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Flevy Management Insights Q&A
How to manage an underperforming employee effectively?


This article provides a detailed response to: How to manage an underperforming employee effectively? For a comprehensive understanding of Performance Management, we also include relevant case studies for further reading and links to Performance Management best practice resources.

TLDR Effectively managing underperforming employees involves accurate diagnosis, tailored improvement plans, open communication, and structured Performance Improvement Plans to support both individual growth and organizational objectives.

Reading time: 4 minutes


Dealing with the poor performance of an employee is a critical challenge that every C-level executive faces at some point in their tenure. The approach to this issue requires a blend of strategic insight, empathy, and decisive action. In the realm of high-stakes corporate management, the cost of underperformance can be significant—not only in terms of direct financial losses but also in its impact on team morale and organizational culture. Therefore, understanding how to manage an underperforming employee effectively is essential for maintaining operational excellence and driving sustained organizational success.

The first step in addressing employee underperformance is to diagnose the problem accurately. This involves a thorough assessment of the employee's work, identifying specific areas where performance is lacking, and understanding the underlying causes. It's crucial to differentiate between a lack of skill, a lack of motivation, or external factors affecting performance. Consulting firms like McKinsey and Deloitte emphasize the importance of data-driven performance management systems that can help in identifying performance gaps. A framework for regular feedback and performance reviews can facilitate early detection of underperformance issues, allowing for timely interventions.

Once the root cause of underperformance has been identified, it's important to develop a tailored strategy for addressing the issue. This strategy should include clear, achievable objectives and milestones for improvement, along with the necessary support and resources the employee needs to meet these goals. For example, if the issue is skill-based, the strategy might involve targeted training programs or mentorship. On the other hand, motivational issues might require adjustments to the employee's roles or responsibilities, or changes in the work environment to better align with their intrinsic motivators.

Communication is key throughout this process. Executives should engage in open, honest, and constructive dialogue with the underperforming employee, setting clear expectations and providing regular feedback. This approach not only helps in addressing performance issues but also demonstrates a commitment to the employee's professional growth, which can be a powerful motivator in itself. Moreover, it's essential to document all steps taken to manage underperformance, as this can provide valuable insights for future reference and protect the organization in case of potential disputes.

Implementing a Performance Improvement Plan (PIP)

A Performance Improvement Plan (PIP) is a formal document that outlines specific steps for improvement, along with timelines and metrics for evaluating progress. The creation of a PIP should be a collaborative process, involving the employee, their manager, and HR, to ensure that the goals are realistic and mutually agreed upon. This template serves as a structured framework for both the employee and the organization to track progress and make adjustments as needed.

Effective PIPs are characterized by SMART goals—Specific, Measurable, Achievable, Relevant, and Time-bound. These goals provide clarity and focus, making it easier for the employee to understand what is expected of them and to measure their progress. Additionally, providing the necessary resources, such as training or coaching, is crucial for supporting the employee's improvement efforts.

Regular check-ins are an integral part of the PIP process. These meetings offer opportunities to provide feedback, make adjustments to the plan if necessary, and address any new challenges that may arise. It's important for these discussions to be forward-looking and focused on solutions rather than dwelling on past performance issues. Celebrating small wins along the way can also boost the employee's confidence and motivation.

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Deciding on Further Actions

If, despite all efforts, the employee's performance does not improve to the required standards within the agreed timeframe, it may be necessary to consider further actions. These can range from reassignment to a more suitable role within the organization, to, as a last resort, termination of employment. Such decisions should be made with careful consideration of the legal, ethical, and cultural implications for the organization.

It's crucial to ensure that the process leading to this point has been fair, transparent, and well-documented. This not only helps in minimizing legal risks but also in maintaining trust and morale among the remaining team members. Consulting firms like Accenture and PwC highlight the importance of a structured offboarding process that respects the dignity of the departing employee and provides support in their transition.

