to request a hardship distribution;
• the plan’s definition of a hardship; and
• any limits on the amount and type of funds that can be distributed as a hardship from an employee’s accounts.

Step 2 - Ensure that the employee complies with the plan’s procedural requirements. For example, make sure the employee has provided a statement or verification of his or her hardship in the form required by the plan.

Step 3 - Verify that the employee’s specific reason for hardship qualifies for a distribution using the plan’s definition of what constitutes a hardship. For instance, the plan may limit a hardship distribution to pay burial or funeral expenses and not for any other reason.

Step 4 - If the plan, or any of your other plans in which the employee is a participant, offers loans, document that the employee has exhausted them prior to receiving a hardship distribution. Likewise, verify that the employee has taken any other available distributions, other than hardship distributions, from these plans.

Under some plans, a hardship distribution is not considered necessary if the employee has other resources available, such as spousal and minor children’s assets (excluding property held for the employee’s child under an irrevocable trust or under the Uniform Gifts to Minors Act).

Step 5 - Check that the amount of the hardship distribution does not exceed the amount necessary to satisfy the employee’s financial need. However, the amount required to satisfy the financial need may include amounts necessary to pay any taxes or penalties that are due because of the hardship distribution.

Step 6 - Make sure that the amount of the hardship distribution does not exceed any limits under the plan and is made only from the amounts eligible for a hardship distribution.

Step 7 - Most plans also specify that the employee is suspended from contributing to the plan and all other plans that the employer maintains for at least six months after receiving a hardship distribution. Inform the employee and enforce this provision! Failing to enforce the plan’s suspension provision is a common plan error but may be corrected through the Employee Plans Compliance Resolution System (EPCRS).