For many organisations, low staff turnover might be seen as a sign of stability. But senior leadership at Lloyds Banking Group is worried about inertia, as a new muscular performance policy is due.
The bottom 5% of performers will be subject to a performance improvement plan and be at risk of dismissal. This echoes the ’rank and yank’, popularised by Jack Welsh, former chief executive officer of General Electric in the US.
Keeping employees on their toes may combat complacency. However, the performance management process is inherently stressful for the individual, as well as consuming management time. To get round this, some employers offer a choice of a performance improvement plan (Pip) or a legally binding exit deal.
Standards of performance may be contractual or set out in policies. Usually, there is scope for flexibility. Expectations can change with the needs of the business and competitive pressures.
However, performance improvements need to be fairly applied in individual cases. A high-handed approach could result in a breach of the implied duty of trust and confidence and lead to claims for constructive or unfair dismissal. A poorly handled performance process can lead to unfair dismissal claims too.
To avoid successful claims there are two key points. First, employees need to be aware of what standards are expected of them and where they need to improve. Improvements needed should be specific and, where possible, measurable. Common failings in the application of Pips are lack of precision about the improvements needed, as well as lack of supporting evidence of failure.
Secondly, the procedure must give the employee a reasonable time to get back on track, a series of warnings and a right to appeal. The right to a companion at meetings where warnings or termination are considered must not be overlooked either. A settlement by way of a protected conversation and the offer of a legally binding settlement agreement may offer a short cut. Provided this is done correctly, with legal guidance, this can let parties move on, while minimising stress.
The arrival of day one unfair dismissal, likely some time next year, will put an increased premium at all levels in the business on managing the legal risks of performance management.
Jonathan Mansfield is an employment law partner at Spencer West
