How to Manage Underperformers

By Ray Silverstein

for The Business Journal (Phoenix)


For most small business owners, handling an underperforming employee can be extremely challenging. 


After all, we don’t run our small businesses like big, impersonal corporations. We know our employees personally; we work side by side with them. Often, we strive to create a family feel within our workplace.


But if someone isn’t pulling their weight, that’s money out of your pocket. They’re hampering productivity, jeopardizing accounts, and endangering morale. If you have a slacker in your midst, who’s picking up the slack?


Ask yourself: can you afford to carry this extra burden, especially now, when business is so tight? If you allow this to continue, you are only hurting your business.


When it comes to dealing with mediocre employees, you have two choices: get them up to speed, or get them off your payroll. Either way, you start at the same point.


If you handle this wisely, you’ll give that employee a chance to turn things around, while safeguarding your business. But if you proceed rashly, you can set yourself up for a wrongful termination lawsuit. Here’s how to do it right.  


Getting Someone on Track

Managing employees is a process. It involves ongoing communication and documentation. Unfortunately, many entrepreneurs learn management skills on the fly, so often there’s no formal process in place.


No matter how small or informal a firm is, employees need to know what’s expected of them. It’s good for them, and it’s good for you. That’s why job descriptions and performance reviews are such great management tools. Don’t use them? It’s time to start!


Meanwhile, if you’re dealing with a problem employee, the first step is to communicate with him. Plan this meeting carefully; be factual, specific, and cool-headed about it.


One thing you need to determine beforehand: is the problem due to lack of effort, or lack of skill? Is this something training may rectify? If so, draw up a training plan and make it part of your meeting.


Frame your expectations in quantifiable terms. Rather than tell an employee he isn’t producing enough widgets, give him a specific daily production goal. Now he’s got a goal to aim for and you have a yardstick to measure against. Be sure to schedule a follow-up evaluation.  


Make sure the employee understands this is a warning. Document your expectations; ask the employee to sign the document. This becomes proof you provided advance notice, which may protect you against potential legal action.


Making the Break

Hopefully, your employee will make great progress during the probation period. If so, continue with ongoing reviews to keep performance on track.


But what if your employee makes little or no progress? Well, you can continue trying to work with him. However, usually it is in your best interest to end things cleanly.


If you do terminate him, get that in writing too, in the form of a signed severance agreement. Like a written warning, a formal agreement may protect you from a future lawsuit. But how do you get an employee—especially an angry or opportunistic one—to sign it?


Offer a severance package. In return for X weeks or months salary, your employee agrees not to pursue legal action. Offer an amount that seems fair, one you feel good about.


Once the employee signs the agreement, he has a fixed number of days in which to recant. Withhold payment until after this period and spread the payments out to discourage a change of heart. (Don’t know what a severance agreement looks like? For a free sample agreement, call me at 800-818-0150 or email


Making the Leap

Yes, it’s still difficult letting someone go. But here’s a thought that might spur you to take action.


Remember, when the economy is tight—like it is now—it’s a great time to upgrade your staff. There are many talented people hungry for work. Do you really want to turn them away because you’re stubbornly holding onto a proven underperformer?


During tough times, smart entrepreneurs grab onto every advantage that presents itself. A burgeoning talent pool is one of the few upsides of a downturn, so seize it. The bottom line is, when times are hard, you can’t afford to be soft.