Employee handbooks help set expectations at your company by establishing standards and practices. When the time comes for annual reviews, employees should feel confident about the yardstick they’re being measured with, and a performance review policy can help. It can also protect an organization from issues surrounding discipline, termination, and promotions.

What is a performance review policy?

A performance review policy outlines how an organization assesses and evaluates employee performance. It typically covers three key areas:

  1. Goals and objectives: The policy defines the expectations for employee performance, often through clearly defined goals and objectives set collaboratively between employees and their supervisors. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART).
  2. Review process: The policy specifies the frequency of reviews (e.g., annual, bi-annual), who conducts the reviews (e.g., direct supervisor, HR), and the format of the review (e.g., written evaluations, performance discussions). It also outlines the steps involved, including self-assessments, feedback sessions, and opportunities for discussion and appeal.
  3. Outcomes: The policy details how performance reviews are used to inform various decisions, such as compensation adjustments, promotions, training needs, and potential disciplinary actions. It emphasizes fair and consistent application of the policy, ensuring clarity and transparency for all employees.

In essence, a performance review policy serves as a roadmap for continuous improvement, fostering open communication, development opportunities, and ultimately, a more productive and engaged workforce.

Does my company need one?

A company generally needs a performance review policy in the following situations:

  • Establishing formal evaluation processes: Use this policy when the company wants to establish a formal and standardized process for evaluating and assessing employee performance on a regular basis.
  • Promoting consistency: These help the organization ensure consistency in performance evaluation practices across different departments, teams, or levels within the company.
  • Supporting employee development: Create this policy when you want to use performance reviews as a tool to identify strengths, areas for improvement, and opportunities for skill enhancement.
  • Setting expectations: This policy can set clear expectations for both employees and managers regarding the criteria, methods, and frequency of performance reviews within the organization.
  • Ensuring fairness: Create a policy to ensure fairness and transparency in the performance evaluation process, including the criteria used for assessments and the communication of results.
  • Addressing legal compliance: These policies can address legal and regulatory compliance related to employee performance evaluations, ensuring that the process adheres to employment laws and anti-discrimination regulations.
  • Implementing performance improvement plans (PIPs): Use this policy when the company plans to implement improvement plans for employees who require additional support to meet expectations.
  • Managing compensation and rewards: When performance reviews are linked to compensation decisions—including merit increases, bonuses, or other forms of recognition—these policies can ensure fairness and consistency in such processes.

What should be included?

Performance review policies are some of the most comprehensive additions to any employee handbook. Depending on your approach to performance reviews, a policy needs to thoroughly define and explain the process, expectations, processes, protocols, means, methods, and any other critical factors linked to assessments.

Some of the most pertinent components of a performance review policy may include:

  • Purpose and objectives: Clearly state the purpose of performance reviews within the organization, such as providing feedback, identifying areas for improvement, setting goals, and supporting professional development.
  • Frequency and timing: Specify how often performance reviews will be conducted (e.g., annually, semi-annually) and outline the timeline for the performance evaluation process.
  • Criteria for evaluation: Define the specific criteria and competencies on which employees will be evaluated, including job-specific skills, communication, teamwork, and other relevant factors.
  • Performance rating scale: Establish a performance rating scale or system that outlines the different levels of performance (e.g., exceeds expectations, meets expectations, needs improvement) and the criteria associated with each level.
  • Documentation and record-keeping: Outline the procedures for documenting performance feedback and maintaining records related to performance evaluations, including any forms or documentation templates.
  • Participation and input: Clarify the roles and responsibilities of both employees and managers in the performance review process, including any self-assessment requirements and opportunities for employee input.
  • Goal setting and development plans: Detail how goal-setting and development plans are integrated into the performance review process, including the creation of actionable goals for the upcoming review period.
  • Training for managers: Provide guidance on training managers or supervisors to conduct effective performance reviews, including communication skills, goal-setting techniques, and handling difficult conversations.
  • Performance improvement plans: Outline the procedures for performance improvement plans if an employee’s performance falls below expectations, including follow-up evaluations and support mechanisms.
  • Confidentiality: Address the confidentiality of performance review discussions and documentation, emphasizing the importance of keeping performance-related information secure.
  • Appeals process: Establish an appeals process or mechanism for employees who may dispute their performance evaluation.
  • Legal compliance: Ensure that the performance review process complies with relevant employment laws and regulations, and provide guidance on avoiding discriminatory practices.
  • Communication of results: Describe how performance review results will be communicated to employees, including feedback sessions, written summaries, and any follow-up discussions.

Create your own performance review policy with SixFifty

SixFifty’s Employee Handbook Creator helps companies generate their own custom, state-specific employee handbooks in all 50 states. Learn how we can help you create your own performance review policy, to demystify the performance review process and align everyone in your organization around transparent standards and expectations.