Getting S.M.A.R.T. About PIPs

As a quick Google search makes clear, performance improvement plans have a bad rap. Much (virtual) ink has been spilled on tactics for “surviving” a PIP, and consensus is that an employee who is put on a PIP should consider her days to be numbered. But it shouldn’t be this way. Employers that misuse PIPs needlessly squander time and resources and create unnecessary legal risk.

A PIP is written plan for improving an employee’s job performance. It should be used to counsel an employee back into her job, that is, to determine whether it is possible to retain talent, rather than as a perfunctory stepping stone on the path to employment separation. As a result, PIPs should be used thoughtfully, when there is reason to believe that highly structured performance management and goal-setting may rehabilitate persistently substandard performance.

When PIPs are misused, they create legal risk.

  • If the performance deficiencies in issue cannot be improved through S.M.A.R.T. goals, a PIP should not be implemented. For a PIP to serve its purpose, it must be S.M.A.R.T.: (1) specific, (2) measurable, (3) achievable, (4) relevant, and (5) time-limited. This makes certain performance problems, particularly those that are highly subjective and personality-related, difficult to address through a PIP. How is an employee to know (or her employer to determine) whether she has successfully improved her “bad attitude?” And how long should she be given to make such improvement? A good PIP identifies specifically past performance deficiencies, explains in terms that are objectively measureable the actions that must be taken to cure the deficiencies in issue, and provides the employee a reasonable amount of time to demonstrate improvement. PIPs that don’t meet these requirements may create problems for employers. See, e.g., Stringer v. Lyondell Chemical Co., 2007 WL 2592647 (S.D. Tex. 2007) (denying employer’s motion for summary judgment on discrimination claim in part because the performance deficiencies identified by the employer as the basis for the plaintiff’s termination, including “failure to communicate effectively” and “failure to demonstrate high personal standards,” were “subjective and far from precise”).
  • A PIP should not be implemented when a decision to terminate has already been made. PIPs often come up during discussions about potential legal risks associated with an impending termination. The termination decision has been made, but someone suggests that a PIP may improve the optics of the situation, particularly when there exists little documentation to support the termination decision. A failed PIP, the thinking goes, is unassailable. If only this were true. In fact, employees (and judges and juries) are suspicious of PIPs and believe that they are frequently misused. It is not unusual for an employee placed on a PIP to retain counsel. Even more concerning is the fact that courts have found PIPs to be evidence of pretext when they are designed to set an employee up for failure. See, e.g., Phillips v. StellarOne Bank, 2012 WL 3762448 (W.D. Va. 2012) (denying employer’s motion for summary judgment on discrimination claim were documentary evidence suggested that performance goals were intended to create room for the plaintiff to “trip up”).
  • If a PIP is implemented, the employer should see it through to its end. In many cases, by the time a PIP is implemented, the situation is broken. The manager has lost confidence in the employee’s ability to perform, and no period of improvement, whether 30, 60, or 90 days, can restore it. It’s not uncommon for the manager to ask, only a week or two into the PIP, if the plan may be terminated early because it is inconceivable that performance will improve to acceptable levels by the plan’s end date. But failing to see a PIP through to its end can make a bad situation worse. The employee may feel that she has been treated unfairly (and may, therefore, be more likely to seek legal counsel), and early termination muddies the waters with respect to the employer’s intent in implementing the PIP.

The Bottom Line

When used appropriately, PIPs can be effective performance-improvement and talent-retention tools. But misuse creates risks, particularly in situations where a PIP is implemented for no reason other than to “paper up” a difficult termination. In such situation, the employer may achieve a better outcome by skipping the PIP and offering meaningful severance pay in exchange for a general release.