How to Create an Effective Performance Improvement Plan (PIP)

Managing performance can be complex, time consuming and risky.  For those on the receiving end of the process, if the process is not run correctly, it can be stressful and have a damaging psychological effect. When an employee’s performance falls short of expectations, creating an effective performance improvement plan (“PIP”) is therefore crucial for both protecting the organisation and supporting staff members with their development. Getting it right can transform struggling employees into valuable and loyal contributors and help to develop a flourishing business. Getting the PIP process wrong can expose a business to significant legal risks, create disruption, inefficiency and disharmony; often lasting for many months; and at worst, considerable upset leading to legal action, particularly if the employee believes that the process is unfair or unjust.

There are of course significant benefits for ensuring that all of an employer’s staff are performing optimally and meeting the ever-changing standards and needs of the organisation.  A business may only be as good as its weakest link and it is often less expensive to invest time with a member of staff who is struggling, rather than to “fire and rehire”, which is deceptively expensive once the true cost to the organisation is taken into account.

This guide will help you navigate the complexities of taking the business-essential step of managing performance and implementing PIPs in accordance with UK employment law, and ensuring best practices are followed while minimising legal risks. Whether you’re dealing with capability issues informally, or want to establish more formal and robust performance management processes, understanding the nuances of PIPs is essential for any HR professional or employer.

When to Use a Performance Improvement Plan

Informal vs Formal Processes

Not every performance issue requires a formal PIP. The decision between whether to adopt informal and formal approaches depends on several factors, including the severity of the performance gap, the employee’s length of service, and the effectiveness of previous interventions attempted.

Informal processes are effective for addressing minor performance issues or when an employee demonstrates a willingness to improve. Examples of informal processes may include regular one-to-one meetings, additional coaching, or short-term goal setting. Informal approaches allow for flexibility and can often resolve issues without the need for formal action.  Quite often, the imposition of a formal PIP can have the opposite effect and lead to an employee losing confidence and a decrease in the standard of their performance.  Informal action can be less stressful for both the employee and management, leading to more effective resolution in some cases.

Formal processes including PIPs become necessary when informal measures have failed, performance issues are severe, or when an organisation needs to protect its position, customer base and reputation as far as possible. Formal processes can help provide structure and legal protection whilst demonstrating commitment to supporting the employees’ improvement.  If it ultimately becomes necessary to dismiss an underperforming employee with unfair dismissal rights, it will be necessary to run a formal process.  For the reasons set out below, an informal process would not be effective in this regard.

It is therefore a commercial decision whether to use a formal or informal process as each has particular advantages and disadvantages.

Understanding the Legal Framework

In UK employment law, under the Employment Rights Act 1996, the default position is that employees with service of two years or more accrue ordinary unfair dismissal rights. A dismissal will be fair if an employer can show it was for one of five potentially fair reasons; and that it acted reasonably including having followed a fair process. In cases involving poor performance, capability can be relied upon as one of five potentially fair reasons for dismissal.  Following a fair process in such cases typically requires implementing and meaningfully following a formal PIP or capability procedure.

For employees with less than two years’ service who have not yet accrued ordinary unfair dismissal rights, depending on the circumstances and having assessed possible risks at the outset, it may be possible to circumvent the need for full formal procedures. However, following full procedures remains good practice and can help protect employers against potential discrimination claims along with other potential risks.

Creating an Effective Formal Performance Improvement Plan

Setting Objective and Measurable Targets

The foundation of any successful PIP lies in establishing clear, specific and achievable objectives.

Each target should be SMART, namely:

• Specific – Precise and clearly defined;
• Measurable – Can reasonably be tracked to determine if it is achieved;
• Achievable – Realistic, taking into account an employee’s role and skillset;
• Relevant – Contributes to the objectives of the organisation and aligns with the employee’s role; and
• Time-bound – Includes a specific deadline for completion, accounting for reviews as may be required.

This approach eliminates ambiguity and provides both the organisation and the employee with clear benchmarks for success, helping to reduce stress, uncertainty and ultimately, legal risk.

