Many employers manage employees' performance through routine supervision. Others prefer to use a formal appraisal system, which gives both managers and those being managed a structure within which to address performance issues. Whichever approach is used, the objectives are the same:
- to ensure that employees are aware of the standards that are expected of them;
- to motivate employees to achieve or even exceed those standards;
- to ensure that employees have the appropriate training and support to do their job; and
- to identify employees' potential for development.
Some employers also choose to link pay to performance. There are various methods of doing this, based on individual, group or company performance. The methods based on individual performance range from individual payment by results and measured day work to individual performance-related pay, often referred to as merit pay. The aim of merit pay is to increase individuals' productivity by linking some or all of their pay to their performance in the job.
A company that is considering adopting a formal appraisal system may find it helpful to obtain advice on which approach or scheme would be best suited to its needs and objectives and would best fit with its overall human resources strategy. The Advisory, Conciliation and Arbitration Service has produced a booklet on performance appraisal, which provides useful general guidance on drawing up and operating appraisal systems. Companies can also contact their Association (EEF Associations) for advice.
In order to be effective, an appraisal scheme needs to have the cooperation and commitment of managers and employees at all levels. It would therefore be highly advisable for a company to consult fully with employees and their representatives, both when first establishing the scheme and when operating it in practice. The establishment of any appraisal system is likely to involve the following steps:
- Define the jobs covered by the system (drawing up a job description ), and agree the descriptions with the jobholders. (Employees may already have fairly detailed job descriptions that could serve as a useful basis for this, provided they are accurate and up to date.)
- Set the standards to be achieved, based on past performance or some other objective criterion. If performance is to be meaningfully assessed, standards must be sufficiently well defined to be capable of measurement. In order to motivate rather than demoralise, standards should be challenging but also achievable. Those giving advice on designing performance systems often refer to the need to ensure that objectives are SMART: specific, measurable, achievable, realistic and time-based.
- Factors by which performance is assessed commonly include:
– job knowledge/ability;
– adaptability/flexibility;
– productivity;
– quality of work;
– attitude to work;
– originality/initiative;
– interaction with others;
– perception/ judgement/use of resources;
– attendance and timekeeping;
– safety awareness;
– need for supervision;
– supervisory ability; and
– performance against set targets.
- Decide how often performance will be appraised.
- Draw up a procedure for the appraisal, which will usually consist of a written assessment of the employee's performance by the manager, followed by an interview between the manager and the employee to discuss the assessment, and an appeals procedure to deal with any disagreements.
- Train appraisers on how to conduct appraisals effectively, including issues such as consistency of scoring and effective interview techniques.
- Ensure that employees are aware of how their performance has been assessed. Where pay is linked to performance, the way in which performance affects pay should also be made clear.
- Establish a procedure for dealing with poor performers (dealing with poor performers ).
- Set up a mechanism to monitor the results of the appraisal system, to ensure that it is working fairly and consistently and in a way that does not unlawfully discriminate ( Equal opportunities ).
Companies that use performance appraisal need to be aware that if the system is not operated objectively and fairly, it may lead to allegations of direct or indirect discrimination on the grounds of sex, race, religion, age or sexual orientation or discrimination against disabled employees ( Equal opportunities ). In addition, an employee who is appraised in an unfair or arbitrary way could resign and claim unfair constructive dismissal, provided that he or she has at least failed to meet its legal duty not to act in a way that undermined trust and confidence between itself and its employee ( Employer's implied obligations ).
It is important for an employer to keep accurate records relating to performance appraisal. If an employee is dismissed for poor performance or believes that an appraisal has been carried out in a biased way, these records will be invaluable in defending an unfair dismissal or discrimination claim.
Information relating to appraisals is personal data that must be obtained, held and used in a way that complies with the Data Protection Act 1998 (data protection ). The company is likely to be able to show that it has met the conditions for processing the data, either because the employee will have consented to the company holding them or because the company needs to hold them for the purposes of its legitimate business interests. Nevertheless, employees need to be notified in advance that the data are being held and the purposes for which they may be used. Only information that is relevant to the appraisal process should be recorded, so that, for example, remarks about an employee's character should be omitted if not relevant to his or her work performance.
Some companies monitor employees' performance by checking their e-mails, telephone calls or use of the Internet, or by installing surveillance equipment. Monitoring and surveillance techniques of this nature raise several legal issues, which are outlined elsewhere in this Guide (monitoring and surveillance ).
Active supervision or formal performance appraisal will reveal whether individuals are performing their job adequately. If an employee's work performance has fallen below the required standard, there may be many reasons why. It is important for the company to establish the cause of the poor performance at an early stage, in consultation with the employee, to enable it to deal with the individual in the most effective way.
It may be, for example, that the employee needs more training, support or supervision. On the other hand, if the employee's work is not up to scratch because of lack of effort or care on his or her part, it may be appropriate for the company to take the disciplinary route. If this proves necessary, the company should maintain a clear distinction between any formal appraisal process that it uses and the disciplinary procedure. Appraisal interviews are a useful opportunity to provide constructive criticism of an individual's performance, and that would be undermined if the employee regarded the manager's remarks as akin to a disciplinary warning. If disciplinary action may be necessary, the appraisal process should be completed before the disciplinary procedure is used. Handling of disciplinary matters is dealt with elsewhere in this Guide ( Discipline ).
Where individuals who underperform are disabled within the definition in the Disability Discrimination Act 1995 (unlawful discrimination) and their performance has been affected by their disability, their employer is under a legal obligation to consider whether any reasonable adjustments could be made to reduce or eliminate the effect that their disability is having on their work. It is also unlawful disability discrimination for an employer to treat a disabled employee unfavourably for a reason relating to the employee's disability, such as a deterioration in performance, unless the employer can objectively justify its actions.
