On a related note, do you recommend that managers solicit written feedback on their performance from their direct reports?

“If I give each of my direct reports one honest, thorough, well written review every year I’m doing better than 90% of everybody else so that’s valuable.”

“You don’t have to over do it and make this some big complicated process thing. I hate process. “

In a high growth business once a year is possibly not enough; although doing it more often can be a big overhead on the manager, as to do it right takes time, effort and thought.

In my last business we followed similar annual review process as you descirbe plus quareterly mini-reviews.

But I found something was lacking, good feedback and communication was left to chance throughout the rest of the year, and it wasn't till we started asking everyone to define their “top 5″ priorities (for each week and month) that things really took off. This was something I learned from Cameron Herold, the former COO of 1-800-GOT-JUNK; they used the technique which helped grow that company 50 fold in just a few years.

Using regular priority setting was great for the employee as it helped them get clear on what was really important and for the manager it was great because they could see what their team thought was important and could correct any “mistakes” quickly.

My new start-up, Teamly, has now built a web app which assists and makes this process straightforward. Because it builds a history of the employees achievements (or otherwise) it makes the formal HR review so much better because there are now facts to base it on rather than relying on one person's memory of what did, or did not happen.

We just launched our public beta on Friday and if you want to try it or take the tour visit http://teamly.com

Gather peer feedback. It's easier for you to deliver a message (positive or negative) if you can honestly say it's backed up by feedback from multiple peers.

If you have a high performer, your job is not to help her improve her weaknesses. Your job is to structure her role so she spends more time doing the things she's great at, and to cover for her weaknesses. (This is the basic theme of the book “First, Break all the Rules.”)

Don't neglect to do this for your executives and top employees. Marc Andreessen wrote about this at http://pmarchive.com/guide_to_startups_part8 : “While respecting someone's experience and skills, you should nevertheless manage every executive as if she were a normal employee. This means weekly 1:1's, performance reviews, written objectives, career development plans, the whole nine yards.”

I think the only use of a scoring system is to ensure that evaluations done by different managers are comparable and not unduly influenced by politics. This means (1) very small organizations have no need for them, and (2) in larger organizations the managers need to meet, discuss their people's performance, and align their scores in a very honest and candid manner.

Plus, since the organisation is small, a formal review might create unnecessary competition between employees especially star employees if a number is given at the review. A big motivation for star employees is they want to be the star. Though the numbers could only differ because the managers reviewing could be different in terms being liberal and conservative in terms of giving out numbers, the resulting numbers might create unhealthy competition. So, reviews and handing out grades or numbers is very dangerous.

I think for start ups a better approach would be for managers, to go for coffee every two months or so and have like one on one. This way, the employee would know what to improve and what is expected of him. Also, manager would know if the employee is having any issues he is struggling with. Whereas if its an annual thing, reviews might just come and go. After all the objective of the company for review is to make the employee perform better than just have a review for the name of having it.

I agree with you about the limited value in number rankings. Separately, I like the theory of 360 degree reviews, and have tried anonymous upward reviews, but to mixed success because anonymity is usually impossible. I think the best way to review middle management is to talk privately with their reports one on one, and then figure out how to give productive feedback without putting the subordinate at risk.