Do I Have to Give My Employees an Annual Review? (Podcast) | Ep. #085

Elizabeth Larkin, Michael Kelly, and Eric Dollinger

Do you give your employees year end reviews? On today’s episode hosts Elizabeth Larkin and Gene Marks discuss the practice of giving feedback to your employees at the end of the year. Should you do it? How should you do it? What are the keys to delivering an impactful review? We discuss on today’s episode.

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Elizabeth: So Gene, you know my-

Gene: Elizabeth.

Elizabeth: … you know my manager, Deb.

Gene: I do.

Elizabeth: She’s wonderful.

Gene: She’s awesome.

Elizabeth: Wonderful person.

Gene: Yes.

Elizabeth: This morning she just reminded me that I have to write my annual review, and I have to get it done by December 1st.

Gene: You’re an employee … Oh, okay. Well, that’s not fair because you’ve done that much time. You’re an employee. How do you take that? Are you excited to do that?

Elizabeth: Ugh. I think I actually said, “I’ll pay you $50 if you write it for me.”

Gene: Gosh, this is your career, Elizabeth. This is like your job. It’s your livelihood, and you’re like, “Whatevs”? Like it doesn’t-

Elizabeth: No, I’m not, “Whatevs.” I’m more like, “Ugh.” I don’t like to talk about myself. I think most people are like that. I really find it hard to be like, “Look at all these wonderful things I did this year.” Gene, maybe you could write it for me.

Gene: I would love to write your annual review. Of course, you’d be out looking for a new job once they’d be like, “Who wrote this? Goodness, this is … ”

Elizabeth: How it works at large companies, and this is pretty much across the board unless you’re working for one of those high-functioning Silicon Valley companies that do it in a new way.

Gene: Trust me, by the way, all those companies, you think they’re high functioning. Once you get behind the doors, they’re a mess like everybody else. But go ahead.

Elizabeth: At large companies, I don’t know how you do it at small businesses, we’re going to talk about this next, is the employee gathers, “Okay, here’s all the stuff I did this year. Here’s the goals that I set. Here’s how I stacked up against my goals. Here’s all the nice things people said about me. Here’s why I’m wonderful.”

Gene: Right, and you do this once a year.

Elizabeth: Once a year.

Gene: So that’s your first mistake.

Elizabeth: Well, usually we do it in the summer as well, but it’s not as formal.

Gene: Okay.

Elizabeth: Then, the manager gets it and they have two months to then take what I wrote and agree or disagree with it. This is across the board at every company I’ve worked at. Then we find out how we did for the year in March.

Gene: What a bureaucracy. Good lord.

Elizabeth: I know. Crazy, right? When we get back after we hear from our sponsor, we’re going to talk about how you should handle this at your small business.

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QUESTION: Annual Employee Reviews

Elizabeth: Okay, and we’re back. The topic today are annual employee reviews. Here’s the question. I absolutely love this question because it is short and sweet and gets right to the point. It came in anonymously, and you can probably guess what the topic is already. The question is:

“I hate giving annual reviews and my employees find the process annoying. Do I have to do it?”

I’m going to say no. It shouldn’t be an annual review. You should just be giving your employees feedback constantly, because if you were going to give an annual review as part of your constant giving them feedback, you don’t really have to structure it like that because nothing’s going to be a surprise. They’ve been getting that feedback all year. Gene, what do you do with your employees?

Gene: First of all, I do some speaking and I talk a lot about millennial generation. The millennial generation-

Elizabeth: Oh, so sick of hearing about them.

Gene: Well, let me tell you something about the millennial generation. They make up more than 50% of the workforce, and in survey after survey people of this generation, they desire reviews. They feel like they’re not getting enough feedback from their employer.

It’s a good generation and it’s a bunch of hardworking people, and this is what the … I’m just telling you, this is what the generation wants. If you’re an employer, then it’s quite likely that you’ve got a large percentage of your employees, both current and prospective, are from this generation. So I’m telling you, performance reviews are super important to people that are in their 20s and their 30s. It’s important.

