The Midyear Review Takes On More Weight

Widespread hiring freezes mean companies need to make the most of their talent—and get underperformers up to speed (or out) quicker

Pat Kinsella

By Jena McGregor

Like most rites of summer, the midyear review has historically been an informal affair: a quick chat about what needs to be done to get that raise in December, a perfunctory performance check-in required by the higher-ups in human resources.

But as the economic crisis rewrites the rules of management, the midyear assessment is taking on dramatically more weight. Goals set in January are being adjusted as the external environment becomes less predictable. Companies that have frozen outside hiring are looking closely at whether the people on staff are in the right jobs. And faced with the prospect of further layoffs as profits fall, some bosses are using the interim review to warn of tougher grading policies. As Bob Rogers, president of HR consultancy Development Dimensions International, puts it: "There's a heightened awareness of holding people accountable."

Add the fact that employees are fretting about job security, and this year's sessions could be tense. Even meetings with high performers are likely to be tinged with anxiety, as many managers know they'll have empty pockets when it comes to handing out merit raises later this year. "They're suddenly thinking: 'Wow, we have nothing to give,' " says Jason Averbook, CEO of Knowledge Infusion, a talent management advisory firm.

As a result, some companies are making subtle shifts in this year's midyear evaluations to make them more productive for both managers and employees. Procter & Gamble (PG) is using its sessions to adjust previous goals to reflect more accurately what can be achieved in this environment. "We just reset expectations with Wall Street, and some of our businesses are doing the same," says Keith Lawrence, a director of human resources for P&G;'s beauty and health-care business. Lawrence argues that setting attainable targets is important to keeping up morale: "Fundamentally, people want to be part of a winning team."

MONTHLY CHECK-INS

While some companies may be looking at midyear discussions as a tool for culling employees, P&G; has redesigned its review format to make the process more motivational. It's asking managers to focus on employees' achievements rather than just zero in on areas that need improvement. "Particularly in this economy, people are living in the survival zone," Lawrence says. "They're worried about their job, they're worried about their family. That has a huge impact on the amount of positive energy they can bring to driving the business ahead."

Other companies are trying to get more out of these conversations, too. Southwest Airlines (LUV) has been asking its managers to have monthly check-ins with staff rather than semi-annual ones. The discount carrier is also embedding full-time "talent development managers" in each department to help coach leaders on the best way to run reviews. This year, Southwest is expanding the number of these specialists from three to 20, says Fiona Macleod Butts, a senior HR executive at Southwest. "At a time when people are shrinking internal investments, we're more than tripling ours by having these managers in every department," she says.

TOUGH TALK, AND CARROTS

Employees at other companies aren't so fortunate. HR consultants say many firms are using midterm check-ins to give especially candid assessments so employees won't be surprised if they're labeled as "needs improvement" come December and later shown the door. "You can't afford people who aren't carrying a heavy load," says DDI's Rogers. Tough grades now may reduce the legal risks of laying off someone who insists he was performing at the top of his game.

For employees who are among the top performers, many companies must resort to dangling nonfinancial rewards as carrots. The midyear review is an opportunity to discuss promotions and stretch assignments that will keep stars challenged and motivated. "It's not going to be about money this year," says Hewitt Associates (HEW) consultant Scott Cohen.

Some executives are so worried about holding on to their best people that they're sharing the wealth with top players early. Intuit (INTU), the Mountain View (Calif.) financial software maker, handed out restricted stock to its top performers at midyear rather than waiting for the company's fiscal yearend. "Accelerating the grant was very unusual for us," says Jim Grenier, an Intuit vice-president for human resources. "Attrition costs you a ton, and we are trying to do everything we can to improve productivity."

Financial uncertainty, after all, has a way of focusing attention on talent. Grenier says requests from managers for training on conducting effective reviews is up 50% this year. "People are paying attention to this stuff they might have felt was just an HR thing," says the Intuit executive. "We're all fearful about our jobs."

McGregor is BusinessWeek's management editor.

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