Even if an individual is not disabled within the meaning of the disability legislation, his or her performance could be affected by mental or physical illness or injury. This possibility should therefore be canvassed in the company's discussions with the employee. The effective management of sickness absence is discussed further below (managing sickness absence).
An employee's work performance can also suffer if there has been a breakdown in the working relationship with managers or colleagues. It is important to establish if this is the case, since there may be an underlying issue that the company needs to address. If, for example, an employee is under-performing because he or she is being bullied or harassed, and the company does not deal with this adequately or at all, the employee may decide to resign and claim unfair constructive dismissal. The employee would argue that, by failing to deal with the bullying or harassment, the company had breached its implied duty not to act in a way that undermined trust and confidence between itself and its employee (implied terms). If the bullying or harassment was linked to the employee's sex, race, disability, sexual orientation or religion, the company would also be liable for discrimination, unless it could show that it had taken whatever steps were reasonably practicable to prevent the bullying or harassment occurring ( harassment, avoiding liability for discrimination).
Where poor performance is due to lack of effort or carelessness on the employee's part, a disciplinary approach will be appropriate. The conduct of disciplinary proceedings is discussed in detail elsewhere in the Guide ( discipline ). In all other cases, the most effective way of bringing performance back up to standard is likely to involve the steps set out below. Taking these steps will also ensure that the company does not fall foul of unfair dismissal law, should it eventually prove necessary to dismiss the employee for poor performance.
- Ensure that the employee is aware of the standard that is expected, and check that the standard has been set at a realistic and achievable level.
- Identify in consultation with the employee the shortfall in his or her performance and a target for improvement. In some cases, it may be appropriate to set staged improvement targets.
- Set a realistic timetable for the improvement required, and make arrangements for the individual's performance to be reviewed at the appropriate time.
- Identify and provide any necessary training, support or supervision that the employee may need to meet the target set. If the employee is disabled, consider whether there are any reasonable adjustments that could be made to the physical work environment or the way that his or her work is organised to enable the employee to meet the target.
- Warn the employee of the possible ultimate consequences of failing to meet the target, which could include demotion, transfer or dismissal.
- Review the employee's progress as agreed and decide what further action, if any, is necessary. Depending on the circumstances, this could include confirming that the employee is now performing satisfactorily, arranging training or support, setting further targets for improvement and review dates, transferring or demoting the employee, or considering dismissing the employee on capability grounds. If the employee is making concerted efforts to improve and has the potential to perform the job satisfactorily, it may be reasonable to give him or her several months to reach the required standard, structured around repeated performance reviews and revised targets. However, if the employee's performance is falling substantially below the standard required and he or she appears unable to improve to any significant degree, even when given clear targets and appropriate support and training, it may be reasonable to consider dismissing the employee after only one or two rounds of target-setting and review.
- If the employee has failed to meet the targets after being given a reasonable opportunity to do so, consider transferring the employee to another job, if there is work available that is more suited to the employee’s capabilities. It is lawful to transfer an employee to another job only if the employee’s contract allows for it or the employee agrees. If the employer has no contractual right to transfer or demote the employee and the employee refuses to move job, then it would be advisable to explain to the employee that dismissal is the only other option, to give the employee the opportunity to reconsider his or her position.
- If transfer or demotion is a possibility, follow the same statutory minimum procedure as in the case of dismissal (unfair dismissal). So the company should write to the employee explaining that the company is contemplating transferring or demoting the employee because of his or her performance, and invite the employee to a meeting to discuss the situation. The employee has the right to be accompanied at the meeting by a work colleague or union official of his or her choice (handling discipline and grievances). If the decision is made to move the employee, he or she should be given the right to appeal.
- If the circumstances are such that dismissal appears the most realistic option, write to the employee explaining that the company is contemplating dismissing the employee because of his or her performance, and invite the employee to a meeting to discuss the situation. The employee has the right to be accompanied at the meeting by a work colleague or union official of his or her choice (holding a disciplinary hearing).
- If the decision is made to dismiss, notify the employee of his or her right to appeal (unfair dismissal).
- If the company’s practice is to implement the decision to dismiss without waiting to see whether an appeal is lodged, terminate the employee’s contract by giving proper notice or without notice but with a payment in lieu (dismissal) and then deal with any appeal as and when it is made. If an appeal is made and upheld but the employee’s contract has already ended, the employee can be reinstated. If the company’s practice is not to implement the decision to dismiss until any appeal has been heard, hear the appeal and then, if the appeal is unsuccessful, terminate the employee’s contract on notice or with a payment in lieu. (An employee who is covered by the EEF national procedural agreements is entitled to call for an external conference, and remain in employment until agreement is reached or the procedure is exhausted, or his or her notice expires if that is later.)
A disabled employee who is demoted, transferred or dismissed for poor performance can allege disability discrimination if the reason for the employee's poor performance was linked to his or her disability. However, the company will be able to defend that claim effectively if it can show that:
- it made whatever adjustments were reasonable in the circumstances to prevent the employee's disability affecting his or her performance, such as modifying equipment (duty to make adjustments ); and
- it was justified in demoting, transferring or dismissing the employee for reasons that were relevant to the circumstances of the individual's case, such as the impact that his or her performance was having on the business, and were not merely minor or trivial (justification ).
If an employee is demoted, transferred or dismissed for poor performance that is linked to the fact that she is pregnant or has had a baby, that is likely to be sex discrimination. It is also automatically unfair to dismiss an employee for poor performance connected with pregnancy or maternity, regardless of her length of service (unfavourable treatment ).