Most companies carry out a performance appraisal program because it is a standard business practice and expected by most employees.

In larger companies the process can be very detailed and time consuming. In smaller companies it is usually informal and without factual data to back it up Performance appraisals are often poorly performed leading to declining morale for both employees and managers. Employees dread it and managers don't like doing it.

One reason for this failure is that appraisals are not based on fault. Managers are too busy to keep formal records of individual performance and they don't need such records because they know who is doing a good job and who isn't. Memories are frequently short term. When review time comes we are mostly influenced by events that have recently occurred.

Only if a record of notable events is kept throughout the year, is it possible to provide a fair and equitable appraisal. It is important to establish measurable goals. This takes away the subjectivity and replaces it with numbers that are difficult to dispute. Subjectivity can be perceived as a bias and seen from an employee's perspective as favouritism.

Why Have Performance Measurement?

Many managers question the value of performance appraisals and the time involved conducting them. Here are five good reasons:

1. It focuses employees on company objectives.
2. It is a good forum for communicating with emp1dyees.
3. It provides a basis for disciplining poor performers.
4. It identifies areas for employee development
5. Employees want them.

While I believe that each one of these reasons is valid, the last reason is the most important. It is the greatest motivator and will have the largest impact on improving employee effectiveness.

After meeting with group after group of employees, the answer is always the same. "We want an appraisal that will tell us what we are doing well and what we need to do to improve. But don't just tell us we are doing a good job."

This can be illustrated by the following story. A company vice-president called his executive assistant in for her annual appraisal. He handed her the appraisal form on which were written two words "Good job". The executive went away totally deflated. Her hard work over the past year had only been worth two words. Since she was looking for real input, the end result was an employee who saw no reason for trying to improve. Needless to say, the performance appraisal was a useless exercise and probably did more harm than not having a program at all.

Managing Performance in a Small Organization

Management in many smaller organizations often feel they don't need a performance appraisal program since everyone knows where they stand. Managers will also complain that they don't have the time to conduct appraisals.

A simple program will just require that the manager and the employee sit down at the beginning of each company year and agree to 3-5 objectives that management wants the employee to accomplish. Each objective should have a time frame with measurable terms. During the year the manager should follow-up with the employee to see what progress is being made towards the objectives. If the objectives can't be easily measured, it is more important to keep a log outlining the events pertaining to the objectives.

Prior to the year-end appraisal meeting, the manager should review the log and use it as the basis for the appraisal.

What Can Come From Appraisals?

One of the key benefits is providing a good communication forum. Both the manager and employee are encouraged to express their views of the employee's performance. This is done in a composed manner unlike the more stressful situation when the employee has made a mistake on an order that is already late.

A second benefit is that it allows management to better direct employees' efforts toward company goals and objectives. When employees know that they will be appraised on an issue, they become more focused.

Another benefit is that an appraisal program provides an opportunity to identifY an employee's weaknesses and develop a plan to overcome them. By attacking shortcomings early the company can sometimes save the loss of an employee that might occur if the problems were allowed to continue. To be successful make sure the appraisal program is fair and is perceived as being fair.

Frequently, employers feel that they come out of a termination experience worse off than the fired employee. After paying severance, legal fees and an expensive judgement, their perception is correct.

This doesn’t have to be the case. Employees can be terminated for just cause and the employer does not have to provide the employee with any settlement. However, the courts have set a very high standard for determining what is “just cause.” Employers have gone into court with what they thought was an open-and-shut case and were shocked to find that the courts determined that they were wrong. A costly settlement with accompanying expensive legal fees has often been the result.

Preventing a costly termination starts before an employee is hired and continues until the employee signs a release form.

Pre-employment planning

Prior to hiring an employee, the employer needs to determine:

i) What work will the new employee be expected to do? Does the job description properly describe what will be required?

ii) How long will the job last?

iii) What skills, technical and interpersonal, are needed?

iv) What personal traits (detail orientation, dedication to the job, common sense, etc.) will the employee need to satisfy you?

v) How will the new employee be managed?

