UK: Managing Employees’ Performance In A Downturn

Last Updated: 4 March 2009
Article by Elena Cooper

As more and more employers have concluded that compulsory redundancies are necessary to address declining business volumes and market uncertainty, companies are considering their options moving forward. A common question that is being addressed is whether further rounds of redundancies is the appropriate way of managing headcount – or is there a way to manage out employees without further redundancies taking place? If so, is there a benefit to the business in choosing this route, and how will this impact on the business culture and employee relations?

Collective consultation in relation to redundancies and other collective dismissals – namely where the reason for dismissal is not related to the individual employees concerned - kicks in when an employer is considering in excess of 20 redundancies, at one establishment, within a 90 day period. The burden of collective consultation in terms of cost, management time and litigation risk is significant.

The Chartered Institute of Personnel and Development recently estimated the average cost of making an individual redundant to be in the region of £16,000. Add to that the potential for unwelcome press speculation as to the viability of the business and the poor employee morale which subsequently follows a redundancy programme and it is easy to understand why employers are looking for viable alternatives. Consequently performance management comes into sharper relief in a downturn.

Employee costs are often a business's largest overhead. It is important to plan for the long-term and consider what the business's requirements will be once the economy revives. Particular care should be taken over retaining those who will help the business weather the difficult economic circumstances and will play a crucial role in driving the business forward once the situation begins to improve.

Providing managers with training will help them get the best out of employees during the downturn. It is essential to set achievable performance objectives, which are linked to the overall strategy of the business, and the results required by individuals within that business. Bonus payments may no longer be possible, but employees will be more productive if they have something tangible to aim for. For example, establishing a rewards programme is an option to consider: so if employees reach or exceed targets they can receive certain rewards such as retail vouchers, additional time off in lieu, or promotions in terms of status, if not financial. Employees may also recognise and place a greater value on training programmes allowing skills to be improved and increased. The cost to the business of these rewards could be more readily absorbed and budgeted for.

The flip side is that where employees fail to achieve objectively viable targets, the performance management process should be commenced. This process, while not providing an immediate resolution of the issues, provides the employer with a sensible starting. The performance management process usually involves a 4 step process:

  • Meet the employee to explain where performance has fallen short;
  • Set out clear objectives to achieve and a timescale within which they are to be achieved;
  • Offer assistance in achieving these objectives;
  • Move to first (and subsequent) disciplinary stages if objectives are not met.

The process may seem laborious, but dependant upon objectives set and the type of role carried out by the employee, an objectively fair dismissal can be achieved. Key points to bear in mind will include:

  • Any performance management process should comply with the Acas Code of Practice on Disciplinary and Grievance Procedures which covers capability issues
  • Until 6 April 09, employers following a formal process should comply with the statutory dispute procedures (SDPs) which involve a step 1 letter, a step 2 meeting and providing the employee with the opportunity to appeal
  • The SDP's do not disappear overnight. If an employer has taken certain steps before 6 April 2009, the SDPs will continue to apply. These "trigger events" are:
    1. sending a letter to the employee outlining the allegation or other circumstances which have led the employer to proposing to dismiss the employee; or
    2. had a meeting with the employee to discuss the proposed dismissal; or
    3. the dismissal/ disciplinary action has taken place.
  • Even if one of these steps has taken place then the SDP's will continue to apply.
  • Employers should also specify a time limit within the formal warning. If performance issues are ongoing then employers should move to the next stage of their formal disciplinary or performance process whilst the existing warning remains "live." Although one Court of Appeal decision supported an employer's ability to take into account a lapsed misconduct warning, the point was made that this would be the exception rather than the rule. As such, the same approach is unlikely to be taken in relation to performance warnings.

Where objectives are agreed, an improvement plan evidenced and, essentially, followed, an employee's chance of success in any subsequent litigation is minimised. The business exits under-performing employees, but the process provides more than this in strategic terms. Fundamentally, the employee knows that a significantly improved performance is necessary – where this is not achieved, a fair exit follows. The business is in a win:win situation – it loses the underperforming employee, or it ensures that employee's performance is improved to the extent that they return to being a valuable member of the workforce.

Additionally, the employee knows that an exit may be on the cards and has in normal circumstances, sufficient time to start applying for and seeking alternative arrangements, as a back up plan. The future financial losses suffered due to a termination of employment are therefore likely to be minimised if the employee can secure new employment rather than run the risk of going through a performance plan which may be noted in an external reference to a potential new employer. Giving the employee the option to improve performance, or face termination is certainly a stick rather than a carrot, but it can be the most effective tool at an employer's disposal.

Even where a process runs smoothly employers should be prepared for the time commitment involved in a performance management process. It should not be forgotten that performance management is a common source of conflict at work and can lead to other issues arising. Who after all likes to be told that they are not doing their job properly? Employee reactions can range from raising a grievance or bullying complaint, or in severe cases, absence from work on the grounds of stress. For this reason some employers shy away from tackling performance and use the compromise agreement route instead. But this means that day to day issues are never tackled. So whilst it's important to be aware of these potentially negative consequences, it should not stop employers instigating performance management processes. Where possible employers should use informal early intervention methods to avoid an escalation of conflict, but realistically that doesn't solve every under-performing employee and for some formal processes are inevitable.

We strongly recommend to all businesses contemplating a performance management process that the following checklist is initially given consideration:

  • Is the performance route the right route? If the issue is the employee's conduct, and not his performance, commence conduct disciplinary proceedings, they are less time-consuming and can provide similar (but quicker) exit arrangements;
  • Is the business willing to accept the result of the performance management process? Will it be willing to keep the employee if performance does improve? If not, and the business still wants to exit the employee, there is potentially less value in going through the process and such costs need to be factored in to a cost/benefit analysis on the timing of dismissal;
  • Is the business willing to devote the time and management hours to the process? If not, and the process stops half way through, with a quick exit for the employee and not at the end of a performance process, the benefit to commencing the process is lost;
  • Can the business set genuinely achievable objectives which are in line with the employee's colleagues objectives? If not, the process is not likely to stand up to scrutiny in the event that proceedings are brought.

Elena Cooper
Dundas & Wilson LLP

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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