It happens once a year. Anxiety. Tension. Sweaty brows. Wringing hands. Neverending forms to fill out. No, not taxes — performance reviews. Although reviews may plague both managers and employees, they can be a rewarding process if done properly.

We asked MACHINE DESIGN readers to e-mail us their opinions on performance appraisals, and responses ranged from compliments to complaints. Some readers said "appraisals could be effective if properly executed, but require a lot of work, time, and dedication." Others insisted "all peerlevel reviews are a joke, and most yearly reviews not much better."

But, love or hate them, performance appraisals are likely to stick around because research shows most employees want feedback on their performance. Randstad North America, an employment services company, and RoperASW, a marketing research and consulting firm, conducted a survey on how employees and employers feel about key issues. The 2002 Employee Review found that more than 80% of employers and employees agree reviews are important.

THE GOOD
Dick Grote, president of Grote Consulting Corp. in Dallas and author of The Performance Appraisal Question and Answer Book, says everybody wants to know what their company expects of them. Everybody wants to know where they're doing well and where they need to work a little harder. If asked, no one would say, "Don't tell me. I'm not interested."

Getting feedback from those in charge is beneficial for employees, according to Randstad's 2002 Employee Review. It found that employees given regular feedback about their performance are more satisfied with their managers, more likely to describe their company in positive terms, and have higher job satisfaction. In addition, regular reviews help lower stress and anxiety over job security. Some 60% of employees who receive regular reviews say it's not "foolish" to be loyal to one employer.

Survey results show a boost in performance when people know what goals they're working toward, particularly when they know and accept the expectations, rewards, and consequences. Employees tuned into the reasoning behind company decisions exhibit more confidence in the organization's future, management, and job security.

Performance reviews are important because they give employees and managers a chance to sit down and say what needs to be said and hear what needs to be heard. They provide an opportunity to discuss an individual's work, career objectives, and goals, as well as company performance and objectives.

"Performance reviews are important because they let employees know what is expected of them and how they're measuring up to those expectations," says Susan Gebelein, executive vice president for Personnel Decisions International, a global management and human resources consulting firm in Minneapolis.

And now is the time for employees to speak up about where they'd like to go in the company, says Gebelein. "Discussing performance gives employees a chance to influence how they are seen in the organization and discuss opportunities for the future. It helps set the stage for discussions about career path and areas where a boss can provide new opportunities or coaching to help employees move in the right direction," she explains.

Chuck Hansen, president of Management Recruiters of Jacksonville-South, agrees. "Annual reviews help managers understand employees' long and short-term objectives," he says.

But the true value of performance reviews, according to Grote, goes beyond justifying raises or telling employees where they're succeeding and where they need improvement. "The real value of performance appraisals is to get everybody focused on the objectives of the company and to make sure everyone understands the mission. If you're holding them accountable for that, then they're going to pay attention," he says.

THE BAD
As much as performance appraisals are touted as great communication tools, they can frustrate both managers and employees. One reader simply states, "Most people that do the review, including completing the form, don't like to do it." The 2002 Employee Review showed the need for more personal, one-on-one interaction about employee and company performance, as well as a greater balance between what management wants to say and what employees want to know.

For Grote, there's only one trouble spot for performance appraisals: poor managers. "There really aren't any cons to performance appraisals, other than weak managers don't like doing them. It's usually because upper management forces them to, at least annually, sit down with staff members and tell them the truth about their performance," he says. Hansen agrees if reviews depend entirely on the manager, it can be a problem. "If that person is having a bad day or is not very good at this kind of thing, the review suffers," he says.

Performance reviews can also present a predicament during a company's lean years, adds Hansen. If a company is doing poorly, employers can't afford to give raises or promotions, even when an employee has a stellar year. "There's a perception that performance reviews equal money. And that's difficult to deal with when there's no money to give," says Hansen. "When the company is having one losing year after another, even if the individual employee's performance is terrific, there's bad news to pass along."

Another sticky point for performance appraisals, especially when it comes to engineers, is evaluating team performance. Often times, when the entire team is reviewed, the worst performer gets a better-than-deserved rating, and the best performer ends up with a worse-than-deserved review.

"Team members should be sources of information for the review," says Gebelein. "Many times this occurs with engineering groups in the form of project reviews, which include a review from team members. When the individual selects team members to interview, it improves the employees' buy-in to the process and receptivity to feedback. The focus is on getting constructive ideas about how the engineer can be even more effective."