Hiring

When hiring an individual, it’s important to match the conditions that have been determined in the pre-employment plan with the skills and attributes of the candidate.

Obviously an interview is one step in determining whether there is a good match. However, effective reference checking is high on the list of importance in the hiring process. What a person has done before will often reflect what they’ll do in the future.

Orientation

Too often the focus of orientation is filling out forms and meeting people. The critical issue should be to make sure employees understand what’s expected of them.

Ensure new employees know the rules of conduct, the required standards of performance and other expectations necessary for them to be successful.

Managing the employment relationship

During an employee’s probationary period, it’s important to review on a regular basis what the company expects from them in quality and quantity of work, conduct and other work-related requirements.

Once a new employee has completed their probationary period, it’s important to maintain regular communications. Keep the employee informed as to whether his or her performance is satisfactory. In cases where there’s a need for improvement, this should be clearly explained.

The manager should keep a written record of what areas have been discussed and what improvement has been requested. Any such request should be followed up in an appropriate period of time.

If performance fails to improve, or if an employee continues to violate company policy, some form of discipline should be initiated. Depending on the severity of the offence, the discipline could range from a verbal warning to a short-term suspension.

It’s important to maintain a record of breaches of performance. If an employer has maintained a record of poor discipline that constantly needs to be corrected, the chance of establishing just cause in the event of a termination is much greater.

Single incidents

Without a record of progressive discipline, the courts are reluctant to support an employer’s claim of termination for just cause. It’s difficult to succeed with firings that occur as a result of a single incident. Often, these terminations are carried out in anger without a lot of thought.

There are of course, cases where single incidents do lead to termination for just cause. However, before taking this course of action, consult an employment lawyer to get advice as to the potential success of your stand.

Remember, employees are human

When terminating an employee, it’s important to remember that he or she has personal pride and self esteem. There have been cases where the courts have ruled that when an employer has been insensitive in the way they conduct a termination and/or carry out subsequent actions related to it, they are subject to punitive damages.

A plan that includes a choice of site, time of day, who should be present and the amount of the settlement, should be developed prior to the initiation of any termination.

A final thought

A discussion with a competent employment lawyer prior to instituting any termination is an example of excellent risk management.

The loser

When an employee leaves a company, it signifies that a loss has occurred. In some cases, a manager might argue that point, claiming that the employee didn’t represent a loss since he or she didn’t do anything of value.

Regardless of how poor a job an employee did, resources were spent hiring that person. Further resources were spent for training and compensation while employed. If the employee damaged the company’s property or relationships with its customers, the time spent correcting the employee was also a cost that has now been lost.

The winner

Conversely, managers are sometimes faced with the loss of good employees. These may be key sales representatives, skilled tradespeople or production personnel that exhibit initiative and innovation. When such employees leave, managers are often angry and vindictive. This behaviour leads to a double loss.

Some managers have a tough time dealing with rejection, and this is how they may perceive the departure of a key employee. The feeling is intensified if the manager invested a lot of time mentoring the individual. Relations often deteriorate. A manager may cease to communicate with the individual. The result is that management becomes a double loser. They lose the employee as well as the employee’s good will.

Exit interview

Whether departing individuals are viewed as good or poor employees, the company seldom carries out an exit interview. Either management is so angry with the individual that they can’t sit down and talk civilly, or they have such a low regard for the person that they can’t see how he or she could provide any valuable information. However, failing to do an exit interview is definitely an opportunity missed.

Conducting a successful exit interview

Just as performance appraisals need to be frank and non-threatening, exit interviews need to be done the same way. Prior to an exit interview, there needs to be planning.

Who?

Have a person who has not directly supervised the departing employee do the job. This should remove a significant amount of emotion and hostility. It’s likely that the departing person will be more open in the discussion if their former boss is not doing the interview. If someone isn’t available within the company, consider outsourcing the task.

Why?

The discussion should avoid personalities. If the basic reason for the person’s departure is their dislike of their boss, the interview can sometimes deteriorate into a character assassination. This adds little value for the employer.

