If you're like most CEOs, you fire people too seldom and too late -- and as a result hurt your company, yourself, and even the employees you take too long to terminate. Here's help

Mark Landis still winces when he thinks about his worst firing experience. He had labored mightily to persuade a key executive from a giant company to join his small information-services company in Princeton, N.J. The fellow moved his family hundreds of miles, dived into Landis's Health Information Technologies Inc., and promptly fell on his face.

"Every senior person came to me and said, 'Please deal with this situation. It's hurting us all,' " recalls Landis. He couldn't. He was paralyzed by guilt. Finally, he gave the employee three months to improve. He didn't. So Landis let him have three more months to find another job. "The environment got so bad, people didn't want to come to work," says Landis, sighing, still pained after two years. The lesson, he says: "Make up your mind. Don't sit and agonize."

Lionhearted in the world's marketplace, small-business owners are all too often wimps in their own companies. They don't fire bad employees often enough or soon enough. The same small businesses that can be so adept at product quality control squirm when it comes to firing. For one thing, owners usually don't bring professional detachment to their relationships with employees. Nor have they laid down any clear job guidelines for them. And as their companies begin to grow, entrepreneurs feel enormous gratitude to longtime workers -- often placing them in jobs they're not equipped for.

All of which adds up to a festering mess when a person who should have been fired, isn't. Precious cash flow is squandered on someone who isn't producing. Productive coworkers feel cheated. No company can afford this drain on morale and finances.

Firing is one of the crucibles that turn entrepreneurs into managers, because it brings you face-to-face with failure. Nothing will make firing any easier. It shouldn't get easier. What it should become is less frequent. And that will happen if you make your company's firing process more instructive. If you think of firing as a symptom, a by-product of your company's activities, then you can take responsibility for those failed employees. When you do that, you'll understand why a company that hires the right people and manages them properly does almost no firing. That's your ultimate goal: to hire and manage so well you'll never have to fire again. Here's how.

* Hire right. Are you hiring the right people? Think about the people you've fired. What behavior ultimately made those people unsuccessful? Consider three broad categories: an employee's job aptitude; his work attitude; and his fit with colleagues. Be specific.

Now, with your list of terminal problems in hand, think about how you could have unearthed that problem behavior -- or a predictor of it -- in the hiring process. The range of possibilities is broad. (See "Hiring Without the Guesswork," No. 02920801, February 1992.) You can administer psychological tests, conduct three-hour interviews, or become a reference-checking zealot. The key is to select techniques that will give you information you're not currently getting from your hiring process.

Being exhaustive in hiring can also help you correct problems much faster if they occur. Donn Rappaport, chairman of American List Counsel Inc., a direct-mail-services company in Princeton, N.J., was perplexed when one of his star media buyers began having difficulty negotiating deals. He went to her hiring records. Her aptitude test showed she hated confrontation. "It was like a slap in the face to see this glaring warning," says Rappaport. After he counseled her on her mental framework and her negotiating skills, her performance improved.

* Make your expectations clear. Hiring right isn't everything. The other single biggest terminator of careers is failing to tell employees what you expect of them. The key is to give regular feedback to a new employee right from the start. Communicate your standards repeatedly and help employees understand what they need to change to succeed. Small companies can't usually afford the luxury of a discrete orientation program, but they can, and often do, rely on a two-week or three-week job rotation to teach new employees about the company and how it works.

Carolyn Thompson, president of CBT Training Systems, a Frankfort, Ill., specialist in employee retention, suggests also using continual job coaching. "Have people who are teaching the new employee fill out a performance checklist every week. Then the supervisor can say, 'You're really up to speed on this, a little behind on that.' The performance-appraisal process starts right away."

At many small companies fledgling workers are also assigned mentors, who provide a kind of cultural feedback that helps them assimilate. At Datatec Industries, a Fairfield, N.J., company that installs computer systems in stores, mentors are charged with coaching new hires on how to achieve quality. Quality mentoring doesn't provide new employees with job-specific benchmarks. Datatec takes care of that separately. But it does convey a kind of conceptual benchmark -- that quality permeates every job.

* Install early-alarm systems. Let's be honest, by the time most of you admit that something's amiss, it's late in the game. The nonperformer knows something's wrong; his or her coworkers do too. So do you, but you've ignored the problem. It's likely you're finally paying attention because the wayward worker has made a sickeningly bad mistake.

Forget patient helpfulness -- you greet this "personnel problem" with sheer fury. You want the reprobate out now. Hold on. If you did your hiring homework well, then you really believed you hired the right person for the job. What you should have done to strengthen your commitment to keeping that valuable person was to identify potential problems early.