Elizabeth: But we’re talking about the annual review.

Gene: No, we’re not. We’re talking about just giving reviews. Now, you asked the question about should we give an annual review. First of all, you’re not required to do anything. There’s no law. You’re required to file your taxes. That’s about it. But there’s no requirements to have annual reviews. However, the smartest companies that I know that I work with small businesses, this whole annual review and performance reviews, these are terms that are old and dated. We’re looking to do strategy sessions with our employees. People want to be treated with respect. Nobody wants some person evaluating their strengths and their weaknesses.

Elizabeth: It’s so uncomfortable to sit there-

Gene: It’s awkward and it’s demeaning.

Elizabeth: … and have their boss say nice … Even if it’s nice things, I’m like, “Ooh, that’s so cringe worthy.”

Gene: This is not 1970 anymore.

Elizabeth: And you hate doing it, right? I’ve had to review people-

Gene: Everybody hates it.

Elizabeth: … and it’s so … So I say don’t do them. You should just be giving constant feedback to your employees.

Gene: It should be feedback and it should be based on … Just let me tell you what I see other clients doing. Now, again, most of these small businesses, because the big benefit of working for small businesses than working for E Corporation, right? By the way, that’s a shout-out to Mr. Robot, for anybody who watches that show.

Elizabeth: We’ll talk about your TV watching after the break.

Gene: Well, the biggest advantage of working for a smaller company is you have a lot more face time with your people. I only have 10 people, so I talk and see them all the time. It’s not like you’re working in a large corporation where things have to be more structured and all that, so use that and leverage it. You don’t have to have something that’s documented in the sense that it’s formalized. What you want to do is you want to have something that’s documented that speaks to your strategies and goals.

Elizabeth: Yeah, I think you could have some structure, but I think the annual performance review is just outdated and everyone hates it.

Gene: That’s correct. So what should happen, because I do this for myself personally, we’ve had these discussions before on this podcast about setting your own goals and your own objectives. I set annual goals for myself, bullet points, some very quantifiable and some a little bit more wishy washy, as it is, like, “Spread good cheer among men.” Then I have goals that are quarterly as well. We do the same thing with our company. Everybody has just a one-pager, give me … By the way, quarterly goals, it’s only 90 days. Give me three things that you want to accomplish this quarter. We want to get the Penske job done on time. You know what I mean? I want to make sure I get this new system set up before the end of the … That kind of stuff. That’s all.

Then, what you’re doing is you’re checking in with each of your people and you’re pulling out the one-pager and going over the goals. Then you create new goals for the next year. Forget about strengths and weaknesses and is this person good at this. It’s just like, are you getting your job done or not? At the end of the year, when you do a look back, if you want, annually you do take one look back and you say, “Okay, well, we all said these were the goals during the year. Are you getting them done or not? Oh, you’re not getting them done. That’s a problem.”

Elizabeth: Okay, here’s another wrinkle to throw into this, because this is another big company thing. This is every large company I’ve worked at.

Gene: E Corp.

Elizabeth: E Corp, sorry. They don’t just look at, “Okay, you said you were going to sell 18 trinkets.” They also look at, “Did you get along with your coworkers?”

Gene: Oh, such nonsense, isn’t it? Some of that stuff I just … That’s kind of like when you fill out a resume or people post a job posting and they’re looking for somebody with good communication skills. Who answers, “No, I don’t have good communication … I’m terrible at communicating …” Somebody’s hardworking. I’m looking for a hardworking, independent per … Getting along well with your … Everybody thinks they get along well with everybody, right?

Elizabeth: But a lot of people don’t. What if you have an employee … We’ve talked about this situation before. Let’s say you hire someone, you do your 90-day audition with them. You’re like, “Eh, they’re fine. They’re getting the job done. They’re kind of a jerk.” Then you start doing your quarterly reviews with them and you’re like, “You know, you’ve kind of been a jerk to your coworkers or to me.” That way, you’re documenting it.