The objective of the interviewer is to identify non-personal issues that have led to the employee’s departure – e.g. not being entirely suited to the position, a lack of opportunities for advancement, and so on. Make sure the real issues are identified and that the departing employee doesn’t dwell on problems that are “red herrings.”

When and where?

It’s probably best to conduct the exit interview off company premises. This helps avoid the chances of loud arguing or shouting. If the employee has already left the premises, it will have to be carried out during a non-work time, probably in a restaurant or similar public place. Given our society’s inclination to sue, one thing that needs to be avoided is to hold the interview in a private place, like a hotel room.

What to do

It’s important to be open and honest about an exit interview.

• The departing employee’s boss must be informed that such a meeting is going to take place and what was said.
• Issues coming out of the interview concerning the boss should be discussed.
• Remaining employees must not perceive that the interview was conducted to attack their boss, or that the boss has been reprimanded as a result. The boss must not be placed in a position that will result in a loss of credibility or respect.

Finally, do something with the information from the interview. You can be sure the departing employee has told his or her colleagues about the company’s problems, real or imagined.

• Discuss the matter with management and get their input to determine if the problem(s) are real or imagined.

• If there are issues that can be improved, make sure you deal with them. It’s best to do that sooner rather than later. You don’t want other people leaving the organization for reasons that you are aware of and can fix.
• If the issues are such that you cannot deal with them, communicate this to the employees and explain the reasons.

Ontario has enacted legislation eliminating compulsory retirement at 65. This legislation will come into effect in the fall of 2006.

We recommend that employers review their policies and practices to determine what impact this change in legislation will have on company operations. It is important to do this sooner rather than later.

When reviewing such policies it would be advantageous to conduct an audit of the Human Resource function.

The initial reaction of many employers, particularly smaller ones, will be to discard such an idea as being costly both in time and talent, feasible for a large organization loaded with HR personnel, but not for them.

Still, there are a number of reasons why conducting such an audit makes good sense for all organizations.

Where are your costs?

In many organizations, personnel represent the greatest variable cost after raw materials. Frequently these costs are incurred year after year without a detailed review.

If there aren’t a lot of complaints, benefit programs are renewed without looking at the cost of premiums or design of the programs. As a result, benefits often are being provided that employees don’t value, or which are not responsive to their needs.

For example, employees value having an income replacement program, but many organizations do not review what such a program is costing, or even study the workings of the program, until a few employees take advantage of the benefit. At that time it is often determined that there is no clear corporate policy on the matter.

Some organizations give increases to individuals year after year without looking at the salary level the employee has reached. This usually occurs in those situations where the worker has long service and has done the same job for many years.  Each job provides only so much value, and if a program of annual increases is in effect, it is quite possible that the pay level for some jobs gets far higher than what they are valued in the market place.

Changing Legislation

At the start of the article we mentioned the enactment of the Ending Mandatory Retirement Statute Law Amendment Act, 2005. In addition, legislation governing time off for various family reasons is now in effect, and will have greater impact in the workplace as the workforce ages.  Safety and health laws continue to evolve. Employers must ensure that they access, learn, and comply with the provisions of such legislation.

Penalties for non-compliance

The various branches of government have determined that employers must comply with legislation affecting the workplace. The penalties for failing to comply are becoming more punitive, both in terms of financial cost as well as possible incarceration. Discrimination and harassment charges have become onerous, particularly in cases where employers have failed to institute strict policies, or have explicitly violated provisions of legislation. The number of civil suits for wrongful dismissal continues to rise. Organizations that do not have well-developed policies in this area are vulnerable to very expensive litigation.

Employee Morale

Recently we completed a Human Resource audit for a relatively small employer with no human resource department.  
Part of the audit included holding meetings with the employees. On the whole we found that they liked working for the company. However, there were a few policies that were ill-conceived, and troubling to those we surveyed.

We reported our findings to the organization’s executives, and they quickly corrected most of the issues. The result? A satisfied employee group with much-improved employee morale. The cost of the changes to the company was minimal, but they represented a major accomplishment to the employees, and a significant boost in their productivity.

