Underperforming or difficult employees can cost employers at least the equivalent of their annual salary through downtime, disruption of work routines and wasted management time. And if the working relationship founders, perhaps resulting in a stress claim or unfair dismissal action, the cost in financial and human terms can skyrocket.
Yet experts in human resources and employment law believe that only around 50 per cent of Australian employers have adopted contemporary performance management techniques that can assist in improving poor performers.
Allan Marks, CEO of recruitment firm Hamilton James & Bruce, says the “old shop floor approach” and “very directive management cultures” simply don’t work today.
“It’s about employees accepting it is a shared problem, it’s about making sure employees have the same expectations as employers, and not thumping the table and saying ‘you bloody do this or else’.”
While Marks estimates only around half of Australia’s employers utilise good performance management practices, this aspect of employment law has become “a hot issue”.
“So many people have gone to court in the last few years. Many organisations have had to get wiser to stop themselves getting into deep water when they want to terminate someone and are looking for performance-related reasons.”
Employers may either fail to properly address the performance issue or fail to properly document their process. When they terminate, a wrongful dismissal claim can result.
Marks says the risks of unfair dismissal claims are much higher in Australia than other countries.
“I’ve had a lot of American clients come here. They’ve seen the employment legislation in Australia and they’ve shuddered about expanding their business here. They’re exposed to risks which are much greater than they have in territories they are more familiar with.”
Joe Catanzariti, a partner at Clayton Utz who specialises in workplace relations and employment law, agrees with Marks’ estimate that only half Australia’s employers have good performance management processes.
Catanzariti, who has been practising in his field for 20 years, says his firm finds performance management is a very difficult area for clients.
“If you say to someone I am going to performance manage you, they don’t ever believe that they are performance managed to improve them. They really believe you have already formed the view that they are in serious trouble.”
Clayton Utz runs performance management courses for clients, but many managers find the process very hard to deal with. Some would rather simply terminate employees and negotiate a payout.
Catanzariti says a lot of performance management issues are very hard to articulate. The employee may be performing, but not well enough in management’s eyes, or there may be an attitudinal problem that is difficult to measure.
In some cases, employers are not prepared to spell out the problem to the employee because they don’t feel confident in doing this. In others, employers have not spelt out the allegations until after the employee has been terminated.
Many employers are also confused about the employee’s rights if they are terminated because performance has not improved.
“Quite a lot of people think that if they follow the performance management system, they will never have to pay any money on termination. That is not correct,” Catanzariti says.
“An employee is still entitled to termination pay. So you may end up with the (industrial relations) commission saying, as they have done on a number of occasions, that the performance might not have been up to scratch. But having regard to other factors, like they’re been there 10 years, they’re still going to get some compensation.”
The number of unfair dismissal claims filed with the NSW Industrial Relations Commission has not altered much in the past five years (4057 claims were filed in 1998, the figure stood at 3337 in 2000 and rose to 4059 in 2002).
However, over the last five to 10 years, Catanzariti has found employees have become much more likely to challenge employers about unfair dismissal.
“You’d talk to employees 20 years ago, and they would say I was hard treated by my employer, but life has to go on. They wouldn’t even contemplate an unfair dismissal claim.”
So if it is better to improve performance or have the employee resign rather than terminate them, what sorts of performance management processes can assist?
Specialist human resources consultant Mark Shaw developed a four point plan for managing difficult or underperforming employees, supervisors and managers about seven years ago.
Shaw, who has 22 years corporate and consultancy experience in HR and industrial relations, has taught this process to human resource managers and line managers, and has used it personally to deal with 75 cases.
Of his own cases, he says 60 per cent have resulted in improved performance. About 25 per cent have resigned and 15 per cent have been terminated after breaching the behavioural based contract that is part of the plan.
One of those terminated, one claimed unfair dismissal and won, however Shaw says the payout of around $15,000 was a fraction of the $250,000 costs that could have eventuated through potential workers compensation issues.
Shaw’s process was developed to problem-solve with the 10 per cent of underperforming employees his experience shows prove “difficult”.
“The tenth employee is someone where you’ve tried the normal tools. Generally after a series of things occur, you wake up one day and figure it’s not working. That is your trigger for the tenth employee, and that’s when you start the four point plan,” Shaw says.
