Should HR advise managers to sack poor performers or help them improve?

Microsoft chief executive Steve Ballmer caused a stir last year when he announced to the Institute of Directors conference that he culls one in every 15 employees every year. He suggested that all businesses, large and small, would benefit from such an approach.

His views received support from a recent survey by global talent management consultancy Hudson, which found that 77% of 562 executives and senior managers in the UK believe that a fixed quota for annual staff dismissal would boost financial performance and productivity.

The advantages of pursuing this policy were described in Hudson’s research as ensuring strong team members are not carrying weaker ones, allowing underperforming staff to pursue a fresh challenge more suited to their abilities, and increasing productivity overall.

Yet, despite these many alleged benefits, only 4% of companies surveyed dismiss a proportion of their staff. The remaining 96% might well be looking at these results and wondering if they should follow suit.

Opposition to culling

Most companies are quick to dismiss the idea. Cathy Monaghan, head of HR at reward consultancy PES, says: “This is a great idea if you want to manage through fear, retribution and paranoia, and create a general air of unease.

“This sort of culling makes people focus on appearing productive, leads to short-termism, and attracts the wrong sort of employees. It’s also expensive, as you incur recruitment costs to replace the staff you have culled.”

Others raise issues with the practical implementation of the idea. “What is the right percentage?” asks Chris Howe, director of ChangeMaker, an HR and change management consultancy. “If you pick an arbitrary number such as 15%, how do you know that is right? What if you have only 7% of underachievers, and you are therefore throwing out 8% of good people?”

Nearly one-quarter (24%) of respondents to the Hudson survey believe that deliberately dismissing underperforming staff increases morale among the rest of the team. But for Hamish Cameron Blackie, partner at accountancy firm and UK200Group member Barlow Robbins, this is a poor way of motivating staff.

“Culling the bottom performers will only ever motivate those on the cusp of success or failure. Those who are at the bottom of the performance table will be demotivated and will not care about their performance any longer. Those in the middle ground, but comfortably distant from the danger of being dismissed, won’t care about the policy either,” he says.

Finally, there are concerns about the legality of culls. “How would this be explained to an employment tribunal?” points out Nadia Motraghi, a barrister specialising in employment law at Old Square Chambers. “It doesn’t appear to be a genuine redundancy situation, because the workforce cull appears unrelated to the level of work that needs to be carried out and the number of employees needed to do that work. From a legal perspective, regular staff culls are likely to require employers to get their chequebooks out.”

Alternative approaches

Many of these critics of the culling approach believe that companies should instead focus on re-engaging underperforming employees. Tom Barry, managing director of leadership consultancy BlessingWhite Europe, says: “It’s not good practice to search out the disengaged simply to cull them. It may not be their fault. Companies should try to ensure that the activity of all employees is aligned to strategic goals.”

For others, it is more important to focus on the high performers in an organisation. Mike Penny, director of executive search consultancy Warren Partners, says: “Companies often spend so much time on underperformers that they forget to stretch the top performers intellectually and support their development needs. Instead, they can inadvertently punish great performance by overloading them with extra work.”

These critics of the culling strategy all agree that it is far better to hire the right people in the first place. Dave Millner, consultancy director of recruitment consultancy Kenexa Europe, says: “If companies have to cull one in 15 staff every year to maintain performance standards, then they are failing to hire the right staff in the first place.”

And 72% of respondents to the Hudson survey agreed, admitting there would be less need to release staff deliberately if recruitment processes were more rigorous.

The case for culling

However, Ballmer does have some supporters. Stuart Duff, head of development at occupational psychologists Pearn Kandola, believes that the culling approach is simply the logical conclusion of performance management. “Why bother to have a performance management system if you don’t act at both ends? Most companies, however, just reward the top performers and ignore the poor performers,” he says.

“The reason for this is that it is difficult to manage performance to the extent that you can be confident enough to fire someone. Few managers have the time to do this. Paradoxically, they’re too busy to manage their staff properly. However, those organisations that do set their staff clear goals, and manage their progress towards the achievement of those goals over a long period of time, can then act on the results and reap the rewards.”

He points to a major IT consultancy that does this. “The HR department sits down once a year with line managers and asks them who are the high performers they want to promote, and who are the poor performers dragging them down, who they want to fire,” says Duff.

“Because the company vigorously executes its performance management system, line managers can answer these questions confidently and the organisation can make the right decisions.”

This may sound heartless, and Duff says this approach is likely to promote a culture of internal competition and destroy employee loyalty. However, Chris Welford, director of talent and assessment at HR consultancy Penna, believes that culling can even be good for those who get fired.

“The initial reaction to this idea is horror. However, if you think it through, it’s more sensible than it sounds. Most people have skills, but they’re not always used in the right way,” he says.

“In any organisation, there are about 10% of people who are in the wrong job. It makes sense to have adult conversations with them about their future and then to help them find work that will use their skills. It’s much better to do that than to hide behind procedures and rules-based management.”

All in the implementation

If a company is to conduct a cull, it needs to ensure it is done properly.

Andy Cook, managing director of HR consultancy Marshall James, advises: “Any systems in place to measure staff performance must be objective and non-discriminatory. Communication of company policy must be robust, so that employees are not surprised if they find themselves in the bottom percentile and action is taken to dismiss them. Policies and procedures must always be transparent and, most importantly, legal.”

Case study: General Electric

Perhaps the most famous employee culler of all was Jack Welch, the former chief executive of General Electric (GE). He sacked the bottom-performing 10% of his staff every year, arguing that a disproportionate amount of time was spent managing the performance of these employees, and that this time and effort would be better spent supporting and developing the top 20%.

However, GE has recently retreated significantly from this position. Eighteen months ago, it removed all references to the 20/70/10 split from its online performance management tool, and while managers still assign employees to one of three performance categories, they have much more flexibility about the percentages that end up in each category.

They can choose to have no-one in the bottom 10% if they like, and people in this group – now described as the ‘less effectives’ – are provided with more specific assistance to improve performance than was previously the case.

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