Summary

Start the year with a new business plan to achieve greater growth and profitability, and make part of that plan a review of your Human Resources  policies and practices.  You’ll save your company money that needn’t be spent, and ensure your staff are well-covered.

Years ago, I worked for a very insightful man who was president and CEO of our company. When we were doing performance evaluations, the employee’s intelligence and academic qualifications would frequently be raised in the evaluation process. The president would brush these attributes aside and ask, is Tom or Carol “maze bright?” Many people had never heard the term and were at a loss to respond. The term inferred whether or not people can use common sense to work themselves out of difficult and complex situations.

Over the years, it has amazed me to find how many very bright and intelligent people frequently exhibit little tendency to be maze bright or to use common sense.

No Sense

During the last few weeks, I got a call from a colleague expressing his frustration with a mutual client of ours. Apparently, the client was planning to move a bright young woman, (let’s call her Chris) to Toronto from New York. They were doing this so she could follow her partner, who had just received a promotional move to Toronto, not because they needed her to relocate for business purposes.

The issue at hand was how much compensation Chris would get. The manager of human resources in New York looked up the relative cost of living between the two cities and came to the conclusion that New York had a higher cost of living than Toronto. It seemed to her the natural thing to do was to see that Chris did not receive the same salary in Canada as she did in New York. Chris’s salary should be reduced by the percentage that New York’s cost of living exceeded Toronto’s.

When the CEO heard about this move, he expressed a completely different approach. He decided that Chris’s U.S. salary would be converted from U.S. dollars to Canadian dollars, to which my colleague was flabbergasted since this meant a 40% increase in income for Chris.

The Result of Not Using Common Sense?

None of the parties to this tale displayed any tendency of being maze bright. The HR manager really had no idea what the job was worth in Toronto. She had not compared what the organization was paying other employees for similar work. The CEO did not take into account the fact that converting Chris’s salary into Canadian dollars would give her a salary that was much higher than other employees in more senior positions.

My colleague who was so surprised at Chris getting a 40% increase in income as it didn’t reflect an appropriate salary for the position.

He was only amazed by the absolute dollar increase.

The result of this ill-thought out action may likely be that current employees in the Toronto office will learn of Chris’s salary and will be miffed. Local management will be faced with the option of raising their salaries or losing the staff.

These problems are the result of the decision makers not using common sense, not conducting a study to determine what Chris’s position is worth and not conferring with local management.

Maze Bright and Using Common Sense

Many readers of this article will raise the flag of saying that it is irrelevant to their situation. They don’t have an American office and they don’t bring personnel in from the U.S. so what is the point of the story.

The point is that when making compensation, promotion or pricing decisions, don’t make a conclusion without facts. Don’t make decisions without considering the consequences and ramifications of your actions. In the long run, it is better to take an extra hour, day or even week and get the proper data than to give a knee jerk response.

During tough economic times, organizations try to cut every cost they can; anything unnecessary goes. A hand-to-mouth attitude takes over.

Activities that don’t immediately contribute to profits are classed as disposable.

In many organizations, one area of the business that is viewed in this light is human resources. Unfortunately, human resources management is frequently seen only as an administrative function or a theoretical “nice thing to have” and not seen as an area of management contributing to the long-term success of a business. The result is that HR activities are curtailed or eliminated.

HUMAN RESOURCE PROGRAMS ARE NEEDED

Instead of being a disposable, I would contend that human resource programs are needed more than ever, both for the present and for the future:

• Undoubtedly, some employers are ignoring, either through lack of knowledge or because of desperation, the rules that apply to termination of employees. Currently, in the Toronto area, a local law firm has realized this and is advertising its services to individuals that feel that they have not received proper compensation at the time of their termination.

If a company is going to terminate employees or even lay them off for extended periods of time, it is necessary to follow the rules set out in the Employee Standards Act. Failing to do so will only incur greater costs.

• Performance management is an activity that is often poorly carried out even in the best of times.

