As the calendar year winds down, business owners focus intensely on financial reports, inventory, and sales projections. Yet, many small and mid-sized business owners forget that their people plan is the foundation upon which the next year’s operational plan will succeed.
“If HR isn’t part of your year-end review, you’re missing at least half the picture. ” ~ Carolyn Ross, J.D.
Why would you be missing at least half? Because your team—your greatest asset—requires strategic attention to ensure motivation, compliance, and growth in the new year. By addressing these key areas now, you transform potential HR headaches into a powerful competitive advantage.
Finalizing Performance and Goal Setting
Performance reviews are a critical component of effective human resource management. They are not merely an administrative task. When they are done well, they are a direct tool for increasing job satisfaction, employee retention, loyalty, and overall organizational performance.
Shift from Annual Reviews to Ongoing Conversations
A common pitfall is waiting until the annual review to discuss performance issues or achievements. This delay results in missed opportunities for improvement and development.
- Implement “Performance Conversations”: Emphasize ongoing feedback, not just the annual review. Include quarterly formal check-ins and weekly touchpoints to bridge the gap.
- Focus on Feedback and Engagement: Employees who received meaningful feedback in the past week are four times more engaged than those who simply have the “right number” of days in the office.
- Encourage Two-Way Dialogue: Ensure all conversations about performance are two-way dialogues. Have employees share their achievements and challenges prior to writing the review.
Link Year-End Review to Next Year’s Planning
Performance reviews serve as a vital evaluation of past performance, providing the necessary foundation for future growth. The year-end review is the time to finalize the current year’s assessment and set the stage for the next.
- Evaluate Performance and Expectations: During the year-end review, managers should evaluate the year’s performance and provide detailed feedback on whether and how the employee met the current year’s expectations and goals.
- Encourage Forward Thinking: Use the year-end meeting to initiate the next year’s planning process. Ask the employee to consider and begin to outline their goals, professional development, and aspirations for the upcoming year.
- Formalize Goals at the Start of the Year: While year-end is for assessment and planning, the formal setting of clear, measurable objectives (and development plans) should be finalized at the start of the next review period. Only about half of employees strongly agree they know what is expected of them at work, underscoring the importance of this step.
- Create a Development Plan: Ensure the process results in a clear development plan that outlines specific training opportunities and goals, tailored to the individual’s career aspirations and aligned with organizational needs.
Compensation, Recognition, and Budgeting
Your year-end HR wrap-up is the time to strategically plan and budget for compensation programs and people programs that drive retention for the next 12 months. Investing in your people is a direct investment in your bottom line.
Compensation and Recognition Planning
Compensation changes and bonus executions may happen throughout the year (e.g., on an anniversary cycle). Regardless of your schedule, the year-end is the time for strategic review and budgeting.
- Review Wage Structures: Review your compensation structure and analyze market data to ensure competitiveness. Review your budget for potential pay increases and any additional salaries in the new year. Ensure all compensation is compliant with minimum wage laws and your practices follow any new regional pay transparency regulations.
- Plan and Budget for Incentives: If your company executes bonuses or rewards at year-end, finalize those decisions now. More critically for SMBs, use this time to review, update, plan, and set aside a budget for non-salary recognition programs for the upcoming year. An effective Total Rewards program incorporates ongoing feedback and recognition systems.
Strategic Budgeting for Talent
Companies with comprehensive talent development strategies see 11% higher profitability and are twice as likely to retain employees. Budget strategically for the upcoming year’s talent programs:
- Training & Development: Allocate funds for skill enhancement. Continuous learning has never been more important. 94% of employees would stay at a company longer if it invested in their career development. Developing current staff is significantly less expensive than replacing employees (costing between 40% and 400% of their annual salary).
- Employee Recognition & Culture: Budget for team-building activities, rewards programs, and other initiatives that foster a positive workplace culture.
- Team building: Plan team building activities and company social events for the upcoming year. Team building programs improve collaboration by 50% and increase productivity by as much as 25%. Whether it’s a company picnic to socialize and maybe play lawn games, a day of volunteering for a local cause, escape rooms or trivia nights, or completing a ropes course or outward bound program, almost anything you do as a group, outside of the regular work flow, is beneficial to your team’s future success.
