The costs of NOT managing performance

Performance management is rightly seen as a fundamental of the manager’s role. Why? Because of the costs of not managing performance. However, so often, the focus is on managing poor or underperformance – because of their obvious direct impact in the workplace – but high performers need motivation and management too. Let’s take a brief look at the costs of avoiding performance management.

What happens if you don’t manage under performers?

There are many reasons a person may not be doing the job to standard:

  • They don’t know why they should.
  • They don’t know how.
  • They don’t know what they are supposed to do.
  • They think the standard way won’t work.
  • They think their way is better.
  • They think something else is more important.
  • They think they are doing it.
  • They feel punished for doing it.
  • They feel rewarded for not doing it.
  • It’s beyond their ability.
  • It’s beyond everyone’s ability.

(Derived from Why Employees Don’t Do What They’re Supposed to Do and What to Do about It by Ferdinand F. Fournies)

Whatever the reason(s), that under performance can affect the whole team or business. Common costs of not managing under-performing individuals include:

Productivity – Initially, this may just be the impact on the individual’s remit but left unaddressed, colleagues have to pick up the slack which, in turn, affects their work and results.

Team spirit – This then affects morale as colleagues begin to resent the under-performing individual; good workers begin to feel put-upon, undervalued and disengaged.

Efficiency – There is an impact on time as work has to be done twice (or more), complaints must be dealt with, resources reallocated or replace, etc.

Budget – The basic financial impact is that you are paying a salary to someone who is not delivering the results; depending on their role, there can be a direct impact on the business’s revenue.

Brand – Longer term, and especially when the under performer is in a customer-facing role, your brand and reputation become damaged.

What happens if you don’t manage high performers?

So often, the focus of performance management is on ensuring standards and competencies are met, taking action when they’re not, that managers can forget about people who meet (and exceed) those standards consistently. High performers are not ‘a  problem’ so they don’t get as much management attention. That in itself can be cause problems. So, what are the potential costs of neglecting your high performers?

Productivity – High performers can be up to 4 times more productive than the average worker (up to 8 times in high-complexity roles); with a consequently greater impact if that performance isn’t supported and maintained.

Turnover – according to The Predictive Index report, The State of Talent Optmization, 47% of high-performing employees left their company in 2022; not only have you lost their talents, you need to replace them and that means additional recruitment costs.

Recruitment – The average cost of replacing a full-time member of the team is between 1.5 and 2 times that person’s annual salary. What’s more, once you do have a replacement, The average time for a new hire to reach full productivity is 6-8 months (and unless you change your approach to performance management, what’s to stop them leaving like their predecessor?)

The basic elements of good performance management are worth the investment. Avoiding the above costs is a question of having a performance management system in place and ensuring your managers have the skills to use it. Whatever your specific processes, the fundamentals are:

  • A common understanding of what the organisation is aiming to achieve (strategic objectives, KPIs, etc.)
  • Agreement on what is expected from each individual (e.g. a detailed job description and clear quality/quantity standards, linked to the organisation’s aims).
  • A shared understanding of the skills and knowledge required to perform to standard (e.g. in the form of competency statements).
  • Assessment of each individual’s skills and knowledge in relation to the job requirements (and competency statements); with necessary support (coaching, training, etc.) provided.
  • Regular assessment of each individual’s performance.

 

Managers often focus on managing (or avoiding managing) under performance because it’s difficult; it’s a challenge, a tricky conversation, with potential conflict and disagreement built in. But the cost of losing your best performers is just as high, if not more so. Good performance management requires balance, giving each team member the attention they need and deserve. Take a look at our ‘performance management’ training programme or give us a call on 01582 463460 – we’re here to help.

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