Last month, I wrote about the relation between workplace stress and job performance, and how owner/advisors can keep their performance near peak levels without falling into the downward spiral of too much stress (See “Stress for Success,” Investment Advisor, August 2012). This month, I’ll explore how firm owners can use the Yerkes-Dodson stress curve to help keep their employees near peak performance as well.

In our work with advisory firms, we’ve found that keeping employee stress at reasonable levels is one of the key elements for advisory firm success. Too little or too much stress will cause employee job performance to drop. To maximize productivity, owner/advisors need to be aware of the issues involved and take proactive steps to manage stress levels throughout their firms.

In case you missed it in the August column, the Yerkes-Dodson stress law states that when you’re talking about either physical or mental performance, we all need some stress to motivate us to perform well, but too much stress will hamper our ability to perform. How this works can be seen in Figure 1 (see left): As stress increases, performance levels go up, too, but only so far. After that, increased stress levels cause performance to go down.

Unfortunately, once we get past our optimum stress level (which is different for everyone), a lot more than our performance can go down. Typically, when performance begins to decline, we try harder, which increases our stress and causes our performance to further fall off. The resulting frustration, fear of failure and fear of the consequences of poor performance can lead to all sorts of psychological issues from irritability and absenteeism to problems at home, breakdowns and substance abuse. In a business, it can also lead to high turnover rates, which is one of the biggest problems facing independent advisory firms today.

We’ve found that owner/advisors can take concrete steps to help keep employees off the back side of the Performance Stress Curve and happily performing at optimum levels. The first step, of course, is for owner/advisors to stay off the downside of the curve themselves. By far, the No. 1 cause of overstressed employees is overstressed employers.

The next step is to make sure that employees understand the relationship between stress levels and performance, and their own happiness as well. We find it’s helpful to give each employee a copy of the Yerkes-Dodson graph and to talk to them as a group about the relationship between stress and performance. It’s important to point out that your aim is to help keep them happy and productive, and to do that, it’s important to stay on the front part of the curve. What’s more, while peak performance is good, it’s also very close to starting down the back side of the curve. Consequently, their goal should be a high level of performance that’s comfortably near but not too close to the top. During periods when peak performance is necessary, it’s very important that it should only be sustained for short periods, followed by allowances for reducing high levels of stress before they become a problem.

Examples, especially examples from the owner’s own experience, of how stress affects their performance and what they do to manage it can be useful. It’s also helpful to let the employees talk about stress and performance themselves, give their own experiences or what they might have observed in others, and to ask questions. The objective is to be sure they understand how stress can affect them, and that working together, they—and their employer—can manage their stress to keep it at a comfortable, productive level.

Then, still in a group setting, we make it real for them by asking them to put an X on their graph to show where they are on the performance curve. It’s important to make clear that employees’ self-assessments will not be used to evaluate their performance, rather to help both of you keep their stress at a reasonable level. At this point, our owner/advisors always ask, “How do I know they will tell the truth?” The answer is they won’t: They’ll lie. Yet, our experience has taught us that they’ll only lie a little, and their obfuscation will be predictable.

It’s human nature to try to make ourselves look better, especially in front of authority figures. In this case, that means showing one’s stress in a slightly better light than it really is. If an employee believes their stress and performance falls on the front side of the curve, they’ll invariably put their X a little to the right of where it should be, showing their performance to be a little closer to peak and their stress level to be slightly higher than they believe it is. Conversely, if an employee knows they are overstressed and past their peak performance, they’ll place their X at a slightly higher performance and lower stress than it is.

After adjusting for their self-improved fudge factor, we’ve found that employees are usually very accurate at assessing their own stress levels. Still, we find that it’s valuable to confirm those evaluations. To do this, we ask firm owners or employee managers to evaluate the behavior of each employee, particularly their verbal and non-verbal communication, their work product and their general body language.

The good news is that the behavior of someone who’s overstressed isn’t hard to spot once you start paying attention, especially for owners who can use their own responses to stress to relate. The biggest red flags are dramatic changes in behavior, including a decline in job performance, recurring anger, irritability, frequent outbursts, frustration, abnormally long or unusual working hours, missed deadlines, compulsive behavior, little or no time for meetings or other inter-office communication and a tendency to isolate themselves from the rest of the staff.

When employee self-evaluations and owner observations confirm that employees are operating past their peak performance, it’s time to step in and work with them to reduce their stress, which almost always improves their performance. Often the solution is to have them take a vacation and then build more time off into their weekly work schedules. In other cases, employee work loads need to be adjusted. Usually employees’ day-to-day jobs have good stress-to-performance ratios: It’s the additional “projects” that put them over the edge. Once we spread projects out over longer periods, stress levels usually drop dramatically.

Managing projects poorly is only one of the ways that firm owners increase employee stress levels. The larger issue is shooting from the hip: failing to consider the ramifications of what employees are being told to do. When asked, employees almost always point to owner/advisors returning from conferences with an ill-considered to-do list as one of the biggest stress generators.

Owners also often fail to realize that when they are venting about a problem or brainstorming an idea, their good employees will start making plans about how to make those ideas happen. If the owner later decides to do something else, as all too often happens, employees feel confused, unappreciated and stressed. Owners need to realize that what they say sets the strategic direction for their firm and carefully consider what and how they communicate to their employees.

We find it’s most valuable to have employees evaluate their stress levels as frequently as practical. Once a week isn’t too often, but once a month is usually more manageable. Not only does that help owner/advisors keep a handle on stress levels, it creates a record that can be reviewed to identify particularly stressful tasks or recurring high-stress periods. Understanding why and how employees get stressed enables employers to manage stress levels and keep productivity consistently near peak levels. We’ve found it’s so critical to business success that we don’t even do job reviews any more—we do stress reviews instead.