James Lea writes in the Triangle Business Journal that as a family business grows and becomes more complex, the owners should start looking for ways to make management and operations more systematic and professional. Business practices that worked fine when the company was three people, two desks and one telephone just don’t get the job done when employees, customers, facilities and revenues have ballooned.
One professional management tool that’s especially useful to a growing family business is the annual performance evaluation. It’s a systematic way of accurately measuring the work performance and output of each management and operations employee, family and non-family alike, against a previously agreed-upon set of criteria and performance targets.
When done correctly, a performance evaluation – PE, for short – works well for family companies because it produces valuable information about operating productivity, both strong areas and weaknesses. Because it’s a way of giving objective feedback, PE reduces the hemming-and-hawing or hurt feelings that can result from one family member evaluating another. PE is also a great help in work planning and in reinforcing everyone’s commitment to the business goals of the company and the family. And it can be useful in simplifying some of the stickiest management decisions that family companies face: compensation.
Some people think of workplace evaluation as a supervisor reviewing an employee’s work and pointing out the past year’s foulups and failures. T’ain’t so with PE. The supervisor and the employee look back together over the past year’s achievements and areas needing improvement. Then they look forward and set performance objectives and output targets for the upcoming year.
That’s what creates each employee’s individual index of accomplishment and gives the supervisor and the employee something constructive to talk about during the evaluation interview.
Negative feedback can be hard to give and hard to take in any work situation. The intermingling of family relationships with supervisor-subordinate relationships in a family business can make it even harder. Any structured method helps to relieve the unpleasantness of an evaluation’s downside. But performance evaluation is one of the best methods because the performance checklist, which has been created jointly by the supervisor and the employee, and the employee’s performance targets are there in black and white.
Pegging the company’s compensation policy to PE helps to solve another common problem in family businesses: how to structure family employees’ compensation packages, annual raises and other incentives fairly and reasonably. When family members’ work plans and performance targets are being set for the upcoming year, salary-increase percentages and nonsalary incentives can be attached to those targets upfront. Later, when it’s time to calculate each person’s reward for contributing to the company’s success that year, it’s clear who deserves what size piece of the pie. No questions, no excuses, no 11th-hour renegotiation. The compensation formula is objective, and no one gets cast as either Santa Claus or The Grinch.
A well-structured PE form will not only pinpoint inadequate or off-target performance, it also will help to track down the reasons, which can be pretty deeply hidden and hard to uncover. Even better, PE helps supervisors and employees do all that in an objective, cooperative fashion that makes correcting the problems a lot easier and faster.
For information on how to set up and implement annual performance evaluation in your family-owned business, check the Web or the nearest college or business school business library. It might be worth spending a few bucks for a consultant to get things started.
Lea is a professor at the University of North Carolina at Chapel Hill and a family business speaker, author and adviser. Contact him at email@example.com.