Performance Agreements: Why Your Business Needs Them
Have you ever hired a candidate you thought was a good fit for your business, only for them to struggle and resign after a year? It’s a frustrating experience for any business owner, especially when you tally what you invested in them. You wonder how you could’ve gone wrong hiring them when they checked every box on your list of “qualities of an ideal candidate.”
Perhaps it’s not what you did during recruitment, but what you didn’t do. Maybe it’s time to ask new hires to read and sign one more document before they come on board: a performance agreement.
What is a performance agreement?
Simply put, a performance agreement is an expanded version of the job description. It contains:
● General Information. This recaps the job specifics such as the position title, name of the immediate supervisor, length of the probationary period, performance review dates, terms of service, employment status, compensation, and the job location.
● Why This Position Exists in Our Organization. This explains how the job fits into the organization as a whole. What value does the position add to the business? Why is it important?
● Goals to Be Achieved. This lays out your expectations from the candidate 1, 6, and 12 months from their start date. Most performance agreements don’t include this, but I’d argue it’s an important section if you’re serious about hiring strong candidates.
● Business Core Values. What are your organization’s guiding values and principles?
● Standards for the Position. What qualities do you expect employees to possess and demonstrate on the job?
● Work Requirements for the Position. This reiterates the “Duties and Responsibilities” section of the job description.
● Behavioral Requirements for the Position. What do you consider acceptable and required behavior? What set of behavioral skills and attributes do employees need to succeed on the job?
Why is a performance agreement necessary?
As you can see, there are several reasons why a performance agreement plays an important role in your organization.
1. It clarifies what you want and need from employees.
No more second-guessing expectations. If employees need to know where you want the business to go and how they can help you get there, all they have to do is go over the performance agreement.
2. It serves as proof that the future employee acknowledges your expectations.
By signing the dotted line, employees signify their complete understanding of everything laid out in the agreement. Should there be any disputes regarding employee performance and other related matters, the agreement can be used to clear things up.
3. It puts you and your employees on the same page from “day one.”
Whether you have goals you want to achieve, results you want to see or behavior you expect from employees, it’s all written down in the performance agreement.
4. It weeds out candidates who aren’t a fit for your company.
If the candidate decides they’re not a fit for the job after all, it’s a win-win for all parties. You don’t have to hire an underperformer and they don’t have to work for a company where they won’t be able to maximize their potential, given their abilities and temperament.
5. It increases your chances of hiring strong candidates.
By the same token, if a candidate signs your performance agreement, it’s reasonable to assume they’re at least capable and interested in living up to your expectations. If they’re high-quality team members who also fit with your company’s culture, they’re more likely to perform well and be happier, and less likely to resign.
Performance agreements have a significant place in every business and can create a more cohesive, productive, and qualified team. Choosing to use them will strengthen your systems for finding new talent and encouraging your existing employees.
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