Your Small Business Needs Performance Appraisals

One thing that businesses of all sizes have in common is that everyone hates performance appraisal. Employees don’t like being evaluated, managers don’t want to have to give negative feedback, and no one likes taking time away from value-creating work to go through the process. While larger organizations can’t function well without a high quality performance appraisal system, a lot of smaller organizations get by with informal feedback. That might be working for you now, but here are some reasons why it’s worth putting a formal performance appraisal system in place.

  1. It improves performance

Let’s start with the most obvious advantage—measuring performance accurately and providing high quality feedback helps people do their jobs better. While you may have a fantastic set of employees, chances are not all of them are doing everything perfectly. Performance appraisal, and more importantly, communicating the results of them, helps employees get a good picture of how they are doing in all elements of their work, from the manager’s viewpoint.

  1. It facilitates retention

Many people think of performance appraisal as having the most value for lower-performing employees, but a huge benefit of a formal performance system is rewarding, reinforcing, and retaining your best employees. When performance appraisal systems are absent, these employees often work steadily and without notice, because managers are focused on those who need help or cause problems. And, unless the business owner or managers are great about a lot of informal positive feedback, your best employees are likely feeling overlooked. A formal system gives you a distinct opportunity to communicate what you see that you like, which means high quality employees are likely to keep doing them–and doing them for you, rather than seeking out a competitor who makes them feel valued.

  1. It gives you legal protection

If your small business is big enough to be subject to federal anti-discrimination laws (15 employees for Title VII of the Civil Right Act and 20 employees for the Age Discrimination in Employment Act), then your best protection against unwarranted legal claims is a solid performance appraisal system. Every business owner has the right to terminate at-will employment relationships due to poor performance, regardless of the personal characteristics of employees. But, if you fire someone who isn’t doing their job properly, but don’t have any records to back that up, you lack necessary evidence to protect yourself from a wrongful discharge lawsuit.

  1. It allows you to invest in your most important asset—people

If you read my blog, you’ll see that I emphasize the value of people in organizations–it’s truly what separates successful organizations from others. And, just as you would invest in other important assets in your business, whether that’s equipment maintenance or software upgrades, you need to invest in people. With high quality performance appraisal, you can begin to see which employees can benefit from coaching, who demonstrates leadership skills, who wants more responsibility, and more. Rather than missing out on chances to harness the skills and interests of employees, with regular performance appraisal, you have an opportunity to help employees develop.


If you’re ready to create a formal performance management system, but don’t know where to start, get in touch for a free consultation at [email protected] or 318-278-0097.

Marcia Dickerson, Ph.D., SHRM-SCP is a consultant and university professor specializing in human resources, management, and leadership. Learn more about Marcia’s training courses and coaching, get free resources, and subscribe to her newsletter at



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Dr. Marcia S. Dickerson, Ph.D., SHRM-SCP
Dickerson Management & Career Consulting
Guest Blogger

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