- Mentoring Programs: These relationships accelerate growth and retention and can be the differentiator that helps SMBs compete for top talent. ** Grow, Engage, and Retain Through the 4 Pillars of Talent Development
Compliance and Policy Updates
Staying on top of compliance and policy updates is essential for protecting your organization.
“Every business with employees is in the HR business, whether they realize it or not” ~ Carolyn D. Ross, J.D.
Proactive Policy Review and Audits
- Check for Legislative Changes: Confirm any new legislative changes that take effect on January 1st. This could include minimum wage increases, new state leave requirements, or other important changes.
- Handbook Updates: Has your employee handbook been updated in the last several years? Your policies must align with current laws and you should know what they mean and how to apply them. If you haven’t had your policies updated in the last few years, this is a good time to plan for that.
- Data and File Audits: Conduct a file audit and purge old records. Compliance requires maintaining accurate records of employee information, performance reviews, and other essential documents. Be sure you know the record retention requirements for various types of employment records, and you are destroying old records in an appropriate and timely way.
Navigating the Evolving Legal Landscape
The employment law landscape is continually evolving, and yesterday’s compliance strategy might not work for tomorrow’s requirements. We wrote about that in some detail in our August article, “From Statute to Strategy: Recent Employment Law Changes.”
It’s important to stay up to date on both federal and state changes.
- Monitor State and Local Laws: Establish mechanisms for regular monitoring of legal developments in all jurisdictions where you operate. This is critical for catching state-level changes like minimum wage increases, new paid leave entitlements, or unique accommodation requirements that may be taking effect in the new year.
- Address Emerging Workplace Technologies: If your team is using tools like generative AI, you need an AI Usage Policy. This policy must define acceptable uses, require human oversight (reviewing AI-generated content), and restrict the entry of sensitive data into public AI tools.
- The Cost of Inaction: Non-compliance can lead to costly fines, penalties, and lawsuits. The average cost to settle an employee lawsuit out of court is $75,000, and roughly 41.5% of these lawsuits are brought against private companies with less than 100 employees.
Workforce Planning and Open Enrollment
Workforce Planning for the New Year
Your business strategy for the next 12 months depends entirely on having the right talent in place.
- Plan Ahead: Review your workforce against your company strategies and goals for the year and consider whether you have the people to execute on those plans or you will need to hire additional talent.
- Budget for Hiring Needs: Ensure your budget will support those anticipated hiring needs, as well as any that may arise unexpectedly. This helps you allocate recruitment resources strategically and avoid rushed, expensive, and/or unsuccessful hires.
- Leverage Flexibility: Consider which roles can be hybrid or remote. For SMBs, offering flexibility can be a true competitive edge in recruitment and retention.
Benefits Administration
- Wrap up Open Enrollment: If your benefits plan year is based on the calendar year, ensure all employees have completed their benefits selections and that payroll deductions and insurer records are updated for January 1st.
- Compliance: Confirm compliance with all relevant laws, such as the Affordable Care Act (ACA), and ensure proper communication of benefits information.
Celebrate Wins
- Highlight Accomplishments: Take time to recognize the company’s successes, milestones and achievements of this year.
- Express Gratitude: Thank employees, teams and leadership for their contributions throughout the year. When employees feel highly appreciated, 81% report elevated job satisfaction, compared to just 7% of those who feel unappreciated or neutral.
- Culture: It’s always a good time, including at year-end, to reinforce company values and cultural programs and to recognize those who’ve demonstrated commitment to these through their actions, performance and behavior. Doing so not only appreciates them, but also highlights to others how you expect your workforce to “walk the talk.”
Taking Action on Your Year-End People Strategy
Each of these year-end human resources activities represent opportunities to strengthen your workplace culture and competitive position. Treating HR as a year-round, strategic function, capped by a thorough year-end process, is the key to reducing risk and driving business growth.
Your employees’ success—and your business growth—depends on doing this well.
“Your business plan won’t succeed next year if your people plan isn’t ready for it.” ~ Carolyn Ross, J.D.
Ready to strengthen your HR strategy for the upcoming year?
Reach out to Ross Insight Solutions to get assistance and tools for all of this. We have the expertise and experience to help you interpret new laws, conduct audits, and develop an HR plan that will ensure your business plan succeeds.
Let’s talk about how we can build or strengthen your employee development process, starting today.
