How to manage employee underperformance

Julian Hackenberg, HR Manager
By Julian Hackenberg, HR Manager


As we all know, there are times when despite our best attempts to set employees up and support their success, they don’t perform to the level we expect.

Poor performance may go undetected for a while, but sooner or later it will get noticed, whether it’s general slackness, corner-cutting, missed deadlines, or poor attention to detail.

It’s not always easy to provide negative feedback or have difficult conversations, but this is essential to being a good employer or manager. It’s also essential to the success of your business because if left unremedied, underperformance will start to affect the rest of your team and overall productivity.

This blog post follows our post on managing employee performance and development and provides tools, techniques, and tips for addressing unsatisfactory performance. We’ll look at separating underperformance from misconduct, how to set up Performance Improvement Plans (PIPs), and what to do if there’s still no improvement. We’ll also touch on legal risks, including unfair dismissal.

Identify and address issues quickly

There is no room for dead weight, especially in a smaller business, so you have to get on top of poor performance sooner rather than later. Minor issues are also easier, quicker, and cheaper to solve than problems that have grown and become established habits.

So don’t wait for small matters to become major issues. Establish expectations at the very start of the employment relationship and ensure you have a targeted, effective performance review system that can keep people on track or alert you early to any problems.

If you notice someone is having trouble meeting objectives, don’t wait until the next performance review meeting to address it; get on to it asap.

Separate conduct from performance

The next step is to examine and understand the issue, which will determine how to respond. Is it a performance or a conduct issue? It can be useful to determine whether it’s a matter of skill or will. A skill issue is where an employee doesn’t have sufficient skills or competency to be effective in the role, while a will issue is one where they are knowingly doing something wrong, which will generally lead to disciplinary action for misconduct.

If it’s a skill issue, work with the person to determine what the main contributing factors are. Are the performance goals unclear or the role ambiguous? Have they had adequate on-job training or support? Is there a lack of communication, stimulation or engagement? Are there personality clashes, conflict within the work environment, or poor workplace morale? Once you have identified the concerns, the employee may have a reasonable explanation or you can seek ways to improve.

Tip: Set aside any personal emotion about the situation as it will get in the way of your understanding of the facts and ability to find mutually-beneficial solutions.


Informal discussions are key when it comes to managing performance. People respond much better to a chat or something brought up in a regular catch-up rather than finding out in a formal performance review meeting a few months after the fact.

Again, set expectations early about what the goals are, how to expect and give feedback, when and how you will meet (face-to-face in the workspace, in a training room, or online), what support to expect, timeframes, and how to know if goals or milestones have been met, or not.

Ask questions, listen, and provide strategic advice and counsel. Keep the focus on the issue rather than the person, and work on specific aspects that they need to improve or where they may need additional support or an adjustment of the role to better match their skills and motivations. Explain how their underperformance is affecting the business so they understand the wider impacts. Use workplace tasks and situations as learning opportunities, so the person can improve by doing, possibly under the supervision of an experienced colleague.

Put things in writing so everyone agrees on, and can refer to, what has been discussed and what the expected outcomes are.

Performance Improvement Plans

The majority of instances of underperformance can be addressed by informal coaching, but sometimes you need more formal performance management tools.

Performance Improvement Plans (PIPs) are a structured process designed to improve underperformance or unsatisfactory workplace behaviour (again, we’re not talking about serious misconduct such as bullying, sexual harassment or theft that requires disciplinary action).

Consultation with the person is essential and the employee needs to commit to the improvement process. Discuss the reason for the PIP and agree on specific and realistic goals, any necessary training, reasonable timeframes, follow-up meetings, how performance will be reassessed at the end, and potential management action for not achieving, e.g. a formal warning.

Tip: Always document and securely store the PIP, as it records the business’ efforts to obtain improvement and the employee’s corresponding efforts. Include details of progress meetings and issues discussed. Also, give the employee a copy for their records.

Download our Performance Improvement Plan worksheet.

What if there’s no improvement?

Usually, if you approach the PIP in a focused, considered, and respectful way, the employee will lift their performance, which is a win for both parties.

If not, there are a few options to consider depending on how the person has responded.

If they have shown improvement but not quite reached the target(s), you could go back and propose doing another PIP. If there’s been no improvement and no reasonable explanation, you might reach a mutual agreement to terminate employment. Otherwise, you could issue a warning that they need to improve their performance, behaviour or attitude in a precise way, otherwise their employment may be at risk. This will lead to further performance management.

Legal risks

There is a common misconception that you must give an employee three warnings before you can dismiss them for poor performance, but there is no legislative requirement for this number.

What you need to be mindful of is the risks of mishandling performance management, disciplinary, or termination procedures, including unfair dismissal or discrimination claims, or the breach of the implied duty of trust and confidence set out in the employment contract.

For this reason, you need to ensure that your company policies and procedures for managing underperformance and misconduct are fair and transparent and apply to all employees without prejudice. Getting it wrong will suck up valuable management time and attention, not to mention any legal costs you may incur.

Unfair dismissal

Under s387 of the Fair Work Act, there are defined criteria for determining whether a dismissal is unfair, including whether there is a valid reason relating to the person’s capacity or conduct and that between being warned about unsatisfactory performance and being dismissed, they are allowed to understand their employment is at risk and have time to try to improve.

Any warnings you give must identify the aspect of the employee’s performance you are concerned about (a mere exhortation to improve is not enough) and make it clear that their employment is at risk unless their performance improves.

This is why implementing a PIP is so effective in that it advises the employee of the issue, details the reason for the necessary improvement, and serves as a warning that employment is at stake. A PIP also provides proof that the business has made efforts to remedy the situation, what the efforts were, and how the person responded.

Learn how to terminate employment safely