Based on his experience, Grote says not many companies review teams as a whole, which is likely a good thing. "In a recent study I conducted on best practices in performance appraisals, I was expecting to find companies doing appraisals of teams because so many people work in teams. But, there aren't any. It's not surprising, considering we never hire or fire people in teams. To get to the team element, it's better to appraise people's individual performance, including their contributions to teams," he says.

THE BETTER
Performance appraisals provide a place for accolades and constructive criticism, but there are problems with the process. What can managers and employees do to get the most out of a review?

Like Mom said, honesty is the best policy, even when it comes to annual reviews. Managers need to be forthright with praise, as well as problem areas and suggestions for improvement. Reviews aren't the time to tiptoe around the truth, no matter how much it may hurt. As one reader noticed, "It seems a lot of managers hesitate to tell ‘the real story' because it's difficult to confront someone with marginal performance."

"People don't like to give bad news and don't know how to do it. For managers, it's critically important to learn the skills of communicating with their employees. This includes the skill of giving information about the need to improve in certain areas, maintaining a constructive relationship with the employee, and motivating them to go forward," says Ann J. Willson, senior professional in human resources and owner of Human Resource Directions in Raleigh.

But Grote believes it doesn't take skill as much as a willingness to be straightforward with employees. "One word: Courage. That's what it really takes," he says.

Honesty should extend to company performance, says Hansen. "The best thing is to be brutally honest and show your employees how top management has planned to make the company more profitable. There's always a tendency to not say too much. There's a tendency to not be honest about the company's chances, especially when things don't look very good," he says.

Randstad's 2002 Employee Review found that employers are far less likely to talk to employees about the company's financial outlook than individual performance. The research showed that today's employers give their employees financial information less than 50% of the time, with large companies more willing to divulge the facts than smaller companies. Seventy percent of employees say it's important for employers to tell them how well or poorly the company is doing, but only 54% of employers feel the same.

However, hearing about the company's objectives, goals, and financial performance should be discussed along with employee performance. "Every objective and goal set in regard to individual performance should link to the company's goals. If they don't, it's a futile exercise that wastes time and money. The whole thing has to be set within a framework of how this affects overall company performance. Managers should definitely be talking about how the organization is doing, where the issues are, and how the employee can help fit into that," Willson says.

Grote also suggests managers give employees a copy of the performance appraisals an hour or two before meeting, so they aren't forced to read it for the first time in front of their managers. Giving it to them ahead of time helps make the medicine go down. It eliminates the immediate emotional rush and defensiveness. When people have a chance to think about their reviews, a more productive business discussion results.

Some MACHINE DESIGN readers agree performance appraisals can often take an adversarial tone. "Most of the reviews I've been in take some type of defensive argument. This is never productive and makes matters worse," says one reader. Anticipating what managers will say adds to appraisal anxiety. "When you go to a review, you're often wondering what they're going to hit you with," says another. "Did they remember the good things you did or the one goof up?" Another reader sums up, "A performance review shouldn't be a surprise to the employee, and too often it is."

SHAKING THE MONEY TREE
According to a recent study, only about four out of 10 employees and managers know how they can boost their base pay or cash bonuses. WorldatWork, an association for professionals in compensation and benefits, sponsored the survey.

"Many employees and managers simply don't understand why they get paid what they do," says Rob Heneman, professor of management and human resources at Ohio State University's Fisher College of Business and one of the leaders of The Knowledge of Pay study. Most people, says Heneman, agree their employers explain performance objectives and how performance is measured. But, employees are foggy on how performance is linked to pay.

"If companies want employees to work harder and meet certain goals, they have to do a better job explaining what exactly employees need to do to increase their base pay," states Heneman. Employees don't know how to increase base pay or cash bonuses, though survey results show that base-pay knowledge plays a bigger role in overall pay satisfaction than other forms of compensation.

The authors say the results indicate employees who know more about their pay are more satisfied with pay overall. Higher levels of pay satisfaction link to higher levels of retention, commitment to the company, and trust in management. The study also shows that pay knowledge is almost as important as the amount of pay itself in determining satisfaction.

The authors of the study don't condone disclosing actual pay amounts of employees to others within the company. But companies can provide more information about pay practices and policies, such as the process used to determine pay and the average raises in a particular year. Workers want to know how policies apply to their particular situation, Heneman says. Which may mean more one-on-one time between manager and employee, as two-thirds of survey respondents think talking to their supervisor or manager is an effective way to learn about pay.