You might think that the next question — “Do you encourage suggestions from your employees?” — might easily be answered either “Yes” or “No.” A suggestion box (check it regularly) is one method. Be sure if your firm benefits from employee input, you reward those employees who provide workable solutions. In addition, the strategic planning process that we hope your firm engages in (and will be described in more detail next month) is a great place for suggestions to be solicited. Another fun and useful process is “brainstorming,” which essentially asks for varied input to help solve business issues and problems (see our April/May ’07 column).
Question 5 zeroes in on the effectiveness of your performance review system for your employees. While not always a popular chore, there is no question that employee evaluations are a necessary management task and one that can pay big dividends if done well. If you graded yourself average-to-low here, there are ways to improve your grade. We covered this topic in the April/May ’06 Manager’s Notebook column. Here is the executive summary:
- A good job description is essential for the basis for an evaluation. It should detail the essential functions of the employee’s position, and provide a good understanding of the employee’s job duties.
- Objectives and goals should have been prepared at the beginning of the evaluation period. You can use the job description as a springboard to develop a set of performance goals for the employee. Ideally, you develop a set of goals for your employee and have the employee do likewise and then compare notes during the performance review.
- While it is understood that employee evaluations are subjective and contain your managerial opinion, strive to base your opinion on facts or behaviors. Your ratings and remarks should reflect the actual performance — exceptional, average or below standard. Try to resist the temptation to let recent events dominate your evaluation.
- Consider having your employees do a self evaluation. Your worker will be able to remember what happened during the past year better than you will and a self evaluation gives you an early warning of employee dissatisfaction or achievement you may have missed.
Attracting good candidates is sometimes a challenge, particularly in rural areas. We touched on this subject “Finding Great Employees: Winning the Battle for Talent,” in our Oct/Nov ’06 column. Key ways to improve your grade here include:
- Personal networking with local high school teachers, local small businesses, and civic organizations that are familiar with the talent pool and can make solid recommendations.
- Contacts with universities will often provide referrals to students who will perform well at positions that require a college background.
- Employee referrals are also very helpful in finding new prospects for a small or mid-sized business.
- Networking within your industry can prove fruitful when it comes to recruiting.
- Internet-based recruiting firms are an additional effective tool readily available to small businesses. This low cost technology is making it possible for small businesses to compete for talent on a more level playing field with larger firms.
The final question in this section asks about employee turnover. It has been estimated that, on average, it costs a company one-third of a new hire’s salary to replace an employee. Thus, at minimum wage, the cost to replace an employee can be estimated at about $3,700. Turnover is calculated simply by dividing the number of annual terminations (both employees that leave on their own as well as those fired) by the average number of employees in your work force. The average employee turnover rate is 14.4% annually, according to the Bureau of National Affairs, if you want to, compare yours to this average.
Key ways to reduce employee turnover include: Hiring the right people and working to help them develop their careers; maintaining an “employee orientation” in your company, (most companies with low turnover rates are very employee oriented with good two-way communications and opportunities for advancement); and a strategic compensation package that includes salary, benefits, and noncash rewards.
The first question under finances looks at operating margins. Operating margins can be improved in two ways — increasing your selling price and/or reducing your cost of goods sold. Increasing your selling price may potentially be easier in the feed business than it is in the grain business. In pure economic terms you have more price flexibility if the demand for your product is more inelastic. In lay terms this means that demand for your product does not decline very much when you raise the price of your product.