Learn From Wal-Mart's Employee-Review Lawsuit: The Innovators

Get year-end reviews wrong, and you could put yourself and your company at serious risk of employee lawsuits.
By Lauren Bloom ,

NEW YORK (TheStreet) -- It's that time of year again -- holiday shopping, decorations, Christmas carols, office parties and year-end work reviews. For executives and managers, the end of the year is fraught with potential peril. Do your work reviews well, and you'll give your employees valuable feedback. Get them wrong, and you could put yourself and your company at serious risk of employee lawsuits.

One need only look at the class action suit pending against

Wal-Mart

(WMT) - Get Report

and Sam's Club to know how expensive questionable employment practices can become. Here are some tips to help avoid potentially costly mistakes:

Review the whole year

. Too often, managers focus on the last month or two when writing up annual reviews, forgetting to mention employees' mistakes and accomplishments earlier in the year. That can give employees who deliver consistently adequate work an unfair disadvantage compared with those who fritter away the first two quarters and deliver like champions at year-end. The expression "what have you done for me lately" may be a great motivator, but it has no place in a year-end review.

Don't sugarcoat

. It can be very uncomfortable to tell employees the truth about their less-than-stellar performance. Consequently, managers sometimes inflate evaluations or neglect to mention "minor" problems in the hope that they'll somehow correct themselves. Over time, however, a mediocre employee's performance can deteriorate to the point where a manager suddenly loses patience and decides it's time to fire that employee. Unfortunately, the employee's record doesn't support that decision because the employee's manager wasn't willing to deliver bad news in smaller, annual doses. Tell the truth in annual reviews, however painful it may be.

Substitute facts for impressions

. If you want to downgrade an employee for chronically missing deadlines or alienating customers, cite specific incidents to make your case. Better still, if you want to praise an employee for exceptional work, pick a few examples to highlight in the review. Avoid absolute words like "always" and "never" -- even your worst employees have some good moments, and the biggest superstar can still make a mistake or have a bad day.

Use quantifiable criteria

. Avoid generalities like "has a good attitude" or "needs to improve sloppy work habits." Instead, point to specific, measurable standards ("improved productivity by 20%" or "received 'unsatisfactory' ratings from 10% of surveyed customers") to explain your analysis of an employee's performance.

Focus on the job

. If you want to criticize an employee, make sure your criticism is addressed to the employee's performance of essential job functions. You may not like an employee's hairstyle, choice of wardrobe, politics or obsession with college football -- or you simply may not like an employee. But unless you can demonstrate how a trait that annoys you interferes with an employee's job performance, leave it off the evaluation.

Look for unfortunate trends

. Before completing and delivering your employees' annual reviews, read them together and make sure your personal prejudices haven't distorted your evaluation of their performance. Do male workers fare better than female, or vice versa? Have you tended to downgrade older workers, workers with disabilities, workers of a particular race, faith, or national origin? Have you been harder on workers with families or workers who are less physically attractive? If you notice that you've rated some classes of your employees better or worse than others, you may be setting your company up for a lawsuit. Go back and re-evaluate each employee as an individual.

Keep your comments consistent

. Most employers give their employees their annual reviews in person, commenting on the written text. That's a good practice, because it allows the employee to ask clarifying questions and point out potential mistakes. It's important, however, for the manager delivering the review not to make comments that are inconsistent with or reinterpret the written evaluation. At best, such comments can confuse the employee. At worst, they can suggest that the written review, which is presumably the basis for continued employment and compensation decisions, is simply a cover-up for an unfair employment action.

Accept feedback

. If an employee argues with some aspect of an evaluation, don't just dismiss the argument. Listen, and consider whether the employee has a valid point. Managers are fallible human beings too, and it's possible that the manager who prepared the review forgot something important or let personalities get in the way of a fair evaluation. At the very least, allow the employee a reasonable opportunity to respond to the review in writing, and keep the employee's response with the review in the employee's personnel file. Even better, if an employee catches a mistake, correct it before the review is signed and finalized.

Put your money where your mouth is

. If you've given a substandard employee a mediocre review, don't try to soften the blow with a bigger raise or bonus than that employee has earned. If you've praised a top performer, make sure that employee's compensation reflects your honest assessment. As with your oral comments and the written review, consistency is key.

Prepare for next year

. As you write your annual reviews, you'll probably discover things you wish you'd done differently throughout the year. Maybe you used the wrong metrics to measure employee performance, or forgot to include an aspect of the work that you now consider critical. Take notes now and revamp your evaluation process and criteria for the coming year, then brief your staff on any changes in expectations.

Don't wait until year-end

. When your employees do something that makes you beam with pride, roar with anger or cringe with shame, give them timely feedback. If you wait until the end of the year, you or they may forget what happened, and you may not give them a fair review. Giving feedback, good and bad, throughout the year lets employees adjust their performance to your expectations, and reduces the risk that annual reviews will come as a nasty surprise.

Wishing you and yours a very happy -- and low-stress -- holiday season!

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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