‚Ä¢ Formal appraisals aren’t carried out on a timely basis and are often less than candid.

• Aside from formal appraisals, parts of performance management are also not carried out effectively. Verbal warnings or reprimands are not properly recorded. As a result, when it comes time to appraise staff and determine who should stay and who should go, there are only anecdotal references to support the action.

‚Ä¢ A good appraisal program should contain development plans for the individual. These plans need to continue to be pursued even though business is tough. Otherwise, the business won’t be able to compete in the future.

‚Ä¢ Safety is an area that needs greater attention than ever during difficult times. Unfortunately, some organizations believe that they don’t have the time or resources to continue their safety program.

• In the first place, certain actions and activities are required by law and are not a nicety that an employer can dispose of when they have less staff or everyone who is still employed has to work harder.

• Accidents have a tendency to increase when employees are concerned about their future employment. Some individuals believe that they will be better off on workers compensation than on unemployment insurance. Therefore, every accident needs to be investigated carefully or the organization will find that its WSIB premiums will be escalating.

• Employers and managers have a duty and responsibility to ensure that work is being carried out in a safe manner even if the safe way takes a little longer. Failing to do so can lead to criminal charges.

• Benefit programs can be abused during a recessionary period in much the same way as workers compensation programs. It is important that there is an HR responsibility to monitor any significant changes in benefit usage, particularly short and long-term disability benefits.

• There is never a better time to look at organization structure than during tough times. Reviewing and revising an organization structure is often a traumatic experience for individuals. Sometimes power and scope of position is taken away and employees have a hard time dealing with this. However, during difficult times, people are more likely to support and assist in helping an organization design a more effective way of doing business.

The advantage of revising and improving organization structure and processes is that the benefits will flow over to the time when business improves.

NEED HUMAN RESOURCES DURING DIFFICULT TIMES?

Human resource management doesn’t mean having a big HR staff. Any HR department that might exist should be subject to the same review for performance and organization effectiveness as any other part of a business.

Many smaller businesses may not even have HR departments, but they do have HR issues. These issues need to be addressed and dealt with in difficult times as well as when times are good.

All aspects of human resource management need to be brought together in an effective way to ensure that your people costs are as good as they can be. In most organizations, after raw materials, people costs are the next largest expenditure for a business.

Everytime a business, industry or country faces an economic crisis there is a propensity for some decision makers to succumb to knee-jerk reactions. These reactions frequently take the form of substantial “across the board” cuts in everything from expense spending to staff reductions. Little thought is given to what effect the action will have on the business or organization.

Staff Cuts

One of the most common cost reductions that a business undertakes is to cut staff. Often, an edict goes out mandating that there will be staff reductions of 5% or 10% or more, “across the board.” The result:

• Department heads spend hours trying to determine who should be cut. At times, little thought is given as to what skill sets are necessary to continue to make the business successful. To reduce staff in some departments will do nothing to improve the well-being of the business. In some instances, staff reductions may lead to inefficiencies and contribute to greater costs and/or losses.

‚Ä¢ Given the laws in Canada, the termination of employment may lead to substantial severance costs. If some preplanning was in place, it might become apparent that the annual turnover of staff would meet or exceed the level of staff to be “chopped.” Staff leaving on their own volition are generally not entitled to severance pay and, therefore, termination costs could be reduced. One recognizes that it may take a few months before the staff reduction target is achieved, but the overall cost could be less.

‚Ä¢ An “across the board” staff reduction may lead to the loss of the organization’s future. Younger employees with the skill set that will be required in the future are often released since they are the most junior in seniority.

A few years ago, in another recession, many of the major accounting firms and law firms cut their staff and cut out recruiting recently qualified professionals. Subsequently, it took them a number of years to re-balance their organizations all because of a short-term, poorly thought-out response to the economic downturn.

One could argue that the thoughts put forth in this article are theoretically sound, but if the author was faced with declining sales and increasing losses, he would see that there is a need for immediate action and not time for paralysis by analysis. In actuality, the author has been there and done the knee-jerk reaction and lived to learn what a mistake it was.

