Human Resources Policy

• Employee performance reviews comprise one part of the company's performance management system. Human resources staffs develop performance management systems for reasons that include evaluating productivity, employee skills and behavior, and providing constructive feedback to ensure more of the organization's employees are capable of meeting their job expectations. The strategic push to develop performance management systems is generally based on improving the company's bottom line. Performance reviews, as part of the total performance management system, factor significantly into increasing business success through evaluating workforce competencies.
  
  

Employee Motivation

• Employee motivation is another reason performance reviews are important. Motivating employees, according to psychologist and management consultant Frederick Herzberg, requires that employers recognize employee talent, ambition and aptitude. Recognition in the form of monetary reward, in Herzberg's opinion, was not the answer to true motivation. Assigning employees more challenging work, giving them more responsible roles and the authority and latitude that come with that, was one of the motivators Herzberg endorsed. Performance reviews assess employee readiness for additional responsibility. If an employee's performance review indicates that he exceeded the company's expectations in his current position, chances are his performance will continue to improve if he is given more challenging assignments. That said, performance reviews are important for sustaining employee motivation.
  
  

Compensation and Benefits

• Performance reviews are often tied to an organization's compensation and benefits structure. Without performance reviews as measuring tools, the process of increasing wages and salaries becomes very subjective. Performance reviews are important because they provide the objectivity necessary to construct and maintain fair and equitable compensation and pay practices. Performance reviews can also be a factor in determining year-end bonuses. Companies that utilize the forced distribution method of performance appraisal, where the top 20 percent of the workforce receives greater rewards, rely on performance reviews to determine year-end bonus levels.
  
  

Employee Retention

• Performance reviews can improve employee retention. If you're finding it more and more difficult to keep your workforce happy and are experiencing higher levels of turnover, evaluate the purpose and methods used during your performance management system. If all other elements of the performance management system are functioning properly, look closely at the actual performance review. Employees look for employment elsewhere because they aren't happy with the type of recognition and appreciation they receive at the current employer. Performance reviews are important because they provide the supervisor and management with an opportunity to commend employees whose individual goals are in step with organizational goals. Performance reviews also suggest ways for employees to improve their performance and, therefore, become fully engaged in their job duties and responsibilities.