It’s the most wonderful time of the year . . . Yes — it’s that time to prepare for annual reviews. Most leaders look at this as a frustrating zone between a rock and a hard place (is this you?).

Why? On one hand, you’re responsible for accomplishing the goals and objectives of the organization — for making sure the job gets done. On the other hand, you have to get that job done with and through other people. And those people have agendas of their own — agendas that sometimes run counter to the goals of the business and your personal expectations.

Add in that everyone thinks that they’ve done a spectacular job. Mix in the unrealistic expectations of the business (no big raises) and you have a volatile stew of emotions to quell each time of the year. So here’s how you do it.

Schedule all your reviews to occur in one day (this is usually the hardest step). Odds are you should have between 5-7 direct reports (any more and you are not really managing them correctly — a future blog post topic) — so make them 1 hour each — more than enough time. Most executives tend to procrastinate on this step — so get out your calendar and do it! If you can, try to meet offsite so you are not interrupted. I find that office reviews are easily interrupted and that disrupts the entire effect of the review — your personal one-on-one with your direct report.

Meet with finance/HR and understand exactly how much money you will be working with in 2010. This will allow you to clearly define exactly how much you can increase your team’s salaries (and their team’s salaries). In larger companies, there usually is a matrix (which I hate) — I feel that the delivery of merit should come from the manager, not HR. At the end of the day, you need to know how big of a bag of money/benefits you have to work with.

Develop a prioritization schedule of your team — this includes criteria to rank them. I break them up into three areas:

Outstanding Performers (OP) – Your “top of the line” people. They not only get everything done, they surpass your expectations. They are your right hand people (you would be SOL if they left tomorrow). You need to recognize them accordingly.

REVIEW: Keep them happy. Give them the kudos they deserve (and broadcast it to the rest of the team), give them the money (but not too much), and increase their responsibility and exposure in the organization (this is the most important area). Studies show that executives are motivated more by being in on things, exposure, increased responsibility than getting more money. Of course, money is good, but it wears off quickly.

Performers (P) – They do their job. Some do it better and surprise you, some make mistakes that infuriate you. But overall, they get their job done and cause minimal problems. If they left, it would be difficult, but not impossible, to find a replacement.

REVIEW: Your goal here is to turn this opportunity and move these people to Outstanding Performers. This is where the money comes in (show it to them). Acknowledge their work so far and give them more responsibility outside of their area. Recognize their accomplishments and discuss their misses. Your goal is to show them the map to move upwards.

Performance Problems (PP) – They are missing the mark in one way or another. It could be technically — not doing their job correctly OR socially — not communicating, managing, or playing well with others. They could be serial screw-ups, not in the right position, or not doing their job (lazy). They should be reorienting their vision upwards or you will be showing them the door.

REVIEW: These are the most critical. They are either moving up or out. They need to understand what they are doing wrong and show them how to rectify it. These people need to be managed closely — you need to be stern with them (no side conversations). No money — and a possibility that they might lose some money. Usually, PP executives walk away with a task to come back with a plan to do better. Candidly though, this should not come as a surprise to them – if you’ve been managing them correctly, they should have seen this coming for months. If not, don’t wait until the annual review to dress them down.

How do you do your reviews?  It’s easy (I did this for years and it works like a dream):

Outstanding Performers (OP) – You do these. It’s important that YOU personally recognize their performance.

Performers (P) – They do their own. And then you edit accordingly.

Performance Problems (PP) – You do these. It’s important that YOU personally provide discipline verbally and in written form.

Facts. Facts. Facts. Leave emotion at the door. Every review should focus on three areas:
1. What was expected of them.
2. What they accomplished.
3. How they accomplished it.
That’s it.

Feel free to add emotion after the review to either congratulate or discipline. My prescription is to increase the congratulations as much as possible and rein in the discipline as much as possible. Just my two cents.

That’s it — if you have any questions or comments — let me know!