Alternatives

It is recognized that salaries and wages frequently take up a large part of a business’s costs. However, compensation is made up of a number of components. Prior to terminating employees, it might be sound to fully explore the various parts of the compensation cost:

‚Ä¢ Do the employees appreciate or want all the benefits that they are receiving? If there are benefits employees don’t need or want, cutting them will be a cost-saver and much better than people losing their jobs.

‚Ä¢ It is far better to rid the organization of non-performers, even if they are managers, rather than have “across the board” staff cuts. Managers should be required to rate all their employees and identify the non-performers – those persons should be the first to go.

• Could some of the work, whether in the plant or in the office, be more economically handled outside the organization without damaging the organization either in the present or the future?

• Can jobs be combined?

• Has management taken a pay cut? If they have, make sure that such a move is publicized.

Cutting Costs

During difficult economic times, everyone is working under a lot of stress. Employees will become hyper-critical of management’s activities, particularly if they see their friends and colleagues being terminated while the organization continues to spend indiscriminately. Perception will often become more important than reality. It is important to keep this in mind when making spending decisions like the following:

‚Ä¢ Replacing company cars. A new BMW for a senior executive may be the result of a lease expiring, but perceptually it looks like that person isn’t suffering.

‚Ä¢ Hockey tickets, baseball tickets, etc. are costs that can be eliminated without having a negative effect on the business, but employees note the “belt-tightening.”

• Trade shows are important for the organization to keep abreast of changes in the industry, but does the company have to send everyone that has gone in the past?

• Are entertainment expenses really getting the company business? What message does their existence send to customers as well as employees?

In order to survive these difficult times, we will have to work harder than we have ever worked before. Working hard is identifying what will improve the business both in the short and long-term and then implementing those ideas regardless of how difficult they are to do.

Many businesses will undoubtedly find these times to be too challenging and, as a result, will either voluntarily decide to wind-up or, alternatively, be forced into liquidation.

In some situations, businesses should have been closed much earlier, since they were run using poor business practices. They were poorly managed and only through some good luck and poor bank lending were they kept in business. In these difficult economic times the common feeling is one of doom and gloom.

Opportunities exist.

Difficult economic times provide the best opportunity to execute good management practices. Take actions that in good times would be seen as being stingy or mean, but in bad times, are seen as being necessary. It is important that managers make the adjustment from a “good times” mindset to a “bad times” mindset as quickly as possible.

Hire employees terminated by large employers.

During periods of recession, unemployment rises. Some firms reduce staff indiscriminately and do not make sound assessments of the staff that they are letting go. The result is that well-qualified individuals become available in the marketplace. In some cases, they have been terminated; in other cases, they have been pushed or forced into early retirement, but they are still quality employees.

How is this an opportunity? The smaller employer is often able to hire employees terminated by a large employer at a discount price. The employee pushed into early retirement will likely have received a “package” and will continue to receive some form of post-retirement income. Such employees do not need as great a salary as they received before in order to maintain their standard of living. They could very well be capable of a decade or more of productive working life.
Other employees who have been terminated are often interested in establishing a career with a smaller employer, particularly if that employer has good business practices. They have had enough with big companies.

Get rid of bad human resources practices.

I wouldn’t suggest that an employer introduce draconian practices just to save a few dollars. Rather, recessionary times give an employer the opportunity to review all expenses relating to employees: benefits, vacations, compensation practices as well as training and development.

Do all employees use all the vacations to which they are entitled? In the past couple of decades, vacation entitlement has risen to the point where many employees can’t or don’t take all their vacations. In some cases, they can’t afford to take them; in other cases, they don’t want them. A reduction of one week of vacation has a cost saving close to 2% of payroll.
Flex time and other similar practices are often being abused. The removal of such benefits will not usually affect your hardest workers. To remove it or tighten up the conditions of such benefits will only improve productivity. Given the critical business times, any employee backlash can be expected to be minimal.

