It never ceases to amaze me how often I hear of non-performing employees in SMEs and also the level of frustration and angst this causes you, the business owner. The even more surprising aspect is when I ask you how long the employee has been a non-performer the answer is often not days, weeks or even months – but years! So, why is this the case? It is because you and most other employers are confused, unsure and frightened of performance management – especially if the end result is potential termination. One thing that I am very sure of is that SMEs cannot afford to carry a non-performing employee. The impacts can be enormous and can take a long time to repair. They often cause a loss in revenue, reputation, client relations and internal morale.
Here is a scenario that we often come across. The business owner calls – quite desperate, angry and frustrated all at the same time. An employee Rebecca has made one too many mistakes – the limit has been reached and you can see no alternative but to exit her. The issue is that despite numerous conversations nothing has been documented and no formal performance management process has been followed to date. I would also suggest that Rebecca is fully aware of the fact that she is not performing at the required level but has been allowed to continue on this path and it’s easier than finding another role.
But – the last straw was when Rebecca misunderstood a client brief and produced the incorrect goods causing you and your business embarrassment and expense. This was not the first time and the client is threatening to withdraw their account. You’ve decided enough is enough – she has to go – but how can you do this? At this point there are four options:
- Rebecca resigns – unlikely, when she has been with you for 7 years already
- Rebecca’s role is made redundant – is this a true redundancy, knowing you cannot replace that role for twelve months?
- Rebecca begins a comprehensive performance improvement plan – viable, but time and potentially training dollars need to be invested in the process. Two outcomes are possible – either Rebecca returns to the required performance levels or she is terminated on the basis of non-performance
- You conduct a ‘without prejudice’ conversation (otherwise known as off the record) and offer her some money to resign and to not take legal action. This offer needs to be made attractive and is a payment on top of annual leave entitlements and her notice period.
If you go for the without prejudice conversation you will need to have Rebecca sign a Deed of Release that requires the conversation and financial offer to remain confidential and that she will not take any legal action against you either now or in the future. It will also state that she will not contact clients or sully your reputation in the market (and vice versa). The challenge here is determining the amount of the ex gratia payment – it needs to be attractive enough to forgo any payment that might be awarded by the Fair Work Commission for an unlawful termination. Depending on the level of the role, salary and the likely time to find another role, this may be between one and six month’s salary. (This payment is also taxed favourably which makes it more attractive to Rebecca). A deed of release separation can be a costly exit but it can solve a problem quickly and allow you to get on with running your business and making your clients happy.