How to Run Performance Reviews That DON'T SUCK

Buckle up, friends, because today we're talking about employee performance reviews. Woo. Aren't we excited? All right, I realize that may not sound like a ton of fun, but the fact is performance reviews are one of those necessary evils that when done wrong, can become an HR imposed culture destroying bureaucratic waste of time where everyone just winds up asking for a raise. But when done right, are the ultimate way to to give your team's performance as well as your company culture a massive jolt of energy. So in this video, I'm going to give you a deep dive walkthrough of the seven step process that we use, along with access to the same tools and frameworks that my own managers use so that you can plug the system into your company starting today if you want to. But first, if you don't know who I am, my name is Ryan Deiss. My partners and I manage 17 companies across our $200 million holding group. So I've overseen more performance reviews than I care to remember. And frankly, I've done it poorly more times than I care to remember too. So the goal is simple. We want to design and implement an employee performance review system that builds trust and fosters high impact teams. All right, so let's get into some core principles that make this work. Number one, objective measurement. We got to get it out of this objective. We got to get it out of the just the pure thoughts and feelings and into something that we can measure. Number two, it's got to be a two way street. Team members need to know how they're being scored and they need to have the ability to score themselves. They need to know how they're being graded and you need to understand how they feel about their own performance. This is a really critical aspect of alignment. And then finally, what we're measuring here is the combination of fit and effectiveness. That really is what we're looking for. Very often when we're doing employee performance reviews, we're talking about, oh, this person's a good culture fit. That's great. But good culture fits aren't always good performers and good performers aren't always good culture fits. That's why we need to measure and compare both. And specifically, we need to measure and compare both along an axis. And I'll show you how we do that in just a second. Organizations with successful cultures hold their teams accountable to both the what, meaning the results and the how the core values, how how the work actually gets done. All right, we got seven steps to make this happen. Let's get into it. Step one is to Calculate the effectiveness of the team member. Now, to do this, we don't need a laundry list of questions that have no bearing on someone's actual job performance. I remember one time we did a performance review. We actually brought in an outside company to make this happen and to handle all the interviewing. And there were, not exaggerating, 40 some odd questions that were being asked of every single employee. Now, as you might imagine, this was not well received by the team members. We intended it for it to just be a nice, friendly, basic standard employee performance review. The employees thought that everybody was getting fired and we nearly had a giant mutiny on our hands and some of our best people literally quit over it. So when it comes to effectiveness, there is a formula and that formula is quite Quality plus productivity plus results equals effectiveness. And so with quality, we're basically asking, does the team members work consistently meet or exceed the standards and expectations? With productivity basically saying, does the team members work output, is it tangible, is it usable and is it completed in a timely fashion? And then with the results, we're basically asking, does the team members work have a direct impact on the company's stated goals and objectives? So now when we're doing the scoring, we are ranking on a scale of 1 to 5. One is if you strongly disagree. Five is if you strongly agree. Now here's the key. It should be difficult to get a one or a five, but don't just throw out fours willy nilly. All right? Make sure that if you're going to say, no, I agree with this, that you really do agree neutral is okay because neutral is going to create some conversations. We'll talk about that later. So once you've gone through each one of these, then just simply go over to the right side of the team Impact Analyzer and fill it in for each team member. And don't overthink it. Do go with your gut. Typically, the first number that pops in your brain is the right one. So step two is to calculate fit based on the core values. Now, obviously this assumes that your company has core values. If it doesn't, then this is your sign to make creating that a priority. I actually covered core values in another video that I made on creating your company's Clarity Compass. I'll be sure to link to that as well down in the description. But just to review, core values are the inherent, natural and positive traits of the leadership and founding team. They're the generally accepted standard of behavior. This is what defines the culture of the company. It doesn't mean that if somebody doesn't have these traits that they're necessarily bad, it just means that they're not a fit within your organization. Now, just like with effectiveness, we're going to score on a scale of 1 to 5, with 1 being that the team member rarely lives out this core value. That's not good, by the way. And five being that the team member is the walking embodiment of this core value, usually is a three. And for