Gene: Well, you are. I want to talk a little bit about documentation and the importance of it in just a minute. That’s a goal. That could be a quarterly goal or annual goal.

Elizabeth: Stop being a jerk?

Gene: Yeah. When I say stop being a jerk, meaning that we will … Person works with three or four people in your company routinely and you become aware that they’re not happy with their behavior or whatever. One of the goals would be to improve relations, and then the way you’re going to monitor that is that, “Listen, at the end of this quarter I will be asking how you’re making out with that goal.” It’s just one of the goals that you have. That’s all.

Elizabeth: Okay.

Gene: Yeah. By the way, sometimes people, they’re jerks, but they’re really good at their job. You know what I mean?

Elizabeth: Yeah.

Gene: Sometimes they’re the nicest people in the world and they can’t add two numbers together. So you have to balance. You’re not going to find the perfect person that is stellar with their job and also everybody loves them as well. So we’re all going to have to … It’s goals, goals, goals.

Elizabeth: Well, I’m not saying everybody loves them. I’m just saying how you get your job done is important.

Gene: It is. It is, but in the end, it’s all important. What’s important for a small business is making sure that everybody’s productive and they’re working well together.

Elizabeth: Okay, so every quarter, you’re sitting down with … Do you do this? You sit down with all of them?

Gene: I do, actually. Sometimes we sit down, sometimes we do it on the phone, sometimes we’re out at jobs, we’re going out to lunch and saying, “Hey, you know what, it’s been like 90 days.” I brought it up with them.

Elizabeth: You don’t have lunch with anyone. Come on.

Gene: No, actually I do when we’re on a job. I actually do have lunch with people.

Elizabeth: When you’re forced?

Gene: Yeah, it’s miserable. I’m forced. I hate doing it. I want to be by myself when I have lunch. But we don’t need to get into this. I have to bring my therapist here.

Elizabeth: We have to constantly talk about how Gene is the most antisocial person.

Gene: Antisocial.

Elizabeth: Even though he sounds like a complete social butterfly.

Gene: I can turn it on pretty good. I can turn it on pretty good.

Elizabeth: Alright, so you’re sitting down every three months, sitting down meaning you’re Skyping, you’re having lunch, email. I don’t know, whatever you’re doing. You’re talking to them.

Gene: By the way, sometimes it’s by email. Sometimes it’s just like, “Hey, Kelsey. Hey, I just pulled up our email from last quarter. We had these goals and objectives. This is what I think happened. Can you agree? Then give me three other goals and I’ll give you three.” We can just do it by email. Then, when we catch up with each other, we can talk about it as well. That’s all.

Elizabeth: How do you document this?

Gene: Okay, so that’s important. In my small, little, mess, chaotic disaster of a company, all of our documentation is by email. When we establish the goals, I always … I’m like this with clients as well. You have the conversation, and then you confirm by email rather than having the conversation by email first. Whatever we talk about and decide what the goals are, I will then email, “Kelsey, great seeing you today. These are our second quarter goals that we agreed on, and this is what you did with your first quarter goals.”

Elizabeth: Then what do you do? You drag that into a folder so you can go grab it?

Gene: Yeah. Actually, it’s in our CRM system. You know what I mean? When Kelsey’s record, which is private to everybody else, it’s got her whole history of our email exchanges together and it’s all there. It’s very important that … I also ask, “Can you please confirm back? Did I miss anything?” I always ask for that. The reason why is because I don’t get into this issue that much in my little company, but I have lots of clients that, if performance isn’t good, or if people aren’t getting along, or if somebody’s not … I don’t know, if there’s a … you need to have a-

Elizabeth: A record.

