After the busy season, performance reviews probably inspire the greatest level of anxiety among employers and staff members. They can be emotionally charged. They can also be legal minefields. When done appropriately, however, they can deliver substantial benefits.

The Accounting Office Management and Administration Report identifies four benefits of performance reviews in their May 2005 issue. The benefits are:

• Communicating shortcomings. During performance appraisals firms have the opportunity to document and inform staff of performance issues needing correction.
• Avoiding discrimination claims. Using a consistent instrument to measure performance for all employees assures everyone is evaluated using the same criteria and rating scales.
• Identifying top performers. When used regularly (and more frequently than once a year) performance reviews can help employers identify the strongest and weakest performers as well as help identify issues affecting retention and development.
• Communicating the firm’s strategic plan. Everyone likes to know where their going. Performance reviews give employers an opportunity not just to discuss the direction the firm is heading in, but also to tie individual employee goals to the firm’s objectives.

A theme underlying all of these benefits is the prevention of legal complaints and claims against the firm. The periodic performance appraisals made using consistent evaluation criteria can be a firm’s greatest defense in the event of legal action. They also create a paper trail demonstrating the firm’s action relative to a complaint.

The key to quality performance appraisals is soliciting input from peers, supervisors, and others during the pre-appraisals phase, developing specific goals and recommendations that are also reasonable, using the same measure of performance over a period of time and not changing the criteria arbitrarily, plan specific activities or tasks with limited duration which allow employees to demonstrate improvement, and provide timely and frequent feedback in addition to the formal review process.

To help accounting firms set up and assess their performance review process, the Institute of Management and Administration (IOMA) has published a new Special Report titled “IOMA’s Guide to Performance Metrics and Management”. More information about the Special Report is available from the IOMA website.