Fundamentals of performance management
What is performance management?
Performance management is a structured process by which managers and employees work together to plan, monitor, and review an employee’s work objectives and overall contribution to the organisation. It encompasses setting clear expectations, providing ongoing feedback, supporting development, and evaluating outcomes to align individual and organisational goals.
How should goals and objectives be set for employees?
Objectives should be set using the SMART framework—Specific, Measurable, Achievable, Relevant, and Time-bound—to ensure clarity and achievability. Involving employees in the process increases buy-in and motivation. Objectives should align with both individual roles and broader organisational priorities, be regularly reviewed, and adjusted as needed to remain relevant and realistic.
Set objectives collaboratively, ensuring they are tailored to the employee’s role and capabilities.
Break down larger goals into smaller, incremental targets to provide structure and motivation.
Clearly communicate expectations and provide necessary support or resources to achieve objectives.
Regularly revisit and update objectives to reflect changes in business needs or individual circumstances.
Ensure objectives are documented and accessible to both manager and employee for ongoing reference.
What is the role of feedback in performance management?
Feedback is central to performance management, providing employees with timely insights into their strengths and areas for improvement. Constructive feedback, delivered regularly, helps reinforce positive behaviours, address issues early, and support continuous development. Both positive and developmental feedback should be specific, evidence-based, and linked to agreed objectives.
Provide feedback throughout the year, not just during formal reviews, to maintain alignment and motivation.
Use feedback as a two-way process, encouraging employees to share their perspectives and suggestions.
Recognise achievements to boost morale and engagement, while addressing challenges promptly and supportively.
Document feedback and agreed actions to ensure clarity and accountability.
How often should performance reviews be conducted?
While annual appraisals remain common, best practice recommends more frequent performance discussions—such as quarterly or bi-annual reviews—supplemented by regular informal check-ins. This approach ensures objectives remain relevant, progress is monitored, and issues are addressed promptly, supporting ongoing development and engagement.
Schedule formal reviews at least once or twice a year, with additional informal meetings as needed.
Use regular check-ins to adjust objectives, provide feedback, and discuss support or development needs.
Principles for good performance management
Transparency: Clearly communicate expectations, processes, and outcomes to all employees.
Fairness: Apply processes consistently and avoid bias, ensuring decisions are evidence-based and non-discriminatory.
Collaboration: Involve employees in setting objectives and identifying support needs, fostering ownership and engagement.
Support: Provide necessary training, resources, and guidance to help employees meet their goals.
Documentation: Keep accurate records of objectives, feedback, and review outcomes to support accountability and legal compliance.
Continuous Improvement: Regularly review and adapt performance management processes to reflect organisational changes and feedback.
Defining and measuring performance
Performance should be defined with reference to clear, role-specific objectives and measurable outcomes. Use both quantitative metrics (such as productivity, quality, and achievement of targets) and qualitative indicators (such as teamwork, communication, and professional development). Key Performance Indicators (KPIs) and regular progress tracking help ensure performance is assessed fairly and objectively.
Identify relevant KPIs for each role, ensuring they align with organisational priorities.
Use a combination of data sources—such as self-assessments, manager evaluations, and 360-degree feedback—to gain a holistic view.
Regularly review and update performance measures to ensure they remain valid and meaningful.
Ensure all assessments are evidence-based and documented to support fair decision-making and compliance with employment law.
Legal considerations in performance management
Performance management must be conducted fairly and transparently, ensuring that employees are made aware of the standards expected, provided with feedback, and given opportunities to improve. Employers must distinguish between capability (inability to perform despite effort) and conduct (wilful failure), as this determines the appropriate procedure. The Acas Code of Practice on Disciplinary and Grievance Procedures should be followed, and failure to do so can result in increased compensation awards at tribunal. Employers must also avoid discrimination, making reasonable adjustments for disabled employees under the Equality Act 2010, and ensure that any action taken is objectively justified and well-documented. Employees with two years’ service have the right to claim unfair dismissal, but best practice is to follow a fair process for all staff to minimise legal risk and maintain good workforce relations. The Employment Rights Bill, published in October 2024, proposes the removal of the two-year qualifying period—introducing day‑one unfair dismissal protection. To mitigate risks for employers, it also includes a proposed statutory probationary period (likely around nine months) with a lighter-touch dismissal standard during that time. Subject to parliamentary approval and regulations, these reforms are intended to take effect in late 2026 or 2027.
Can poor performance lead to dismissal?
Poor performance is a potentially fair reason for dismissal under the Employment Rights Act 1996, provided the employer can demonstrate a genuine belief in the employee’s incapability and has followed a fair process. This includes identifying the performance gap, providing support and training, setting clear targets, and allowing reasonable time for improvement. Dismissal should always be a last resort, after alternatives such as redeployment or demotion have been considered. If the process is not handled fairly, the dismissal may be deemed unfair or discriminatory, exposing the employer to tribunal claims and compensation orders.
