How to Manage Employee Performance Issues

Dealing with an underperforming team member?

It’s an issue almost every manager faces at some point, and one that’s worth addressing early and approaching carefully, rather than hoping it sorts itself out.

Before anything escalates into formal action, there are a few key steps you’ll need to take to protect your business and give the employee a fair chance to turn things around.

First, make sure it’s actually a performance issue

Often what looks like a skill gap on paper is actually a conduct issue in practice, and this is where many employers can get tripped up. Getting it wrong can create unnecessary legal risk and make the issue much harder to resolve.

Here’s how to differentiate the two:

• Performance issue: A genuine capability gap, such as an employee consistently missing realistic KPIs, producing subpar work, or struggling to execute core responsibilities despite training.

• Misconduct: A behavioural choice, such as breaching company policy, acting inappropriately, or disregarding a reasonable management instruction.

The main difference in practice comes down to ability vs willingness. For example, if an employee lacks the skills or understanding to properly complete a required task, you're looking at a performance issue. But if they know exactly what’s required and deliberately refuse to do it, you may be dealing with a behavioural choice or even misconduct.

This distinction is important because performance and misconduct may need to be managed through separate processes or combined into one.

A genuine capability issue is usually handled through a performance process focused on helping the employee meet the required standard. Behavioural concerns associated with the performance issue can sometimes be considered as part of this performance process. However, suspected misconduct falls into a different area of employment relations and may need to be investigated before any disciplinary action is considered.

If you’re dealing with a complaint, allegation or possible misconduct, make sure to read our guide on when a formal investigation may be appropriate before deciding how to proceed.

What to do when an employee is underperforming

1. Get clear on the performance gap

Before speaking with the employee, get specific about where their performance is falling short. Look at what’s reasonably expected in their role, what isn’t being met and the examples or evidence you have to support your concerns.

It’s also worth asking whether those expectations have been clearly communicated and whether the employee has had the training, resources and support they need to meet them.

2. Start with a conversation, not a formal meeting

This is your opportunity to talk through the performance gap with an employee, explain why it’s a concern and give them an opportunity to share their perspective. The main goal here isn't to build a case but to understand what’s actually getting in the way.

Often after an initial conversation, you’ll uncover context you weren't aware of, like unclear expectations, a gap in training, workload bottlenecks, or personal challenges outside of work that are quietly impacting their output.

3. Agree on what needs to improve

From there, get clear on what needs to change.

Instead of leaving things vague, work together to paint a clear picture of what "good" performance actually means in practice. That could mean agreeing on specific outcomes, working out what support or resources they need, and deciding when you’ll check in on progress.

By the end of the sit-down, the employee should walk away with clarity on where they’re falling short, what standard is expected, and what you expect them to do differently.

How long you give them will depend on the role and the circumstances, but the timeline must offer a genuine, realistic opportunity to improve.

4. Monitor progress and keep good records

To give the employee the best chance of actually improving, check in regularly along the way to offer real-time feedback, recognise progress, and course-correct where gaps remain.

And keep good records as you go. Note the conversations you’ve had, the expectations and actions agreed, the support provided and how performance is progressing. If things do become more formal later, having this history on paper will be important.

How to deal with a performance issue formally

If performance doesn’t improve even after those initial conversations and opportunities to improve, you may reach a point where a formal process is needed.

This is a step up from the conversations you’ve been having so far. It makes it clear to the employee that the situation has escalated, while creating a clear record of the process you’ve followed if employment ultimately can’t continue..

There are different ways to manage poor performance formally in New Zealand, including a Performance Improvement Plan (PIP) and formal warnings.

Before you go down either path, check the employee's employment agreement and your workplace policies, as these may set out the process you need to follow, including the type or number of warnings required.

Performance Improvement Plans (PIPs)

A PIP puts some structure around the improvement process. It sets out the specific areas where performance needs to improve, the standard the employee is expected to reach, and how their progress will be measured. It should also outline the support or training you’ll provide, a fair timeframe for improvement, and clear check-in dates so everyone knows how things are tracking.

Formal warnings

Formal warnings can also be used when an employee isn't meeting the required standard. They need to be clear about the performance concerns, what needs to improve, the timeframe for doing so, and what could happen if sufficient progress isn’t made.

Depending on your employment agreement or workplace policies, this might involve verbal, written, or final written warnings and is often associated with a disciplinary type meeting. If performance still doesn't improve after giving the employee a genuine opportunity to turn things around, further action can be considered, up to and including dismissal.

When a performance issue may need additional HR expertise

Most performance issues don't start out complicated. But they don’t always stay straightforward either.

Perhaps the employee disagrees that there's a performance problem at all. They may raise concerns about how they've been managed. Suddenly what looked like underperformance starts to overlap with conduct or another employment issue.

Or maybe you've already been through several conversations and review periods, and you're now at the point of considering a formal warning or whether continued employment is realistic.

This is often where an experienced outside perspective becomes useful. Additional HR expertise can help you untangle what’s going on, work out the right process from here and navigate it fairly.

Need support on a difficult employee performance issue?

If you’re struggling with a performance issue or need a second opinion on the right way forward, our employment relations team can help you work through the situation and determine the appropriate next steps.

Talk to PeopleEX about employment relations support.