somebody to be a five, they really need to be that kind of person that you would hold up as an example of this value to everybody else. So go through and fill this out for all the core values for all the employees. And once you've done that, it's going to give you an overall impact score combining the average of fit and and effectiveness. Once you've done that, you can move on to step three. Stack rank each employee using this team effectiveness matrix. So what we're basically doing is we're going over here and we're saying, what is their average fit? What is their average effectiveness rating? And based on these numbers, we're going to plot them on our matrix. So as you can see here, we've got Rick down there in the red in the danger zone. Over here in the yellow zone, we got some folks out here and here and they're there for different reasons. And then up here in the green zone, this is that high impact zone. These are some folks that are doing really good work. Now, I got to tell you, when it comes to who is the most dangerous of them, you might think that the people that are the most dangerous are those people who are in the lower right hand corner. The, the people who are the very effective but the low fit. And actually that's not the case because the people that are high effective and low fit, not only are they actually getting some pretty good work done, but people sort of understand why you keep them around. I'm not suggesting that you keep them around forever, but what you can do with these people sometimes is sort of put them on an island. So they're not a great culture fit. That's not ideal. But can we kind of separate them from everybody else for a time and hope to rehabilitate them? The most dangerous are the people who are the super high fit but very low in effectiveness. These are the people that we will tolerate forever and ever and ever because they're so nice because they're such a great culture fit. And I can tell you these are the people that if you're not careful, you will lose your best performers because they're going to see you tolerate under performers and you're going to think, oh, I can't let Shannon go because everybody loves her. But the reality is everybody understands that Shannon needs to go because everybody's kind of sick of falling back behind Shannon to clean up her mess and to do her work for her. So the people on the outside are dangerous, but actually the most dangerous people of all are the folks who are right in the middle. The ones who are about a 3ish on fit and about a 3ish on effectiveness. They're not so bad that you have to do something about them. And, and so we just let them linger for a very long time. So if you see anybody who's touching this kind of 3ish quadrant, these are the folks that you really want to pay attention to. Because these are the folks that if you let them linger for too long, they can hold your entire company back. All right? So remember, this is a two way street. And so that's why step four is to have the team member self score and report that back to the manager. This can actually be accomplished with just a single email. So what you're looking at right now is, is that email, we just send an email to the team member that says, hey. As a part of our quarterly review process, we're asking all team members to rank themselves on a scale of 1 to 5 based on their fit with the company's core values and effectiveness of their work. Please reply to this email with your scores for the following questions and then it just lists out the same questions that you answered on the spreadsheet. The beautiful thing about this is they don't have to go and set up a separate meeting. They can literally respond to it by just replying to the email. It's super simple and it takes like a few minutes. By not treating this like such a big deal, people don't think it's such a big deal. And that's important. If you treat your performance review process like it's some, you know, big, huge thing where you're coming down from the mountaintop, then it's going to kind of freak everybody out. Once you've received a reply from all of your team members, then it is time to enter those into the Team Impact Analyzer as well. So step five is to actually review and discuss the results with the team member. And this is basically an extended one on one. So hopefully you and your managers are already doing one on ones with their team members. So all we're doing here is just kind of having an extended one on one where the goal is to talk about this particular performance review process. Now this isn't just some kind of checkbox meeting that you have and then blow off. This is a really important conversation, maybe the most important conversation that a manager is going to have with their team member all quarter. So let's talk about how this particular meeting works. The first thing that you're going to do during this meeting is just restate the goal. You're basically explaining that if we can help them be more successful, then the company is going to be more successful and that's good for the company and that's going to trickle down to them. It's pretty simple. Then what we want to do is we simply want to discuss their self review scores. You're going to look for places of extremes. Do they give themselves a one in places? And you're like, hey, you rated yourself A1 here, talk to me about that. Maybe they gave themselves a five and you're like, you gave yourself a five. Can you maybe give me some examples of that? It's kind of their last chance to lock in their scores before you get into