What you need to know about the forces reshaping our industry.


May 31, 2022

If you can't fire an underperformer… what's next?

Daily Briefing

    Amid the "Great Resignation," many employers are working hard to retain the workers they currently have—even if some of these workers produce subpar results.

    Layoffs hit historic lows in tight labor market

    According to the Wall Street Journal, new claims for unemployment benefits are trending at their lowest levels since 1968—signaling just how few layoffs are occurring in the current tight labor market. In March, there were roughly 1.1 jobless claims per 1,000 people, compared with 2.3 jobless claims per 1,000 people in 1968.

    "Right now, Americans are experiencing the highest level of job security on record by many measures," said Aaron Sojourner, an economist at the University of Minnesota.

    In addition, many companies are grappling with staff shortages after record numbers of employees quit their jobs as part of the "Great Resignation" over the past few months. Because of this, experts say employers may now be more circumspect about who they choose to lay off, if they do so at all.

    Before the pandemic, "companies tended to have more caution on the side of hiring than on the side of layoffs," said Erica Groshen, a former commissioner at the Bureau of Labor Statistics. "I think right now they have a more balanced caution. The balance has tilted a little bit to paying attention to the risks of laying people off."

    'You'd have to be incredibly lousy' to get fired right now

    In the current labor market, many companies are choosing to hold on to their current workers, rather than trying to hire new ones—even if these workers are underperforming or not giving their full effort, the Journal reports.

    "You'd have to be incredibly lousy" to get fired as a software engineer right now, said David Cancel, CEO of Drift, a marketing firm that uses artificial intelligence. "Most companies—and us, in some cases—are keeping people who wouldn't be on the team in a looser market. The standards would be higher."

    In particular, Benjamin Friedrich, associate professor of strategy at Northwestern University, said employees in smaller roles in a company are likely keep their positions, regardless of performance. In comparison, executives are more likely to lose their jobs if they have disappointing results, since these failures cost the company more overall.

    According to a survey of 2,000 managers from UKG, around two-thirds said they would be willing to rehire former employees who had middling performances, and 16% said they would take any of their former employees back, regardless of their skill.

    "I call it bird-in-the-hand management," said David Gilbertson, UKG's VP who leads its workplace research. "The companies I talk to are all worried about recruiting."

    Instead of recruiting new employees, many companies are now training or retraining the employees they already have, according to Jim Link, chief human resources officer at the Society for Human Resource Management. This may mean teaching employees how to be better at their current jobs, or transferring them to different positions, to see if they will perform better with different duties.

    Employers "are looking at how to uplift the skill and capability of the employees that are on their staff, and they're making great efforts to do that," Link said.

    However, companies who put up with subpar employees may also see their high performers leave if they do not feel sufficiently rewarded for their work, the Journal writes. If employers do not distinguish between good work and bad work, morale on their teams may fall over time.

    "You're showing your top performers the bottom of what you'll tolerate," said Jessie Wisdom, co-founder of Humu, a company that aims to improve team motivation. "If I'm working really hard, but I see that management doesn't treat me any differently than they treat someone who is doing the bare minimum, that is very demotivating. Why should I do my best anymore?" (Harrison, Wall Street Journal, 4/15; Borchers, Wall Street Journal, 5/19)


    Advisory Board's take

    4 potential root causes of underperformance

    Kate Vonderhaar JohnsonBy Kate Vonderhaar Johnson, Managing Director

    Every manager knows how much work it takes to find, hire, and train new team members, so it's no surprise many leaders err on the side of retaining team members who are underperforming – particularly when the median hospital vacancy rate is already twice the rate seen in more typical times. But we often underestimate the costs of retaining team members who are underperforming and overestimate the benefits. Staff  who aren't meeting expectations impact:

    • Team performance – There may be work that must be re-done by others; a higher rate of mistakes that need to be caught and corrected; and/or customer complaints that must be resolved.
    • Team engagement – As the article notes, staff who aren't meeting expectations impact morale, particularly of high performers. With so many people routinely going above and beyond to cover staffing shortages, it's disheartening to also pick up slack for underperforming team members.
    • Manager capacity – Managers often spend a disproportionate amount of their time coaching low performing staff and mitigating the impact of low performance. That's time that could be better spent supporting and engaging the rest of the team.

    Is it reasonable to have a higher bar for what constitutes underperformance warranting termination in the current environment? Yes—and not simply because of labor shortages. There are several reasons a team member may not be meeting expectations that can be resolved. Explore these potential root causes before beginning a formal termination process:

    1. Unclear expectations: As organizations have responded to Covid waves, many responsibilities have shifted. Some expectations are explicitly put on hold during the height of surges and new ones are added. Given the pace of change, it's worth double-checking: does the team member understand what today's expectations are? It’s easy to assume staff know when to re-start tasks that were put on pause—but you need to be explicit about which expectations are back in play.

    2. Priority overload: Given the high vacancy rate, many staff are pitching in to cover gaps. A staff member who appears to be underperforming could be a team member prioritizing the best they can among too many responsibilities. Work with them to get a full picture of what's on their plate and align on what their top priorities should be.

    3. Burnout: Prolonged stress and burnout can absolutely impact performance. Staff experiencing burnout need support for their emotional well-being first, not a performance improvement plan. If you’re seeing unusual signs of underperformance from a team member who has typically been a reliable contributor, open a conversation about their well-being. This tool offers a useful guide for the discussion.

    4. Wrong fit for the role: It's always a good idea to consider whether there’s an open role elsewhere in the organization that would be a better fit – and, as the article notes, particularly worthwhile to consider now. That said, be clear-eyed about whether changing the role is likely to lead to meaningful change in performance. Otherwise, you're simply shifting the costs of underperformance to another team and leader.

    If you have a team member who isn't meeting expectations, you don't need to jump right to termination—but you do need to take action. The costs to your team are too high to avoid doing so.

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