A typical case would be someone who is habitually late. The traditional line management approach was to march the offender into the boss’s office and threaten the sack if behaviour didn’t improve.
“Why does the line manager do that? Firstly, it used to work 20 years ago. Secondly, no one has taught the line manager anything different,” Shaw says.
“All you are doing, if you are a manager, is venting anger. You’re frustrated, and as soon as the bloke turns up two hours late, you just do an emotional brain dump on them.”
The first step of the plan requires the manager to identify, articulate and take ownership of the problem, which has resulted from the employee’s behaviour. But it does not focus on the employee’s behaviour.
For example, the consistent lateness of one employee means that work cannot be allocated, a crew might be left sitting around or all service counters cannot be manned.
Concrete evidence is gathered, including dates and times of the employee’s late arrival. The manager decides on an acceptable outcome, such as an end to late arrivals or telephone advice if the employee is going to be late.
In the counselling and dispute resolution phase, the facts of the manager’s problem are put to the employee without blame or emotions running high.
The employee is asked to agree to the facts.
The next step involves the employee agreeing the manager has a problem. Shaw says that because the process simply sticks to concrete facts, employees generally do agree. The third step involves the manager asking the employee to nominate a solution.
Shaw says sometimes people actually do not realise their behaviour is causing problems.
In one case, more than a dozen people agreed a manager was not following instructions. When Shaw investigated, he found the manager was using an obsolete flow chart from a manual.
“No one had told him not to follow those instructions. Yet he was a manager on a salary of over $100,000.
“The beauty of the process is that when you start checking the facts rather than accusing the person, you’re actually being a good manager. Low and behold, you might actually get your facts wrong.”
But given that the facts are checked, are correct and agreed to, the final step, a behavioural-based contract is drawn up and a review period agreed.
Shaw says the process of asking the employee to nominate a solution is fair, consultative and makes the employee take responsibility.
“If I tell you what to do, you won’t do it. If I ask you what you are going to do about it, then you have ownership. That is really hard for managers. We have to teach them how to pull out every wire in their brain and plug them in backwards.”
If the contract is breached, the manager can apply the four-point plan for a second time, ensuring procedural fairness.
The plan results in detailed documentation designed to defend the employer in case of an unfair dismissal claim.
A critical element that is initially excluded from the four-point plan is any personal reason that may have caused the employee to under-perform.
While this may seem harsh, Shaw is adamant that delving into and discussing the person’s personal life will divert the discussion and not get the manager’s problem solved.
“If I don’t get you talking about my problem, I won’t get an outcome. It’s really critical,” he says.
Once the employee agrees to the behavioural-based contract, Shaw is then prepared to discuss personal issues.
In his experience, it generally takes from four to eight weeks from the counselling session to the point where performance improves or the employee leaves the company.
Before managers use the four point plan, they will usually require intensive coaching to ensure they can keep their counselling session on track.
The third or fourth time they use it, they are “pretty much flying alone”, Shaw says.
Where organisations have incorporated the plan into their human resources practices, the number of cases identified and dealt with generally grows.
“Because you give them a system, give them tools and give them support, they realise they can have confidence in getting their problem solved instead of falling flat on their faces.
“Most managers don’t like to sack people. They just want them to get over their problem.”
Shaw counts the cost of under-performance as at least equal to the employee’s salary.
He calculates the employee will waste at least 10 per cent of their time. If the employee is in a team of four, each employee will also waste 10 per cent of their time, accounting for another 40 per cent.
The manager dealing with the employee would waste between 10 per cent and 20 per cent of their time, and human resources, other management and the legal department would waste a further five per cent.
“These numbers come to 75 per cent, but I would argue that’s conservative. Other people say the waste of the employee’s time could be as high as 50 per cent. And anything from 40 to 100 per cent of the team’s time could be wasted,” Shaw says.
A few years ago, disciplinary interviews with under-performing employees at the Broadwater Mill of the NSW Sugar Milling Co-operative Ltd were likely to become “emotional, testosterone-charged sessions”, according to production superintendent Paul Summerville.