The concept of annual salary increases needs to be challenged. It is possible that some employers have been too generous in the past and thus, costs have gotten out of line. Now is the time to institute some discipline in the company’s compensation program.

One of the biggest errors we find in compensation programs of smaller organizations is the lack of a cap/limit on jobs. This is most likely to happen in those organizations that habitually have annual increases. After a period of time, particularly if positions are filled by long-term employees, employers often pay over the market norm for such positions.

Review sales costs.

Over the years, regardless of the industry, the sales area seems to acquire practices that are costly and have little or no value added. In these difficult times, attention should be paid to the work that is being performed by the sales staff. This review should cover sales territories, salespersons’ number of clients and sales compensation, particularly if the compensation is primarily commission.

Variable compensation was developed to stimulate productivity. However, if the program is too rich, the opposite effect will occur. It is responsible management to note whether the rate of the salesperson’s reward is greater than that which the business receives.

The opportunities that have been set out are by no means all inclusive. Some may apply to one business and not to another. However, “bad times” give management the opportunity to introduce change and get better employee acceptance than at any other time. However, there are some provisos that must be kept in mind:

• Communicate any changes that are going to be made. Communicate does not just mean telling employees that one thing or another is changing. It is vital that a case be made for each change and that management tries to get as much “buy-in” from the employees as possible.
• Don’t introduce changes that negatively affect employees and then do something that employees would perceive as being wasteful or lavish. Change the old maxim to read “do unto yourself what you have just done to your employees.”

This question was recently asked in an Internet poll.

At the time of the poll, 45% of the participants indicated that the crash had hurt them a lot. Another 30% indicated that they had been hurt a little, while 26% indicated that they hadn’t been hurt at all.

The surprising statistic isn’t the 45%, but rather the 26% who indicated that they hadn’t been hurt.

Undoubtedly, there are people who haven’t invested in equities who believe they haven’t taken a hit. Perhaps, some haven’t. However, it’s likely that a lot of people who believe they haven’t been affected have been hurt more than they can imagine.
The impact that this market downturn has had on pension fund viability and the viability of RRSPs hasn’t been fully realized as of yet; well-run pension funds that prudently invested have been hurt significantly. RRSPs with conservative investment strategies have been greatly damaged.

An acquaintance of mine was relating the other day how people at his place of work are in a state of denial. They just aren’t opening up the latest report from their financial advisor or their latest RRSP report.

Implications for business
1. If your company has its own defined benefit pension plan, it is likely that your actuary will direct you to increase your rate of contribution in order to improve the solvency ratio of the plan. Given the poor performance of equities and the low return on fixed income over the past few years, it is likely that the required increase will be substantial.

2. Over the last two or three decades, many companies have exited from defined benefit arrangements and have moved to defined contribution plans or group RRSPs. This was seen as a brilliant cost containment move. Administration fees were greatly reduced and all the risk was passed onto the employee.

The majority of these plans will have been hurt by the market collapse. Those who were planning to retire in the next few years will soon realize (if they haven’t already), that they no longer have sufficient money in their accounts to do so. They will realize that if they retire as planned, it won’t be at the level of economic comfort they were hoping for. Remember, we are not yet in a period of price deflation; the cost of living has not decreased in line with the decline in anticipated post-retirement income.

If the market continues to “tank,” the retirement funds will continue to diminish and planned post-retirement income will get smaller and smaller.

This situation will undoubtedly lead to more people working for a longer period of time than they and their employer had previously planned.

In a number of Canadian jurisdictions, mandatory retirement no longer exists. This means that employees have the right to continue to work until they decide to retire.

If an employer forces an older employee to retire against his/her wishes, the employer has a liability for severance and separation pay equivalent to that owing younger workers.

3. Employers/owners may find that their own retirement plans will also have to be altered as a result of a significant reduction in the value of their RRSP or similar investment vehicle. Other than the fact that an owner will have to work longer, it may also have an affect on their relationship with the person that has been designated to succeed them.

Planning ahead
The news may not be all bad. The employee’s need to work longer before retirement may mean that the company can retain a special skill set that they had anticipated losing to retirement.