Examples of effective targets can be:

• Responding to customer complaints within 24 hours (instead of 48 hours);
• Achieving monthly sales targets of £50,000 by month three; or
• Completing all project deliverables on time (with an express deadline having been specified), with no more than one revision required.

Establishing Reasonable Timeframes

The improvement period must be reasonable and proportionate to the issues identified. There is a lot of case law on this topic and typically, PIPs may run for around three to six months, but this may change based on the circumstances including how complex the required improvements are and the nature of the role.

When establishing an appropriate timeframe, factors such as the following should be considered:-

• The complexity of the employee’s skills that need development;
• The seniority of the employee;
• Training requirements identified for the employee;
• The employee’s current capability level;
• Business needs and timing;
• Any adjustments required, particularly for employees who may be deemed to be disabled or who have mental health considerations.

This list is not exhaustive other factors can be relevant depending on the facts of the case.

Providing Adequate Support

A PIP should not be a rigid paper exercise in itself.  In order to ensure an effective process and to protect an employer’s position as far as possible, organisations must be adaptable and seek to genuinely support the employees’ improvement efforts through:

1. Regular review meetings that are scheduled at appropriate intervals (typically weekly or fortnightly) to monitor progress, provide feedback and address any concerns. These meetings should be documented with clear notes about what was discussed and any adjustments made.
2. Management support, including dedicated time from supervisors or mentoring opportunities. The level of support should be proportionate to the employees’ needs, their seniority and the complexity of their role.
3. Training and development opportunities where skill gaps have been identified. This might include formal training courses, on-the-job coaching, or access to learning resources.

Considering Reasonable Adjustments

Under the Equality Act 2010, employers may have a legal obligation to consider reasonable adjustments if they are running a PIP process for an employee who may have a disability. These reasonable adjustments might include:-

• Modified targets that account for the impact of any relevant factors and protected characteristics that may apply including any disability;
• Adjustments to working arrangements or environment;
• Additional support or assistive technology; and
• Extended review periods where appropriate.

Failure to consider reasonable adjustments can lead to discrimination claims being successfully brought in the Employment Tribunal, even if the performance concerns are legitimate.

Compliance with the ACAS Code of Practice on Disciplinary and Grievance Procedures (“ACAS Code of Practice”)

The ACAS Code of Practice applies to formal capability processes, including PIPs. Compliance is crucial because an employer’s failure to follow the ACAS Code of Practice may result in compensation being increased by up to 25% in any subsequent successful Employment Tribunal claim.

Key ACAS Code of Practice requirements include:

• Providing written notice of capability meetings;
• Allowing employees to be accompanied at formal meetings;
• Conducting investigations where appropriate;
• Affording employees a proper chance to respond to allegations; and
• Offering the right to appeal against any formal action.

Managing the Performance Improvement Process

Regular Monitoring and Documentation

Consistent monitoring throughout the PIP period is essential. An employer should schedule regular review meetings and document:

• The employee’s progress against each target set;
• The support provided to the employee and its effectiveness;
• Any adjustments made to targets or timescales;
• Employee’s feedback and concerns; and
• The next steps and actions required.

This documentation serves multiple purposes as it demonstrates the employer’s commitment to fair process, provides evidence of the support offered to the employee and it creates a clear record ahead of any future decisions, which is essential when dealing with any Employment Tribunal claims.

Addressing Concerns Promptly

If issues arise during the PIP period, whether related to targets, support, or external factors, then employers should address them promptly. This might involve:

• Adjusting targets if they prove unrealistic;
• Providing additional support and/or training where needed;
• Extending timescales in appropriate circumstances; and
• Reviewing whether the PIP remains the right approach.

Flexibility within the process can help demonstrate fairness and can often prevent minor issues from becoming major problems.

When Performance Doesn’t Improve

Escalating to Disciplinary Action

If an employee fails to meet the targets set out in the PIP process, the employer may need to move to formal disciplinary action under capability procedures. The possibility of this progression should ideally be clearly explained to the employee at the outset of the PIP process.

The sanctions within a disciplinary process typically would include:

1. First written warning (or improvement note) – for initial capability failures;
2. Final written warning – for continued underperformance. This may be used without a first written warning (or improvement note) for very serious cases of poor performance; and
3. Dismissal – as a last resort when all other measures have failed.