Gene: Yeah, you have to have a chain of documentation so that if you’re going to let a person go, it shouldn’t be a surprise. It shouldn’t be a surprise. Whenever people talk about, “Oh my god, we got to let this person go,” that person, when they’re coming into the meeting, should pretty much know what’s coming because you’ve talked about it and confirmed it by email over the past few quarters. That’s why you want that documentation.

Elizabeth: Okay, great.

Gene: By the way, also for legal reasons as well.

Elizabeth: I’m going to include in the show notes an article called “Annual Reviews Can Kill Employee Engagement, and Here’s What to do Instead”. This is really going over a lot of what Gene and I … Gene I don’t think has even read this article yet.

Gene: No.

Elizabeth: But you didn’t write it, don’t worry.

Gene: No, no.

Elizabeth: Sometimes I bring up articles to Gene that he wrote and he’s like, “What?”

Gene: I’m like, “Did I write that? What did I say exactly?”

Elizabeth: Was it good? I think this really will bring up a lot of great points for a small business owner. Whether you have one employee or like 99, they really are outdated and you should move to this more frequent feedback.

Gene: It should be. That’s one of the best benefits of being a small business owner, is you can provide that kind of dynamic feedback.

Elizabeth: We will be right back with Gene’s Word of Brilliance.


Gene: Okay, I’ve got a good word.

Elizabeth: Okay, we’re back with the word of brilliance. I also wanted to bring up a few changes we made to the podcast, but we made them about six weeks ago and I don’t think I’ve ever discussed it on the program. We got some feedback that people wanted some executive summaries, so if you go to the show notes we have this wonderful writer, Monica, who is now … Shout out to Monica. I hope she listens, because she is doing work for the podcast now. She’s listening to the podcast and putting time stamps in, so if you’re really interested in one topic you can just scroll past everything else we said, or fast forward, and click on and listen to that topic. That’s one change we made.

The second change we made is that we’re jumping right into the question as soon as the podcast starts because a lot of people loved our witty banter in the beginning, Gene, but other people are like, “Hey, just get to the-”

Gene: Just get to the point. I’m trying to run a business here and you guys are kibitzing.

Elizabeth: Yeah, these are small business owners. They don’t have a lot of time to listen to us talk about our dogs and whatnot. You can hang on till the end and listen to the Word of Brilliance and listen to that banter afterwards, or you can not and we won’t be mad at you. We’re totally okay if you just listen to the question, so I just want to-

Gene: Well, a little mad. But it’s okay. We’ll get over it.

Elizabeth: Well, we’re sad. We’re not mad. On that note, we’re going to get to Gene’s Word of Brilliance. Also, talk about Mr. Robot because I heard that it got really bad in the second season.

Gene: The second season was not as good as the first season, but we’re in the third season right now.

Elizabeth: Oh. Is the third season good?

Gene: Awesome.

Elizabeth: Really?

Gene: Yeah, super awesome. I love that show.

Elizabeth: I haven’t watched it yet.

Gene: Oh, it’s a great show. I really like it a lot.

Elizabeth: I’m waiting. I also haven’t watched The Wire.

Gene: Yeah, I never watched The Wire either.

Elizabeth: Really?

Gene: Yeah, I tried watching Colony. I don’t know if you’ve ever heard of that show-

Elizabeth: No.

Gene: … but didn’t make it all the way through. It wasn’t doing it to me.

Elizabeth: You need to watch The Wire. I feel like-

Gene: I hear The Wire I would really like as well. The big show right now for getting it on Netflix, the detective show, Mindhunter. I just downloaded that. I’m going to start watching. Everybody says it’s fantastic.

Elizabeth: We did both watch Stranger Things 2, which was so good.

Gene: Fantastic, and Ozark on Netflix-

Elizabeth: Oh, I’ve heard that’s really good.

Gene: … is a go-to show. Fantastic show.

Elizabeth: Okay, great. Alright, now Gene, hit us with your Word of Brilliance.

Gene: My word of brilliance, Elizabeth, is one word.

