How to create and use a performance improvement plan

All employees must operate at peak performance for small businesses to thrive. But what if some members of your team are underperforming?

Before you let an employee go, offer them the opportunity to improve by giving them a performance improvement plan (PIP). This tool clearly sets your expectations for how an employee can improve their job performance.

A performance improvement plan is not only useful for helping struggling employees but can also provide an outline for top performers who want to get promoted.

To get the full benefit, you need to understand what a performance improvement plan is and how you can best utilize it to create a high-performing team.

What is a performance improvement plan?

A performance improvement plan is a structured document outlining the steps employees must take to continue working at your business.

Typically, it spells out the specific goals an employee must achieve to keep their job and the timeframe in which you expect them to be met, usually ranging from one to three months.

This is a formal document that can serve as a final warning to employees that unless they meet the goals of the performance improvement plan, they can be fired. To make the process as straightforward as possible, the PIP should clearly identify your objectives for improvement and the specific actions to take to achieve those goals.

For example, if an employee is a bad communicator, it’s not helpful to merely tell them you need to communicate better. In this case, a performance improvement plan would:

1. Cite the problem and instances it occurred
2. Show the impact on the business (missed deadlines, wrong orders, etc.)
3. Explain the steps they can take to fix the issue, with set deadlines for each step

There are several issues, both external and internal, that may require you to give a performance improvement plan to an employee.

External concerns

• Customer service complaints go unanswered or are addressed rudely
• Orders are wrong
• Bad communication with company partners, vendors, suppliers, etc.
• The employee badmouths the company, its customers, or its competitors on social media or to other people

Internal concerns

• The employee has a negative attitude affecting their coworkers
• Missed deadlines, cutting corners affecting the quality of work, incomplete work, not meeting performance goals
• Excessive absenteeism, consistently late to work

If these are recurring issues, and you’ve already addressed them with your employee, let them know this PIP may be the last chance they have to improve before termination. Check with your HR manager or company attorney to ensure you comply with your state’s regulations.

Performance improvement plans can also help a floundering employee before matters get even worse.

What are the benefits of a PIP?

Giving employees a performance improvement plan benefits them and your company. Helping team members fix any shortcomings shows them you’re invested in their success, and if the PIP is effective, you end up with a better business.

Employees are more likely to be receptive to criticism when they know they can correct the situation. So, if you approach performance improvement plans as a way to support the employee’s long-term goals and eliminate roadblocks to their professional growth, they are less apt to feel defensive and will work harder to meet your expectations.

General benefits of a performance improvement plan

Eric Ehlers, an HR recruitment manager at Elevation Solar in Arizona, says PIPs help you:

• Identify the root causes of the employee’s performance issues
• Create a clear pathway to success for the company and the employee
• Document employee performance (whether positive or negative)
• Encourage management and the employee to work together
• Express your goals and the employee’s deficiencies in clear, actionable steps
• Tailor the solution to the individual employee’s needs

Other benefits of PIPs

Beyond those listed above, a performance improvement plan can have a broader impact on the business.

PIPs make employees accountable

In some cases, employees may be unaware of what they’re doing wrong or how you view their performance. They cannot take responsibility for or fix what they don’t know. A PIP lets them know what’s amiss and how they can rectify that.

A PIP can affect other employees as well. Seeing the improved performance of a co-worker can take extra loads off workers who’ve been picking up the slack and lift employee morale.

PIPs can reduce employee turnover

Hiring and retaining employees is a major challenge for many small businesses today. Your business will save time and money if you can keep the staff you have instead of having to find and train new workers. So it’s worth the effort to help underperforming team members improve.

PIPs create employee buy-in

When struggling workers are included in the job assessment process, they are more likely to feel engaged and not threatened. Often, employees who are told their job performances are lacking are so paralyzed by the fear that everything they do is wrong and are unable to move forward.

PIPs set expectations for the “end game”

There are times a performance improvement plan won’t work. Perhaps the employee is truly in the wrong job and can’t improve. When employees are given the specific steps to take and goals to achieve to keep their jobs, they know if they’re on the right or wrong track. If termination becomes necessary, they hopefully are prepared for it.

PIPs can be a path to growth

As stated above, performance improvement plans can also help your excellent employees. If you have team members who feel stuck in their positions, want to learn other aspects of your business, or deserve a promotion, create a PIP for them.

In these cases, you may want to change the PIP into a PDP (performance development plan) or PGP (performance growth plan).

