How a Performance Improvement Plan Could Save You $80K

Great question—but before we get to what it is—let’s talk about why you need one. If you read the headline, the obvious reason is to save 80 Grand, right?

What is a Performance Improvement Plan?

Hang on, we’ll get to that…

The short answer is this: It’s not just a “plan”— it’s part of a strategic process to strengthen your business.

In earlier posts, here and here, we talked about the importance of effective communication, and how owners and managers can create great alignment within their businesses to make sure the whole team is on the same page—pushing for the same goals.

Once the foundation for communicating is set, there’s a proven success path to make sure your message is consistently delivered and understood by the team:

• Communication
• Follow Up
• Accountability

So in the previous posts, we covered the communicating and follow-up part, now let’s get into accountability and how it relates to profitability.

Human Resources (HR) Departments

In larger businesses, the HR Department is the Accountability wing of the organization—which is where the Performance Improvement Process functions.

The HR department has many jobs: hiring the right people, making sure that employees are treated in accordance with the company’s ethics, code of conduct, and culture statements.

Additionally, HR makes sure employees function within the established guidelines—and if becomes necessary to excuse someone from the business, there’s a process for that exit—which they handle.

You Are the HR Department in Your Business

Most bar and restaurant operations don’t have Human Resource departments—and some would say that’s a good thing.

“Too much red-tape. Too corporate-ish”, they say.

If it’s just you, or you and 1 or 2 other co-owners, the only accountability is to yourself, your partners, or possibly an executive board.

When it’s time to cut an employee loose – you just cut ‘em loose.

Simple, right?

But there’s a danger in that belief.

It’s easy (lazy) as a sole proprietor to get into the habit of just cutting your losses and skipping over any kind of process that would help you retrain and retain employees.

Simplicity Can Kill Your Profits

Have you ever really considered how expensive it is to bring on a new employee?

At a minimum, it takes between $4,000 - $7,500 and 42 days to fill just ONE position.

Here’s what researchers say:

National Association of Colleges and Employers:

For companies with 1-500 employees, it costs an average of $7,645 to bring on a new employee.

Society for Human Resource Management:

It takes about 42 days to fill a vacant position, at an average cost of $4,129.

Glassdoor:

The average US company will spend 52 days and $4,000 to hire for a position.

SHRM:

If you’re replacing someone—instead of hiring for a new position—it’s even more expensive. It takes up to 60% of an employee’s annual salary to find their replacement.

The Actual Cost of Hiring a New Employee

So, how in the world do you get to seven grand?

We tend to think of our hiring expenses in terms of the initial direct costs , like getting people set up with uniforms/dress code and in starting the payroll process.

But when we consider the indirect—or hidden costs associated with a new hire, it’s easy to see how quickly you can spend $4-7K:

Direct Costs:

The actual fee associated with the ad, whether it’s through an online hiring platform or a more traditional method.

Indirect Costs:

You or someone on your team has to write the ad, call or otherwise set up the advertisement, review and sort the responses, etc.

Scheduling & Conducting Interviews

• How many candidates do you have?
• Do you have one-on-one interviews? If so, how many?
• How long does each interview last?
• How many can you do in a day, a week?

Maybe you’ll do group interviews—which are awesome—but again, really consider the amount of time (in dollars) that you and your team will spend during that process.

Think everyone will be on-time and not one person will need to reschedule?

What’s all that time worth?

What’s all that time worth?

Direct cost: Hourly wages

So, you’ve hired someone new, and now you’re paying the trainee and a trainer (or two) to do the exact same job at the exact same time.

How long is the training program? (How long will you be paying more than one person to do just one job?)

Indirect:

Degradation of Guest Services -

People make mistakes in training, everyone knows that—but have you considered what it costs you when the customer experience is less than optimal during that training time?

It’s possible you could even lose customers you cannot get back.

Management Focus

When people are in training, managers and other senior staff have to shift their focus from whatever projects /were getting attention/ to now focus on getting this new person up to speed.