The interviewer would “pump himself up to nail” the employee, who would in turn “pump himself up and put up defensive shields”.
These sessions, which also required a union representative and another management witness, “were not a very satisfactory experience from the management viewpoint, the union delegate or the interviewee”, Summerville says.
In the early 1990s, the co-operative introduced an enterprise agreement which set out the steps of a disciplinary procedure for dealing with difficult or underperforming employees.
Summerville says for tertiary qualified technical managers who were not trained in human resource management, it was like “being given a tool without an instruction manual”.
This changed when human resources specialist Mark Shaw worked with the company for 15 months from June 1999.
Shaw ran workshops for the technical managers, covering issues including unfair dismissal, the Workplace Relations Act, Workcover, counselling employees, managing diminished performance and the four-point plan.
“Mark came along with an instruction manual,” says Summerville.
“We still have our original systems in place, but we have a different way of applying them.”
In the past, an employee who might have been spotted leaving work early would have been called in and told he had a bad attitude.
“Then it goes downhill from there,” Summerville says.
Now it would be pointed out to the employee that he had been observed leaving work early without permission. Once he had agreed to this fact, the results of his action, for example creating a general malaise in the workplace and costing the company money, would be put to him.
“Normally when it’s less confrontational and put in front of them, nine out 10 would agree. You’d move straight through to asking them for a solution,” Summerville says.
The four-point plan has been used with a dozen employees, and change of behaviour has resulted in the majority of cases. Three people have chosen to resign or retire early. None have been terminated.
Summerville believes the straightforward nature of the plan means issues that might previously have been ignored or put in the “too hard basket” are now addressed.
Workplace disruption by a difficult employee can cause an unexpectedly large ripple throughout the business. Sharron Pountney, shared services manager of an IT solutions company, found the behaviour of one employee ultimately affected an entire work team of 20 people, occupied weeks of management time, caused customer complaints and almost resulted in the resignation of a valued team member.
Pountney says the problem originally arose when work teams were reshuffled following a resignation.
One staff member, ‘Jane’ was unhappy when a well-qualified staff member, ‘Sue’, replaced her former, less-qualified teammate.
The move was in the best interest of the team and the client account, but Jane saw herself as top dog and began treating Sue as her junior. Work and responsibilities were not shared, information was withheld and Jane kept the client relationship to herself as much as possible.
The problem rippled out when Jane began to try to muster support from other staff.
Some months later, after many discussions with Jane, Pountney documented her evidence, articulated her problem and put the facts to Jane at meeting with Mark Shaw.
“You lead them through the history of when it first occurred, and all the steps between then and now. You’re leading them down a pathway where they basically say yes, yes, yes. So they are agreeing to their behaviour the whole way through,” Pountney says.
“The last question was: do you understand that your behaviour continues to cause unacceptable disruption in the workplace?”
But when asked to nominate a solution she became very defensive, claimed she would be sacked and could not do anything to help.
Jane was given a list of changes Pountney was looking for, and a second meeting was scheduled for the following day.
Jane’s response was to obtain a medical certificate for stress, and she was given two weeks leave.
On her return, she agreed to adhere to 10 behavioural changes for 12 months.
While there was no major breach of the contract, there were sufficient minor ongoing issues to finally cause the resignation of Jane’s workmate Sue.
“As far as I was concerned, that was an unacceptable disruption to the workplace,” Pountney says.
During discussions with Jane, she had made it clear that, if the situation was not resolved, she might transfer Jane to a client account that required only one person.
This action was taken in September 2002, and the workplace “has completely settled down”.
Sue and her new teammate are working extremely well together, and Jane has her own client.
Without the four-point plan, Pountney says the issue would still have come to a head and some action would have been taking.
“But it would have been, I imagine, incredibly messy.”
Pountney says the plan gives the manager control of the process, takes the employee along a path where they can clearly see what is expected of them, and clearly see the outcome if they don’t agree to behavioural change.
Even for an experienced manager, dealing with under-performers is tough.
“It’s very easy to lose track of where you are and where you want to go if they lead you off the path. This completely eliminates the possibility of that occurring.
“Basically it’s about putting control over the process so the business gets the outcome it needs,” she says.