Employee Management: Reward the Best, Replace the Worst
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Years ago, a member of my CEO peer group (a manufacturing company head whom we'll call "John") used to bring up the same problem every month: One of his directors was causing performance issues, he would say. And everyone would advise him to fire this person, but he always had some excuse about why he hadn’t done it.
Finally, the fourth time he raised the issue, the group leader looked him in the eye and said, “John, if I became CEO of your company tomorrow, what would I do to improve performance?”
“Well, you would fire my manufacturing director, who’s causing a lot of the problems,” John replied matter-of-factly.
“Then why the f*#! haven’t you done it already?” the mentor demanded.
In short, the fastest path to mediocrity in a company is to allow poor performers to remain and pretend that that doesn’t matter. The best people will take note and start heading for the exits. Instead, follow these three steps to address performance issues, so you can retain your best and get rid of the worst.
1. Provide more frequent feedback than annual reviews.
Annual performance reviews are quickly falling by the wayside, with good reason: They are not effective. Poor performers can destroy a team in less than a year. Without any feedback or accountability between reviews, employees may easily feel disengaged and misaligned with the company’s strategic objectives, leading to bad performance. Instead, managers should constantly evaluate employees and give appropriate feedback, whether on a daily, weekly or at least monthly basis, with more formal reviews each quarter.
Another way to address the gaps between annual reviews and provide managers a foundation for providing feedback is a quarterly system. This will instill and track employee goals. These should be aligned with the company’s objectives. Ideally, employees should provide weekly status updates on how they are progressing. This will facilitate regular conversations based on agreed-upon objectives.
Another tactic is to give each employee a rating of A, B, or C each quarter. Rather than a full-blown written performance appraisal, this entails a more informal judgment call by each manager on each employee. Managers should notify any employee who receives a C and work with him or her to improve performance. With continuous feedback systems in place, strong employees will know that they won't have to carry weak ones for long, which will improve satisfaction and retention.
2. Focus the most time and energy on top performers.
The best employees are vital to company success. Unfortunately, most managers and leaders spend more time with the poorest performers: 80 percent of personnel management time is spent dealing with issues caused by the bottom 20 percent (documenting problems, monitoring actions, fixing mistakes, etc.).
Leaders should flip the 80/20 formula by spending 80 percent of their time with the most valuable employees. The management team should acknowledge all top performers, listen to their concerns and ideas and help them develop an appropriate career path. Managers should also encourage and provide the means for employees to continuously improve their skills and market knowledge. This not only improves engagement, but helps the company react to a constantly changing business environment.
Another way to retain the best people is to think about how A players will react to each major management decision. These tactics will put the company on the path to building a high-performance culture that keeps the A’s engaged and less likely to consider changing jobs.
3. Fire poor performers.
Poorly performing employees should be given a chance to improve -- either in their current position, or another more suited to their skills. Give it no more than two quarters. If a manager gives someone a C in two consecutive quarters and hasn’t already gotten rid of the employee, take action. Leaders should be held responsible not only for hiring and firing, but also for avoiding the decision to let people go who are clearly not cutting it.
In my CEO-group example, CEO John knew exactly what he needed to do; he just didn’t want to do it. But every day he didn’t fire the director cost him a little more credibility with his team and limited the performance of his company.
Living the value that "people are the most important asset" is not always easy to do -- but it is critical for CEOs and leaders if they want to build a high-performing culture.