Poor performers can eat away at a company's bottom line and affect the morale of the rest of the team. During an economic downturn, this exposes companies to greater risks. It's time for managers to tackle underperformers

New England coach Fabio Capello has it all to do. The Italian must turn arguably the biggest bunch of underachievers in international football into World Cup contenders—and he has under two years to do it. Occupational psychologists might point to insufficient motivation levels. Despite frequent embarrassment for the national side, most, if not all, regular England players are already multi-millionaires by the time they reach their 30th birthday. Capello's predecessors were also guilty of being too lenient with senior players, effectively reinforcing poor performance.
The Italian will be keen to instil a sense of discipline.

Heaping praise on high performers is something organisations do well—too well, according to new research, which also discloses companies' reluctance to tackle underperformers, and the risk this presents to the business in a tough economy. The study, by London-based management consultancy WCL, reveals that the "too much carrot, not enough stick" approach is predominant, with six out of 10 UK organisations currently failing to manage poor performance.

While staff reward schemes are increasingly prevalent, UK companies seem averse to taking a tough line on ineffectual workers, with 56 per cent of employees saying their company has no system in place for dealing with non-performing teams or individuals and 74 per cent of senior managers admitting that businesses aren't effectively dealing with poor performance.

Director of WCL Ashley Semmens says: "During these turbulent economic times, when the business environment needs to be especially robust, it appears that UK companies are still far keener to reward than reprimand."

One reason for this, he suggests, is the fear that many organisations have of falling foul of employment laws, which have become increasingly complex and weighted in favour of the employee. He says: "From our own experience, most organisations have sound HR processes in place, yet they still choose to err on the side of caution, which impacts on their ability to scrutinise individual performances and steer people towards raising their performance."

Given the sophisticated nature of modern performance management systems and the fact that more organisations are implementing them, this corporate failure to act is puzzling.

Professor Paul Sparrow, director of the centre for performance-led HR at Lancaster University Management School, believes some of the blame lies with the questionable skills of line managers.

He says: "To get to the bottom of why someone is not performing, you need to be able to probe in a completely objective and unbiased way, and essentially manage the situation. To do that you need to be absolutely clear about what constitutes good or bad performance. The question is, are your performance management systems robust enough, and your managers skilled enough, to deal with the performance information they produce?"

Piers Hollier, a consultant at business psychologists Getfeedback, argues that the excessive rewards and bonuses paid to high performers in recent years have made matters worse by clouding the definition of performance.

He says: "There is no point in rewarding a salesperson for achieving outstanding sales results if they are failing in other areas of their job, for example, if they are difficult to work with or poor at timekeeping. People need to know what is expected of them and how they are doing in all elements of their role, not just one part of it. Emotionally, it is difficult to tell someone who is very good in one aspect of their job that they are underperforming in another. It is important to understand why they have a problem, but handled in the wrong way, you risk losing a valuable member of staff."

Most experts agree that employee engagement is a key driver of success for high-performance organisations. It was the harsh realisation that they were no longer a high-performance organisation that was the impetus for a radical change programme at specialist financial services firm MGM Advantage. A strategic review, launched a year ago, identified key areas for performance improvements and resulted in a complete overhaul of the company, from the brand, products and distribution channels, to the IT systems and staffing levels, which were reduced by 25 per cent.

Headed up by a new CEO, the company, based in Worthing, West Sussex, now employs 140 people. Operations director Sara Charman explains: "While many of our employees were long serving and committed, they had become used to working in a certain way, one that wasn't delivering the performance levels that were critical to our ability to compete." 
She admits that at the time the decision was made to undertake a review, there was no real hint of the market turbulence that was to come.

"We felt the best way of dealing with underperformance was by raising levels of staff engagement, through better communication. We had to make sure people shared our vision and our goal of becoming a major player in the annuity market and felt included in the plans," she adds. "That has really driven performance levels up at a time when we need to be at our best if we are to compete in a difficult market. With hindsight, it was the best move the company could have made."

Tackling underperformance at senior management and board level can be more difficult. Andrew Hargreaves, head of organisational performance at WCL, says: "The higher up the organisation you go, the more excuses are made for poor performance and the more accountability diminishes. The frequency of performance reviews at that level also tends to fall away."

Where poor performance comes down to disengagement because an individual disagrees with a part of the organisational strategy, an effective leader can still re-engage that person by convincing him or her that the strategy is do-able. But if that fails, a departure may be inevitable.   
But being tougher on performance and accountability, with the result that members of staff are dismissed, can be misinterpreted as punishment. When a senior member of staff heads for the door, careful communication is vital.

When Marks & Spencer announced a 4.5 per cent drop in food sales in July, its director of food, Steven Esom, immediately departed, while the company, with equal rapidity, unveiled a strategy designed for the challenging market conditions. Effectively, the company countered the impact of the director's departure with a renewed commitment to sales that reassured the workforce.

Public opinion is also influenced by corporate handling of poor performance, as in the recent case of Network Rail and its decision to pay £55m in staff bonuses in spite of the huge disruptions to service caused by engineering delays that left thousands of passengers stranded over the New Year period.

The decision was questioned by MPs and trade unions and riled the long-suffering public in particular, while the company insisted that the bonuses were justified because more trains were on time, and there were fewer delays.

Ironically, the current economic uncertainty that puts underperforming businesses at risk also presents their leaders with a perfect opportunity to raise everyone's game. Hollier explains: "When times are tough, people become much more aware of their own performance. They may also feel vulnerable about their job prospects, and if they know that the company isn't doing well, will be more willing to focus on what is needed, including raising the level of their own performance, to ensure the survival of the organisation."

And if you're more inclined to let everything tick over for a while longer, Hollier is firm: "If business leaders want to rally the workforce and motivate everyone to deliver their best performance, now is the time to do it."