The $80K Opportunity to Reduce Costs in Your Business

The food and beverage industry is a bit transitory. On occasion, we’re fortunate enough to have people who stay with us for decades, but it’s more common for bars and restaurants to see a high turnover rate.

It’s not that uncommon to see a 100% annual turnover rates:

Let’s say you have 20 employees, and over the course of the year these people leave your business OR move to a different position within the company:

• 1 shift manager
• 1 bar manager
• 2 dishwashers
• 4 hostesses
• 1 chef
• 5 servers
• 3 bartenders
• 1 sous chef
• 1 line cook
• 1 bar back

It’s not hard to see how easy it is to have a need to hire 20 new employees over the course of a year.

Now multiply that number (20) by the lowest possible cost to recruit, train and fill the position to full functionality ($4,000):

That’s $80,000 in opportunity costs.

Is there something else you’d rather spend that $80K on?

Performance Improvement Process (PIP)

A Performance Improvement Plan gives your leadership team an opportunity to refocus, retrain and retain the talent you’ve already invested time and money in—rather than starting all over again with a newbie.

A PIP is a standardized disciplinary process to either:

(1) coach an employee to an acceptable performance level, or

(2) coach them out the door.

A 3-part (written) process:

Step 1: Talk With

Step 2: Work With

Step 3: Final Warning

The process kicks in when an employee isn’t performing at an acceptable level after the usual training and coaching-in-the-moment efforts have been exhausted. The shift you’re making is from training/coaching to a disciplinary process—and putting it on paper helps solidify the idea to the employee who’s having issues.

Many, many times, you’ll only ever reach Step 1 or Step 2 in the process. Because you already have a great process for attracting the right talent for your business, most of your current employees will respond quickly with this tool!

That’s the beauty of it! (Remember what it actually costs—in time and cash— to replace someone.)

Caveat:

Any part of a disciplinary process needs to be recorded—and should become a part of an employee’s personnel record.

If it’s not written down, it didn’t happen.

Coaching-in-the-moment isn’t discipline. It’s just part of being a great leader!

The Entire Process Can Be a Simple One-Page Document

Step 1: Talk With

In Step 1, you’ll pull the employee aside and present the Performance Improvement Plan.

It’s important to specifically identify the behaviors or skills that need to improve. You want to make your expectations crystal clear, including how the employee can improve, how you will help them, what success looks like, and a time frame to get it done.

During the time frame you’ve set for Step 1 improvement, be sure to follow-up at least at the midway point. It will give you a marker on how the employee is responding to the plan, and also reinforce that you are committed to accountability at every level within your business.

Again, for most employees, this “Talk With” step will be all it takes to get them back on track. But for those who still don’t get it, you’ll progress to the next step in the process.

Step 2: Work With

The conversation here is much more dialed in. You grab the PIP document, and explain, “Look, we spoke about this here, and your performance is still not up to a satisfactory level.”

You can use the same document to show the progression.

In the same way you laid out expectations before, you’ll want to reinforce:

• specific behavior or skills that need improvement
• what steps or actions are needed to ensure improvement
• the specific training, support or resources you’ll make available
• exactly how the employee’s improvement or lack thereof will be measured
• time is limited

Step 3: Final Warning

There will be employees who progress to this step. Now is the time to explain that this is the final warning—their last opportunity to get on board and perform to the acceptable level you expect.

Follow the same process, explaining what to, what it looks like, and a time limit to get it done.

Be direct in this conversation and explain you didn’t hire them to fire them.

Not only does this conversation and the PIP document reinforce your commitment to excellence, but it also demonstrates your commitment to do everything possible to train, coach, retrain and keep people good people on your team.

But you also recognize that the strength of your team is only as strong as the weakest member.

Consequently, after the final warning, it’s obvious to both you and the employee that it’s just not a good fit.

Stop the Revolving Door with a Good Process

After working with thousands of operators over the past 20 years, we know turnover is a huge problem. And we showed you earlier how easy it is to run through $80,000 in new hires over just 12 months.

We also know that by looking to the leadership first, and by implementing this simple (proven) process, businesses can drastically reduce the expenditures (not to mention the hassle) of being in perpetual hiring and firing mode.