In conclusion, managing an underperforming employee effectively requires a strategic, empathetic, and structured approach. By accurately diagnosing the problem, developing a tailored improvement plan, and maintaining open communication, executives can navigate these challenging situations in a way that supports both the individual's growth and the organization's objectives. Ultimately, the goal is to foster a high-performance culture where every employee has the opportunity to contribute their best.

Best Practices in Performance Management

Here are best practices relevant to Performance Management from the Flevy Marketplace. View all our Performance Management materials here.

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Performance Management Case Studies

For a practical understanding of Performance Management, take a look at these case studies.

Performance Measurement Enhancement in Ecommerce

Scenario: The organization in question operates within the ecommerce sector, facing a challenge in accurately measuring and managing performance across its rapidly evolving business landscape.

Read Full Case Study

Organic Growth Strategy for Boutique Winery in Napa Valley

Scenario: A boutique winery in Napa Valley is struggling with enterprise performance management amidst a saturated market and rapidly changing consumer preferences.

Read Full Case Study

Performance Measurement Framework for Semiconductor Manufacturer in High-Tech Industry

Scenario: A semiconductor manufacturing firm is grappling with inefficiencies in its Performance Measurement systems.

Read Full Case Study

Performance Measurement Strategy for Industrial Equipment Manufacturer

Scenario: The organization in question operates within the industrial equipment sector, grappling with outdated and inefficient Performance Measurement systems.

Read Full Case Study

Strategic Performance Measurement Framework for D2C E-Retailers

Scenario: A direct-to-consumer (D2C) e-commerce retailer in the health and wellness space is facing challenges in accurately measuring and managing performance across its rapidly expanding operations.

Read Full Case Study

Performance Measurement Framework for Professional Services Firm

Scenario: A professional services firm specializing in financial advisory within the competitive North American market is struggling to measure and enhance its workforce efficiency and client delivery outcomes effectively.

Read Full Case Study

Explore all Flevy Management Case Studies

Related Questions

Here are our additional questions you may be interested in.

What role does data analytics play in the future of performance management, and how can companies prepare for this shift?
Data analytics is revolutionizing Performance Management by enabling predictive, granular, and continuous improvement-focused approaches, and companies can prepare for this shift by investing in technology, developing skills, and establishing ethical guidelines for data use. [Read full explanation]
How can organizations ensure fairness and reduce bias in performance evaluations, especially with the increasing use of AI and machine learning?
Organizations can ensure fairness and reduce bias in performance evaluations by integrating AI with human oversight, establishing clear, objective criteria with continuous feedback, and cultivating an inclusive culture, supported by training and regular audits. [Read full explanation]
How can businesses effectively measure the ROI of their performance management systems?
To effectively measure the ROI of Performance Management Systems, businesses should establish strategic KPIs, conduct both quantitative and qualitative analyses including financial benefits and employee engagement, and continuously refine their approach to align with evolving business goals. [Read full explanation]
How can organizations effectively measure and integrate employee innovation and creativity into their Performance Measurement systems?
To effectively measure and integrate employee innovation and creativity into Performance Management systems, organizations should establish a clear framework that aligns with strategic goals, combine quantitative and qualitative assessments, and foster a culture that values and rewards innovation. [Read full explanation]
What strategies can be implemented to ensure Performance Management processes are equitable and free from bias?
Implementing equitable Performance Management involves establishing clear, objective criteria, regular bias training, leveraging technology and data analytics for fairness, and promoting a culture of continuous feedback and development, all underpinned by top management commitment. [Read full explanation]
In what ways can EPM systems be tailored to accommodate the diverse performance metrics across different industries?
Tailoring EPM systems for diverse industry metrics involves customization of functionalities, integration with industry-specific applications, and adapting UI and reporting to meet unique industry needs, enhancing Strategic Planning and Operational Excellence. [Read full explanation]

Source: Executive Q&A: Performance Management Questions, Flevy Management Insights, 2024


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