Elizabeth: What?

Gene: Whoa! It’s inventory. Here’s why I want to speak about inventory. I wrote a piece recently about large retailers, something that they’re doing astonishingly that I think a lot of small businesses and merchants should be keeping a close eye on and potentially emulating. As we’re approaching the holidays, all the predictions are that the holiday season for 2017 will be one of the best in recent memory. People are predicting a lot of sales, a lot of volume.

Elizabeth: Why?

Gene: Confidence is up. Consumer confidence is extremely high. Small business confidence is at historically high levels. Unemployment is low. People have more money to spend.

Elizabeth: Then we’re going to have a big recession next year?

Gene: Whatever. I’m not an economist, so I can’t predict that. But they’re all predicting a great holiday season. However, you would think, Elizabeth, if we’re predicting a big holiday season and so you’re running a store, you should be building up your inventory because all these customers are coming in. All of the major retailers are cutting back on their inventory this year. They are not building up their inventory.

Elizabeth: Why?

Gene: In fact, they’re making less. What they are doing is they are, first of all, have negotiated supply agreements with whoever their vendors are to give them inventory in shorter time periods. They’re putting the squeeze on some of those suppliers to get the inventory quicker. And, they’re keeping a closer, closer eye using their inventory systems to see what’s selling every single day and they’re only going to be replenishing the best sellers. Even with the fear of running out, they would still rather do that to keep inventory levels low and not to pad their inventory with a bunch of extra stuff that they think might sell. They’re not taking any chances this year. They’re only stocking their stores with what they think’s going to sell.

Elizabeth: Okay, this is why when I order stuff from Nordstrom …

Gene: Go ahead.

Elizabeth: I talk about Nordstrom all the time. I love Nordstrom.

Gene: Yeah, so does my wife.

Elizabeth: I order things in like … I ordered a pair of winter boots earlier this week. I ordered it in three different sizes.

Gene: Just to make sure they wouldn’t run out.

Elizabeth: Because they sell out, yeah, and I wasn’t sure. Sometimes I’m an 8, sometimes I’m an 8 and …

Gene: The reason why these retailers would rather sell out than have excess inventory at the end of the year, because that kills your profits-

Elizabeth: That’s not great for customers.

Gene: So it’s a trade-off. What their theory is, and these are big … Listen, you’re a small business listening to this. You’ve got one or two shops maybe, or whatever. These people are employing armies of MBA-trained analysts to look at this stuff, and they’re saying, listen, we’d rather lose those customers where we have to sell out than have all this excess inventory of stuff that we didn’t sell after a holiday season-

Elizabeth: But you don’t have to [crosstalk 00:19:25] discount, yeah.

Gene: … because in the end, right. In the end, it’s all about margins. It’s not necessarily about the top line. So if our margins are good because we’re getting the high volume stuff with the highest margins, then our profits are high, as opposed to, okay, maybe our revenues aren’t as much because we’ve sold out of stuff. We’re still making more money.

Elizabeth: Does this mean that small businesses should be squeezing their suppliers too?

Gene: Well, to the extent that you can, and it’s a little tough.

Elizabeth: Yeah, it’s a little hard.

Gene: You’re not a Macy’s. It’s a little tough. What the lesson is for small business for next holiday season 2018, if this theory works, and we’ll hear about it when the retailers release their earnings-

Elizabeth: And we’ll talk about it here.

Gene: And we’ll talk about it, because if the theory does work, then if I’m running a store, my store for next Christmas, I am just going to stock it with the bare minimum stuff and with stuff that I know is going to sell, I know is going to be the best … I’m not going to take too much chances on a bunch of excess inventory. I would rather sell out of stuff than make the wrong decisions and be stuck with a lot of bad inventory that’s going to kill my profits. That’s what you should be thinking of for 2018.

Elizabeth: Alright, we will be back in a couple days with an episode about freelance gigs. Talk to you soon.

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