the discussion. Because what we're going to do next is you're going to compare their scores with your scores. And what we want to start off with is just acknowledging the positive and areas of agreement. So what are some places where they gave themselves a five and you gave them a five? Right. Where can you point out and be like, hey, I agree, you absolutely crush it in this area. Then we want to acknowledge some of the negative areas of agreement. What are some places where you're saying, hey, yeah, I agree, we need to work on this, let's talk about that later. And maybe we also want to look and discuss some areas of disagreement. What are those areas where you gave them a lower score and they gave themselves a higher score? There's also going to be a lot of places where they scored themselves too low, especially some your highest performers. They're high performers because they're really hard on themselves. And so this is a good opportunity to speak some truth and to encourage them and to let them hear that you really value them and that you really respect the work that they do. That's one of the most important and valuable things that comes out of this entire conversation. So the scoring is important, but it's the objective scoring that allows you to have an informed, subjective conversation. So once you've discussed all the different scores you've compared, you've had the discussion and now we need to realign and we need to kind of discuss, okay, how do we get things even better? Now, if you're dealing with a top performer and everything's four and above, you can kind of skip this step. But if we got somebody with some threes and definitely if they have some twos, the question we want to ask is, look, what needs to be true for both the employee and the manager to rate all their fit and effectiveness as a 4 or better? What needs to be true? And sometimes what needs to be true is the employee needs to give a little bit more. Sometimes what needs to be true is that the company needs to provide more resources. Very often what comes out of this is like, I'm trying my best, but I'm overworked and I'm overwhelmed. And based on this, we're going to have a plan. Now, maybe after looking at this, you're talking to the employee and it's clear that they deserve a raise or it's clear that they deserve a promotion. Now, we've got a rule about this at the scalable company and that is employees are eligible for a raise once a year. Now, sometimes things are so bad that they need to go on a formal plan for alignment and growth, or some would refer to it as a performance improvement plan. The outcome of this needs to be up or out. And that really is what step six is all about. With step six, we are going to align on a growth plan. Now, if somebody is clearly in the red, so if they're under a three on both fit and effectiveness, then as far as we're concerned, this is not really somebody that we're going to look to invest in anymore. You got to at least be a 3 or above in one of those categories. Now, if you are a fit, but maybe you're not as effective, okay, let's get you on a plan for alignment and growth. Similarly, if you're effective, but maybe there are some cultural issues. Yeah, let's work on that. Let's get you on a plan for alignment and growth, but let's agree that things need to get better by the time we meet or this probably isn't going to be a fit for you long term. Now, for those people who are up in the green zone, and by green zone, we don't just mean three or above. We're talking about the people who are fours and above across the board. The question that we're going to ask is how do we further enable their excellence? These are your high impact performers, These are your A players. We're going to say, what do we need to Give them to get even more out of them. But no matter the employee, there's going to be some type of growth plan by the end of this meeting. Either it's a plan for them to grow into excellence, it's going to be a plan for alignment and growth, or it's a plan for them, frankly, to grow in somebody else's company. And finally, we come to step seven. Step seven is the simplest one of all, and that is to just repeat this quarterly. I've tried performance reviews annually, twice a year. We've just found that if you can maintain a quarterly cadence for this, that's what works out the best. Now it doesn't. You can't do quarterly performance reviews if you've got 40 plus questions and you bring in the bobs, it doesn't work. But if you're doing a simple performance review process like this, you can absolutely do it quarterly. And the nice thing is by doing it quarterly, you're having a consistent rhythm and a consistent conversation. And it doesn't feel like such a high pressure. Big deal. And also gives you the opportunity to have the performance bumps each and every quarter instead of just doing it once or twice a year. When you do this consistently, you don't just get better employees, you build a better company. One that doesn't require you to micromanage everyone. And again, if you want the actual tools and templates that we use that make this happen, be sure to click the link in the description. And if you found this valuable hit, like, hit subscribe and check out my video on how to build your company's Clarity Compass. That is the other half of making this system stick. And if you want help implementing this or any of the other stuff I talk about on my channel, we got a link for that as well. That's what we help our clients do. Love to work with you on it. Either way, I'll see you in the next one.