Some employees who had planned on retiring could be interested in part-time work to provide them with additional post-retirement income. This could work to the advantage of both the employer and the employee.

In those cases where an employer has been looking forward to an employee’s retirement because of declining abilities and performance, a plan of action with good reporting will be needed. Impulsive termination of such employees could prove to be costly.

Employers will need to plan what their benefit policy will be for employees who decide to forego retirement at age 65. It is likely that benefit premiums will increase for such employees if the employer decides to keep them in the company’s benefit plans.

Summary
The decimating decline in the stock market is likely to have far reaching effects on the way businesses run. Planning ahead has never been more important. The crucial thing is to plan those issues that can be managed and controlled.

How many times do you look at an under-performing employee and wonder how that individual was hired? An even more disturbing thought is wondering how that person stayed employed with your company for so long.

The answer to both questions lies in the fact that management most likely did not carry our their responsibilities properly.

It’s likely that management did not do a good job during the recruitment process; in many instances, they did not do an in-depth scrutiny of references.

Poor management and poor recruitment aside, employee probation is the topic on the agenda this month.

What should probation be?

The Oxford dictionary describes probation as follows: “testing of a person’s conduct or character.” One should add to this description: “testing of a person’s competency, knowledge and skills.”

The basic idea is determining whether an individual has the ability to perform the work required and fits with the culture of the organization.

How can this be done?

I would suggest that whenever an employee is hired, at the outset of his/her employment, the hiring manager should spend some time with the employee informing him/her of the standard of performance that is expected of an individual in the given position.

As part of the discussion, the manager should set clearly described goals that are expected to be achieved within given time periods. Those time periods should not all be scheduled for the last week or month of the probationary period; goals should be set for the first month of employment. Similarly, objectives should be set for the second and third months and etc.

Managing the probationary period

When an employee is hired and told that he/she will be on probation for six months, it doesn’t mean that employee has to be retained for that length of time. The probationary period is set so that management has the opportunity to appraise the work of the employee. It allows management to see whether he/she is fitting in with the company’s values and culture. It also gives the employee the opportunity to determine whether this is the right job for him/her.

Unfortunately, in too many organizations, there is a sense that a three-month or six-month probation period is a guarantee of employment.

When a manager realizes that an employee is not working out and suggests that he/she be released well before the end of the probationary period, the manager often encounters resistance to such a move from the Human Resources department or similar function.

HR will often suggest that the probationary employee has not been given sufficient time to learn the new job. If the manager has not set goals for the probationary employee, he/she is hard pressed to defend his/her position, and as a result, is often persuaded to give the employee more time.

If one assumes that the operating manager knows and understands his/her workforce, then when he/she is cajoled into allowing the probationary employee more time, the company is incurring an unnecessary direct cost as well as an opportunity cost.

The probationary period

Some companies have a policy stating that a probationary employee can be fired at any time during the probationary period without notice or pay in lieu of notice. This is basically correct, providing that the probationary period is not longer than three months. After three months, the Employment Standards Act requires that an employee is entitled to one week’s notice or one week’s pay in lieu of notice.

However, legislation regarding probationary periods does have some obscure facets. As a result, it is always best to specify in a new employee’s contract or letter of employment the fact that the employee must successfully pass the probationary period, and that his/her employment can be terminated at any time without cause and/or notice subject to the Employment Standards Act. The length of such period should be spelled out. Make sure that when describing the length of a probationary period, you stipulate that it is only for the time worked.

Performance review

A manager should mark on his/her calendar the date when employees’ probationary periods will expire. A notation to this effect should be made at least a month before the expiry date. The reason for making such a notation is to ensure that a performance review will occur prior to the expiry date. Preferably, performance reviews will have been conducted earlier and on a regular basis prior to the end of the probationary period.

Unfortunately, many managers don’t do this. Even more unfortunate is that too many managers don’t review performance even at the end of the probationary period. The result is that you inherit incompetent employees causing you to wonder why they were ever hired in the first place.