How We Designed an Employee Performance Evaluation System from Scratch
Eugen B. Russ – 16. Mai 2014
From the very start, it was obvious that we were lacking a performance evaluation system at Erento. There was no regular feedback process in place, no culture for formalized feedback or any form of performance reporting. We quickly realized that to foster employee development and to provide people with a perspective for growth, we had to implement a formalized feedback process.
Collecting the requirements for a performance evaluation system
We started off by collecting the requirements of such a system and summarizing them into three main points:
- Flexible, scalable, customizable system to fit our needs at a reasonable cost
- Rich in features: easy to use reporting tools and visualization
- System must allow online access for everybody at anytime (SaaS)
Seeking a suitable solution and decision
After we agreed on the requirements of said performance evaluation system, we started the search by googling terms like “performance evaluation system”, “Best HR feedback system” or “feedback software.”
The results of the google search were quite disappointing: Some SEO-optimized sites like softwareadvice.com popped up, first offering an ostensibly impartial overview over the market with reviews and rankings. Most of the software advertised on the site did not meet our flexibility/cost criteria, required significant time investment and were all but easy to use. Also none of the listed solutions were SaaS but instead were standalone software.
We continued searching on more specialized sites like techrepublic.com, where we found another blog about employee performance reviews. We looked more closely at the first three tools: OrangeHRM, WayPointHR and eAppraisal. However we were still not fully satisfied with any of these tools: they all had some major drawbacks.
This was when then-CEO Rob ran into a SaaS product called Namely on AngelList.
Namely instantly caught our attention because it was a software tailored to businesses our size (~50 people). It promised scalability at a reasonable price and the same functionality as HR solutions for larger corporations (not limited to performance evaluation).
After testing all tools more closely, we summarized the results in the following table:
While we were impressed by OrangeHRM, we ended up going for Namely. Namely was very flexible, scalable (up- and downward) and promised professional reporting and visualization tools. We were particularly impressed with the variety of features. The two deciding factors though were price and the level of personal support Namely offered from the first minute we contacted them. They immediately scheduled a live demo with one of their sales reps who then led us through the product. Pricing starting at $5 per employee per month was very reasonable considering the wealth of possibilities the product offered.
Learning: There are many tools out there. It is quite difficult to find a suitable tool for a small-sized company like Erento which offers some room for customization at a reasonable price. We were very disappointed by the results Google produced when we searched for a good software. We learned when looking for a suitable software, it is better to consult blogs and/or other businesses or specialists. We continued to use angelist.to as point to search for innovative solutions.
Implementation and first test run
The next step was implementing Namely at Erento. We received extensive training by Namely (included in the package) to help us to kick off the process. The platform was easy to use and intuitive.
We had to work out a feedback template that was comprehensive enough to include all aspects of the job, but simple enough for everyone to understand. In a meeting we identified and broke down our evaluation criteria into three main segments: Core, Impact and Team. While Core was specific to each job, Impact and Team was kept uniform throughout the whole company to allow for benchmarking.
When determining the questions we decided to stick to a simple 3×3 matrix: three segments with three sub-questions each. The result was an easy-to-understand but comprehensive feedback questionnaire for each position (e.g. Data Manager).
The rating scale ranged from 1-5 and ratings were defined as follows:
- significantly below expectations
- below expectations / development area
- meeting expectations
- exceeding expectations
- greatly exceeding expectations
The average rating throughout the company should therefore be 3.0. We knew that we had to instruct supervisors properly and make them aware to avoid grade inflation.
Once we defined all feedback templates for each position, we decided on how to implement the feedback process itself. We agreed on the following structure:
Bi-monthly formalized downward feedback via Namely
Quarterly upward feedback for each supervisor
Identification of key strengths and development areas for each employee
Goal setting for departments and individuals after each feedback
Potential assessment (current potential / future potential matrix)
Benchmarking against peers
Learnings: Make the feedback simple enough so everybody understands it but design it comprehensive enough that it includes all aspects of a job. The grading scale has to be made it a way that everybody can understand and must be communicated accordingly. Lastly it is important to communicate the significance of feedback and the role it will play in the company. We made sure to emphasize that this tool was not implemented to control people but to allow people to develop their skills and grow within the company.
Employee performance evaluation: full rollout and takeaways
We started our first rounds of feedback about two months after first kicking off the project. Even though we were sure that we had thought through the whole process, we quickly realized that we were still relatively unprepared.
The first takeaway is that supervisors must be sufficiently instructed in how to give feedback – particularly if they have not been through the process before. For that purpose we prepared a How-to-Give-Feedback-Manual.
Secondly we realized the importance of properly communicating the system, its purpose and the “how-to” to all employees at Erento. When newly introducing a formalized feedback process, it is important that people understand that this is not implemented as a mean to control or chastise them. On the contrary, the system should support them in their effort to constantly improve themselves and allow for more transparency within the company (i.e. avoid surprises).
Lastly it is important to have someone specifically in charge of scheduling the feedback, instructing supervisors/employees and synthesizing the results. That person also needs to sit together with each employee after the formal feedback to explain the significance of the feedback and discuss potential consequences/actions.
In retrospect, the introduction of Namely as a performance evaluation system at Erento was a great success. Feedback about the new process has been positive throughout the company and it has brought us a step closer to being a more transparent company.
We hope that this post will help you in your choice of a feedback system. It has been a great step forward toward making Erento a truly successful, international company. If you have any questions, comments or remarks please do not hesitate to leave a comment below.
Have someone specifically in charge of the entire feedback process (ownership & responsibility)
Choose a tool that fits your specific needs (this blog might serve as guidance for which tool to choose but it does not mean that Namely is the best tool for your company)
Implementing and maintaining a performance evaluation system takes a lot of effort (3-4 months) and management commitment – be sure you have the buy-in from your entire management team
Make the feedback easy to understand, fair and as uniform as possible for the entire company
Properly instruct reviewers and reviewees: Be sure to sit in on performance evaluation meetings and give feedback to reviewers
Be sure to visualize performance results by making people sign off on their review and handing them a printed copy