Remember how, back in school, students who struggled academically were often given extra attention, coaching, or warnings to help them improve? The corporate world follows a similar principle, though the methods may vary. While some organizations may quickly move toward termination, many choose to invest in their employees through targeted coaching, mentorship programs, or structured performance improvement plans.
Human Resources plays a crucial role in this process, ensuring it is fair, objective, and well-managed. From helping managers set measurable, achievable goals to facilitating constructive feedback, HR acts as the bridge between leadership and employees, guiding both through the performance review journey. So, what core strategies do companies rely on to tackle underperformance effectively? Let’s dive in.
Why underperformance hurts
First and foremost, it’s important to recognize that managing underperforming employees is both challenging and essential for effective leadership. The impact shows up in direct and indirect costs.
Direct costs include recruitment and onboarding expenses, replacement costs. A CareerBuilder study reveals that nearly 3 in 10 Indian companies (29%) reported that a single bad hire, someone who turned out to be a poor fit or failed to deliver, cost them an average of over ₹20 lakh.
Indirect costs can be even more damaging. They include lost productivity, declining team morale, a weakened employer brand, and the significant managerial time required to address performance issues.
Action plan: How companies respond
Many companies see underperformance not just as a challenge, but as an opportunity to help employees get back on track before moving toward termination. To address performance issues effectively, organizations rely on a mix of structured strategies and supportive interventions. Here are some common approaches they use:
Performance Improvement Plan (PIP)
A Performance Improvement Plan (PIP) is a widely used strategy to manage underperformance. PIPs first emerged in the 1990s within American MNCs as a best practice grounded in the principle of “no surprises” management. The original intent was genuine development, helping employees improve when underperforming.
A PIP typically:
- Identifies performance gaps.
- Sets clear, measurable goals with timelines.
- Provides resources and support to improve.
- Outlines potential consequences if performance does not improve (role reassignment, reduced responsibilities, or, in rare cases, termination).
However, misuse of PIP is common, some companies use it as a quiet offboarding tool rather than a growth opportunity. When implemented thoughtfully, PIPs can boost engagement and productivity. A Gallup study found organizations that effectively use PIPs see a 30% increase in employee engagement and a 20% rise in productivity.
Performance-based rewards
Recognition and rewards can motivate employees and boost morale. Timely, clear, and consistent recognition,whether through praise, thank-you notes, certificates, bonuses, or promotions, signals that effort is valued and encourages improvement.
Example: Infosys’s Q1 bonus plan rewarded mid-level employees based on performance ratings. Even employees marked “needs attention” received a minimum bonus, while top performers received higher rewards.
This approach:
- Encourages continuous improvement.
Reinforces a transparent and inclusive culture. - Sends a clear message that growth is possible for all employees.
Coaching & feedback frameworks
Coaching and feedback help employees recognize strengths, address weaknesses, and enhance performance. If done right, they foster growth, but when done poorly, they can demoralize. According to a report by ICF & HCI, Organizations with strong coaching cultures are often high-performing, as employees feel motivated, challenged, and guided constructively without fear of criticism.
Best practices for coaching & feedback:
- Personalize feedback to make employees feel valued.
- Adopt a supportive coaching approach, where managers act as mentors or sports coaches.
- Use informal, regular check-ins instead of only annual reviews.
Technology can take the coaching and feedback process one step ahead. For instance, organizations like HSBC use HR apps to track performance, share real-time feedback, and provide development resources. This allows employees and managers to stay connected, even in remote or hybrid settings.
The way forward
These are some of the popular strategies companies use to support and improve the performance of underperforming employees. However, even with the best interventions, not every employee may respond or achieve the desired outcomes. In such cases, it becomes important to recognize when to step back, focus resources strategically, and allow certain situations to run their course, ensuring that the overall team and organizational performance remain on track.