You and the employees on this path need to access their goals, their current skill set, and what would be required to move to another position.

Then, like with a traditional PIP, establish goals and a realistic timeline for them to achieve them.

How to create a performance improvement plan

Creating a PIP is a relatively easy task. To avoid charges of discrimination or favoritism, you should use a template to document your PIP. And make sure you use the same template with every employee given a performance improvement plan. You can find PIP templates online. Here’s one from Emory University in Georgia.

How to write a performance improvement plan

Remember, the goal of creating a PIP is to open the lines of communication between you and your employees.

Step 1: Assessment

A PIP should not be the first step when dealing with underperforming employees. First, assess the situation.

• How bad is the employee’s performance?
• Is the problem chronic, or has it just recently appeared?
• Have you previously told the employee there’s an issue with their performance?
• What have you already done to correct the situation?
• Does the employee have the potential to do the job?
• Can the employee potentially be an asset to your business?

Step 2: Outline the specific issues

You need to be very specific about the employee’s shortcomings. This will vary depending on the employee you’re talking with. Some may have set goals or quotas that aren’t being met. Others might be the subject of complaints from other team members. That’s why it’s imperative to provide specific details.

If these issues have been brought up previously in employee performance reviews or if you’ve talked to them before, attach those documents to the PIP.

It’s usually recommended to have your HR person in the room to document the conversation. This discussion should not be a lecture but a two-way conversation. Ask the employee questions and listen to their responses. Does the employee feel insecure in their position?

• Are there outside-of-work influences causing them to be distracted at work?
• Do they struggle with certain technologies?
• Do they feel out of their element?

Once you understand any influencing factors, it’s easier to create solutions.

Step 3: Set your expectations and provide clear, actionable goals

The clearer the goals, the better your employees can meet them. Point out the times their performance met or exceeded expectations, so they don’t think the PIP is something they can’t possibly achieve.

An excellent goal-setting system is to create SMART goals. The University of California explains what SMART goals are:

• Specific: What do you expect to be accomplished? What actions need to be taken to achieve them?
• Measurable: How will the goal be measured?
• Achievable: Is the goal doable? Does the employee have the necessary skills and resources to accomplish them?
• Relevant: How does the goal align with broader goals? Why is the result important?
• Time-Bound: What is the time frame for accomplishing the goal?

It’s important to only note the significant problems. The goal of the PIP is not to make the employee feel they can’t do anything right.

Step 4: Create a timeline

As we noted above, depending on the specifics of the problem, PIP timelines typically run from one to three months.

Building check-ins into the timeline is critical so the employee knows they’re on the right track or if they need to make other course corrections. A performance improvement plan needs your ongoing involvement to work effectively.

Step 5: Provide support

The employee is going to need help throughout the PIP process. Be sure to tell them what support will be provided. Offering to help them also lets them know you want them to succeed.

Support can take various forms, including:

• Assigning other employees to work with or mentor them
• Recommending a class to take, books or articles to read, or relevant websites that will help them learn more and improve their skillset

Step 6: Sign the document

You and your employee must sign the PIP. They need to acknowledge that they need to improve their job performance and meet the goals you’ve established within the set timeline.

Your signature acknowledges that you have talked to the employee and are willing to give them some time and the support necessary for them to improve.

Step 7: Checking in

The PIP is a living, fluid document, so it’s essential for you or another designated employee to check in and make sure the employee is on track. The regular check-ins also show you are being supportive.

Let the employee know they can ask questions about any part of the PIP. And if the employee is making good progress, make sure you tell them to motivate them to keep going.

How to know when a PIP is needed

Now that you understand what a performance improvement plan is and how to write one remember that this is not a punitive process. The goal of a PIP is to offer a structured outline to an employee whose job performance isn’t up to par but who you think likely can achieve more.

Before undertaking a PIP, make sure the employee is at fault and that their managers, supervisors, and co-workers are all doing their jobs.

Bottom line

Business owners need to address employee problems as soon as possible. Don’t wait for an annual employee review to confront an underperforming team member. Offering a struggling worker a performance improvement plan is an excellent way to show your employee (and really your whole team) that you value them and want to help them succeed.

However, if the PIP doesn’t improve the employee’s performance, it’s equally essential for you to take action—whether that’s a demotion or termination—because poor performance issues hurt everyone in your small business and can inhibit your growth.

If the PIP is effective, though, you’ve saved the time and money it takes to replace an employee and taken steps to build a stronger, more productive company.