Holding a formal performance management hearing
A formal hearing is required before issuing formal warnings or considering dismissal for poor performance. The employee must be informed in writing of the hearing, the performance concerns, and the possible outcomes. They have the right to be accompanied by a colleague or trade union representative. At the hearing, the employer should present evidence of underperformance, allow the employee to respond, and consider any mitigating factors, including health or personal circumstances. The hearing should be conducted impartially, and a written record should be kept. After the hearing, the employer must communicate the outcome in writing and outline the right to appeal.
Inviting an employee to a formal performance management hearing
The invitation to a formal hearing must be in writing and should include:
The date, time, and location of the hearing
The specific performance concerns and evidence to be discussed
The employee’s right to be accompanied
The potential outcomes, including the possibility of a formal warning or dismissal
Sufficient notice to allow the employee to prepare
This ensures procedural fairness and compliance with the Acas Code, reducing the risk of claims for unfair or wrongful dismissal.
Issuing a formal warning to an underperforming employee
Formal warnings should be issued only after a fair hearing. The warning must specify the areas of underperformance, the standards required, the support and timescales for improvement, and the consequences of failing to improve. The Acas Code recommends at least one written warning before a final warning, except in cases of serious underperformance where a final warning may be justified. The warning must be confirmed in writing, with a clear review period and the right to appeal. Adjustments to the process or timescales may be necessary if the employee has a disability.
Dismissing an employee for poor performance
Dismissal for poor performance should only occur after the employee has failed to improve following formal warnings and support, and after a final hearing. The employer must provide written reasons for dismissal, the effective date, notice period, and the right to appeal. Alternatives to dismissal, such as redeployment or further adjustments, must be considered and documented. Failure to follow a fair process or to consider reasonable adjustments can result in claims for unfair dismissal or discrimination, with significant financial and reputational consequences for the employer.
Managing underperformance
Identifying and taking initial action on underperformance
Address underperformance as soon as concerns arise, using specific examples and evidence to clarify the issue. Early intervention minimises disruption and demonstrates a fair approach, as recommended by best practice and the Acas Code of Practice on Disciplinary and Grievance Procedures. An informal conversation is usually the first step, allowing the employee to respond and discuss potential causes, such as lack of training, unclear expectations, or personal issues. If the issue persists after informal support, escalate to a formal process, ensuring the employee is aware of the standards required and the consequences of continued underperformance.
When meeting with the employee, use a supportive and non-accusatory tone, focusing on understanding the root causes and exploring solutions collaboratively. Allow the employee to be accompanied by a colleague or union representative if the meeting is formal and could result in disciplinary action. Keep a written record of all discussions and agreed actions, as these may be required in the event of a dispute or tribunal claim.
Implementing a performance improvement plan (PIP)
A PIP is a formal, structured document outlining the specific areas of underperformance, the expected standards, and the timeframe for improvement (typically 30–90 days). It should include measurable objectives, regular review dates, and details of the support and resources to be provided, such as training, mentoring, or adjustments to duties. The plan must be realistic, achievable, and tailored to the individual’s circumstances, with incremental goals where appropriate. Both parties should agree on the plan, and the employee should receive a copy.
Throughout the PIP, hold regular check-ins to monitor progress, provide constructive feedback, and adjust support as needed. Recognise improvements and address ongoing challenges promptly. If the employee fails to meet the objectives despite reasonable support, consider further action, such as extending the PIP, issuing formal warnings, or, as a last resort, dismissal—always following a fair process and giving the right to appeal.
Employers must ensure the PIP process is non-discriminatory and reasonable adjustments are made for employees with disabilities or other protected characteristics. Unrealistic targets, inadequate support, or using a PIP as a pretext for dismissal may lead to claims of unfair or constructive dismissal. Maintain transparency and document all steps taken.
Supporting underperforming employees
Support measures should be tailored to the employee’s needs and may include additional training, coaching, mentoring, workload adjustments, or access to wellbeing resources. Encourage open communication and seek the employee’s input on what support would be most helpful. Emphasise that the purpose of the PIP is to help them succeed, not to penalise.
Regular feedback and recognition of progress can boost motivation and engagement. If personal or health issues are affecting performance, signpost to relevant support services and consider reasonable adjustments in line with the Equality Act 2010.
Training line managers on managing underperformance
Line managers play a critical role in identifying, addressing, and supporting underperformance. Employers should provide training on performance management, including setting clear objectives, giving constructive feedback, managing difficult conversations, and understanding legal obligations such as non-discrimination and the Acas Code.
Training should cover the distinction between capability and conduct issues, the steps of the PIP process, and how to document actions and decisions. Role-play and scenario-based learning can help managers build confidence in handling sensitive situations. Managers should also be trained to recognise and mitigate unconscious bias, ensuring a fair and consistent approach.
Documentation and compliance
Keep accurate and contemporaneous records of all meetings, actions, and decisions throughout the performance management process. This includes informal discussions, PIP documents, review notes, and evidence of support provided. Proper documentation is essential for defending against potential claims and demonstrating a fair and consistent process.
Always follow your organisation’s policies and procedures, as well as the Acas Code of Practice. Failure to do so can result in findings of procedural unfairness, even where the underlying reason for action is valid. Ensure employees are aware of their right to appeal any formal decisions.