Each stage requires a formal meeting where the employee can respond to concerns and have the right to be accompanied by a colleague or trade union representative.  Different considerations can apply if an employee does not have unfair dismissal rights.

Right to Be Accompanied

Employees have a statutory right to be accompanied at formal disciplinary meetings. This applies to capability/performance improvement hearings where the hearing may result in a sanction being issued and any appeal meetings. The companion can be:

• A fellow worker;
• A trade union representative; or
• An official employed by a trade union.

The companion can address the hearing, sum up the employee’s case, and confer with the employee, but cannot answer questions directly on the employee’s behalf.

Legal Risks and Consequences

Unfair Dismissal Claims

Getting the PIP process wrong can expose an organisation to unfair dismissal claims notwithstanding other types of claims that may arise. Common pitfalls include:

• Unreasonable targets that set the employee up to fail;
• Insufficient time given to the employee to make the improvement;
• Insufficient support during the improvement period;
• Procedural failures, such as not following the requirements of the ACAS Code of Practice; and
• Predetermined outcomes where the PIP is merely a formality before dismissal.

Discrimination Claims

Performance management may sometimes give rise to discrimination claims. Whilst employers should generally ensure that PIP processes are applied consistently across all employees, they should also ensure that any adjustments for protected characteristics are adequately considered.

Particular care should be given when managing performance for employees who:

• Have recently returned from statutory leave including maternity or paternity leave;
• Have a disability or health conditions;
• Have raised grievances or whistleblowing concerns; and
• Have a protected characteristic which may be impacting their performance, such as age.

Constructive Dismissal

A poorly managed PIP process may sometimes result in a claim for constructive dismissal if the process is so unreasonable that it violates the implied duty of trust and confidence.  This would potentially entitle the employee to resign without notice and pursue a claim against the employer. Warning signs of such a situation arising could include:

• Setting impossible targets;
• Providing no meaningful support;
• Having a review period that is too short;
• Conducting the process in a hostile manner; and
• Using the PIP process as punishment rather than improvement.

FAQs

How long should a PIP last?

Typically 3-6 months, depending on the circumstances including the complexity of improvements required and the nature of the role. The timeframe should be reasonable and allow a genuine opportunity for improvement.

Can we dismiss during the PIP period?

Where an employee has unfair dismissal rights, generally no. The purpose is to provide an opportunity for improvement. However, in exceptional circumstances such as where gross misconduct has been established, potential risks have been assessed as being low, or where there has been a complete failure to engage with the process, earlier action might be justified.

What about employees with mental health conditions?

Consider whether the mental health condition could amount to a disability and what  reasonable adjustments may be required. This might include modified targets, additional support, or adjusted timescales. We would always recommend that you take legal advice if you’re unsure.

Do we need to follow the ACAS Code of Practice for PIPs?

Yes, once a PIP becomes part of a formal capability process, ACAS Code of Practice requirements apply, including rights to accompaniment and prescribed procedures.

What if the employee refuses to engage with the PIP?

Document their non-engagement clearly. Refusal to participate can itself be grounds for disciplinary action; however, organisations should ensure that they have made their expectations and consequences clear prior to taking any disciplinary action in this regard.

Protecting Your Organisation Through a Meaningful Process

Creating effective PIPs requires a careful balance between supporting employees’ development and protecting an organisation’s interests. The key lies in following well-drafted and considered procedures that comply with the law, providing genuine support, and maintaining comprehensive documentation throughout the process.

When implemented correctly, PIPs can genuinely help valuable employees reach the desired standards while demonstrating an employer’s commitment to fair and supportive management practices. However, the legal complexities involved mean that getting expert guidance can make the difference between a successful outcome and costly tribunal claims.

The highly experienced team at Jones Chase Employment Lawyers can help ensure that you get the PIP process right from the start by providing guidance on complex performance management issues or implementing effective PIP processes.  Similarly, if you are being subjected to a PIP that you do not believe is being carried out fairly, we can assist with that too.

Jones Chase is a specialist employment law firm based in London with an excellent track record of looking after our clients, both employers and employees. Learn about our client reviews here.