“There are certainly a lot of practices that don’t do them, but that tends to have a negative impact on the practice,” says Hertz. To achieve their goals, practices need to set clear expectations for employee performance and hold staff accountable to those standards.

And employees (the ones worth keeping, anyway) want direction and feedback.

“As an employee, I want clear direction of what’s expected of me, I want to know how I’m doing, and if I need improvement, I want someone to tell me and help me through that process,” says Hertz. “And finally, if I’m doing a good job and making a contribution to the practice, I want to know that, too. That’s very important to my level of job satisfaction.” And happy employees perform better.

Several department managers report to Needham, and he says he’s amazed at how often those managers fail to confront employees who do something wrong, even when they do it repeatedly.

“People just don’t like conflict,” Needham says. “I’ll have a manager in my office yelling about this employee or that one, ‘I can’t believe they did that! I want to kill them!’ And then I’ll talk to the employee about it — I’ll say, ‘So, did you talk to so-and-so?’ And they’ll say, ‘Oh yeah, we talked. It went fine.’ They have no idea.”

That may be one reason employees are prone to overrate themselves; they figure no news is good news, so when nobody corrects them, they assume they’re doing a great job. That, in turn, makes the annual review process for average and below-average employees that much more unpleasant.

And annual reviews should be only one occasion of many during the year in which employees receive feedback about their performance. “That feedback loop is so important,” says Capko. Adds Hertz, “We’ve done a very bad job with an employee if it comes time to terminate them, and they’re surprised. … And really, the whole evaluation process begins when I hire someone.”

Document, document, document

Evaluations are also extremely useful should you decide to terminate an employee. For one thing, it’s only fair that subpar staff members be made aware that you’re unhappy with them and be given an opportunity to improve. And you’ll want documentation should there be legal action.

In most states, employees who are not in unions or operating under an employment contract are considered “at will,” meaning the employer may fire workers for almost any reason or none at all. The exception is discrimination. If an employee can demonstrate that she was fired for some discriminatory reason, you can be in legal trouble.

Documenting her performance — and that of others — is vital in any case in which an employee claims wrongful dismissal. The employee’s attorney will likely subpoena such records to search for evidence of discriminatory patterns or something aberrant concerning only the fired employee. For example, an employee who claims she was fired after her boss made an unwelcome sexual advance might bolster her case by producing glowing evaluations written shortly before her dismissal. In the case of an employee who claims age discrimination by saying that employees over 50 are never promoted, his attorney would want to compare the reviews of older employees with those of younger ones and then determine which ones were promoted.

“The first thing plaintiffs do is subpoena the performance appraisals,” says Neal. “They go right in with a court order and say, ‘OK, we want every performance appraisal in your entire file.’ That’s the first thing they go after.”

Do’s and Don’ts

Neal, author of “The #1 Guide to Performance Appraisals,” has developed a set of guidelines for managers to follow when conducting performance appraisals. He says that employee evaluations should: