Problem Credits? Problem Employees?
Use a risk management approach to turn problem employees into highly performing "assets." It's easier than you think!
By Kara J. Halvorsen
We are all keenly aware of the financial impact of downgrading a credit. Though not measured in terms of "loan loss reserves" the cost of NOT dealing with poor performers can be substantial. You can pay up to 1.5 to 3 times salary and benefits just to hire a replacement. Now add the cost of management distraction, loss of training, poor customer service and litigation expense from a wrongful termination lawsuit and you've significantly impacted your ROI.
Just like with problem credits, early intervention is crucial to turning around non-performing employees. But managers generally put off addressing these issues because they are uncomfortable and/or feel the process is too complicated. It doesn't have to be. Every manager trained in risk management has the fundamentals for dealing with problem employees early and effectively. Here's how:
Establish Milestones & Objectives
You wouldn't advance funds to a borrower without setting the conditions for repayment. By the same logic, you shouldn't pay an employee a salary without setting performance expectations. Documenting clear, objective, measurable, performance milestones clarifies how employees can meet and exceed goals & objectives. Every employee, without respect to level or position, needs objectives; it's the roadmap for success or, if needed, the framework for taking action.
Communicate Frequently
Know your borrower/know your employee. Check in, get and give feedback, compliment, critique, stay in touch with all your employees. Your top performers, like high profile customers, need to know they are appreciated or they are likely to go elsewhere. Conversely poor performers, like borrowers in trouble, need feedback and monitoring.
Pay Attention To Early Warning Signs
Like late payments, employee lateness is generally an indication of a larger issue. Probe, dig, analyze. Address the core problem, not just the symptom. As with problem creditors, the earlier you address the problem the greater the chances for a turnaround. Identify and correct poor performance before it becomes habit and/or before you give up on the employee. Once you've had this discussion put the employee on a "Watch List." Contact Human Resources (HR) for guidance on documentation based your bank's policies. Now monitor closely and give feedback.
Continued Problems? Modify "Terms & Conditions" For The Right Behavior
You're now in a "special asset" situation and should be working closely with the "work-out specialist," HR. Subject to your institution's policies, document a formal written warning including what happens next if performance doesn't improve. In addition to giving the employee incentive to change behavior, this documentation also helps the bank in challenging an unemployment claim or defending future litigation. Documentation should include:
· Chronology of performance problems, recap of your conversation & employee's response
· Specific, objective, achievable milestones including dates, times and deliverables
· Consequences (further disciplinary action or termination) if performance does not improve
Now, monitor and give feedback on the new performance terms and conditions.
Upgrade Or Charge-Off
If the employee's performance shows improvement, great! Continue to monitor until you have seen a sustained improvement. Then "upgrade" by letting the employee know they're off the "Watch List." Document the upgrade. If performance doesn't improve evaluate why and work with HR for next steps. You also may consider to "charge-off" the employee mitigating risk by negotiating a termination from the organization.
In conclusion, we can't emphasize it enough: early intervention is one of the most effective steps in turning problem employees into highly performing "assets."
Overcome managers' reluctance to take action
with problem employees by showing them how their risk
management knowledge can be applied in a different way,
assuring them they DO have the skills/system to effectively
resolve these issues. By early intervention, setting
performance standards, communicating consequences, and
documenting and monitoring employee performance, you will reap
the benefits of employees who both maximize their
contributions to your bottom line as well as stay loyal to
your business for the long term. Just like your borrowers!
Formerly a commercial lender, Kara Halvorsen provides Human Capital Consulting to independent banks. Contact her at Kara@KaraHalvorsen.com or 415 331-9205.
HR Checkup
Ask yourself/your managers these questions:
- Are HR policies flexible, clear and easy to use?
- Does HR properly evaluate employee risk; understand the fundamentals of labor law?
- Is HR skilled at conflict management/negotiation?
- Has HR recently conducted training on preventing & resolving performance problems?
- DOES HR UNDERSTAND YOUR BUSINESS?
If you've answered "NO" to any of these questions, fix your infrastructure to support managers to take action with performance issues.
This article was printed in the December 2001 issue of Western Banking. Reprinted with permission.