John Richmond, head of field services for Modern Business Systems, based in Jefferson City, Mo., uses performance appraisals. They take place once or twice a year, when manager and employee sit down to discuss the employee's job progress. At Modern Business, managers don't use the appraisals as occasions for criticism. Rather, they ask employees to rate their success in all aspects of their jobs. Then the managers review the self-appraisals with the workers, seeking to understand fully how employees feel about their work.

The appraisal cues a manager on how to counsel workers on a day-to-day basis. Workers who perceive they're not working fast enough, when they are actually fast but careless, can be reinforced on their speed and taught to recognize the cost of being careless. A manager who's actively coaching every day is appraising every day. And that's the best and earliest alarm system you can have.

At Datatec, benchmarking prevails. Datatec measures everything -- defects in receivables, late orders, length of service calls, you name it. It also requires all employees to rate everyone else's performance either monthly or quarterly. And it surveys customers for their opinions. The results are published monthly for everyone in the company to see.

So imagine this: After a week of training, you, the new guy at Datatec, start being graded at the end of your first month. You see immediately how you rank on every aspect of your job. It's obvious where you need to improve. Because the surveys are so frequent, problems are caught early and better performance shows up immediately. And because managers are using the same survey results as workers to evaluate performance, differences in perception are minimized. The strength of Datatec's system is that it allows employees to correct themselves.

* Fix the problems. Evaluating what's wrong and changing it require far more skill than anything else you'll do as a manager, because no one can fix the problem but its owner, the weak performer. You're the facilitator, the person who makes that problem so crystal clear that the employee can't resist fixing it herself.

At Modern Business the manager sets up a special session with the employee. The manager states the performance failure, produces evidence that it's an issue, and gets the employee to agree that it's a problem. "We never say, 'Do you sometimes come in late?' We say, 'Our team is having a problem because you're arriving after 8 a.m.,' " explains Richmond. Evidence might be attendance records.

Next the manager and the employee list all the possible causes, perhaps 20 or 30 of them. Then, the two list as many options as they can think of for solving the problem. They select one option that will help most in the short term and one that will be most effective over the long run. Finally, they create an action plan for implementing the solutions. "The power of this approach is that when the employee gets up and walks out the door, he's committed to it because he's part of it," says Richmond.

Other companies find other forms of remedial action effective. American List's Rappaport believes in probation. Not probation as an on-your-way-out-the-door technicality, the way too many companies use it, but as a kind of shock therapy administered along with other steps. For example, an employee with a pivotal role in American List's research department wasn't getting his work done. After repeated coaching sessions between the researcher and his supervisor, Rappaport told him the company would have to let him go if his project wasn't done in the next 30 days. He met the deadline.

At Advanced Network Design, a third-party telecommunications-services company in La Mirada, Calif., Dave Wiegand uses what he discovered during the hiring phase. He asks all job candidates, "How should an employee who fails to get to work on time be disciplined?" Wiegand can use the employee's own suggestion, and a reminder of where it came from, to cure problems.

* Fire when it's time. If nothing has worked, take the advice of every experienced businessperson we talked to, and don't sit on the decision. You will have to make sure the termination follows your company's policy guidelines, but by all means, act.

Try to appreciate the employee's strengths and understand why your company couldn't harness them. The most genuine delivery of the bad news we found was Richmond's: "When you came in the door, the last thing I wanted to do was put you in a position where you couldn't be successful. But I seem to have done that. Here are some of the problems we worked on. . . ." In fact, scripting yourself is a good idea. By writing out your comments beforehand, you can individualize your treatment.

Rappaport suggests having two people in the room in addition to the employee -- the immediate supervisor and someone with whom the employee does not have a day-to-day relationship. The manager delivers the bad news, answers questions without engaging in an argument, and then leaves. The neutral person's major role is to listen, but he or she should also be prepared to answer questions or offer specific information on how the relationship is being severed. Will the worker receive severance pay, assistance in job hunting, good references? How long will his or her company health-insurance benefits last, and what will they cost? Is the terminated person eligible for unemployment benefits?

Before the meeting make a checklist of things to do, from collecting keys to finding a replacement for the employee. Two items that should be on it: addressing other workers' concerns and helping the fired employee find another job. No matter how isolated the firing incident or how good the reason for it, other employees will figure they're next. Sit them down, briefly explain what happened, and assure them you have no plans to fire anyone else.

Finally, make a serious effort to help the fired employee find another job. Remember, if you really did do your best in hiring the right person, you do believe in his or her basic qualities. You needn't hire a costly outplacement firm. You could alert vendors, customers, and people in your industry, providing a formal introduction in some cases. For a limited time you could also make available some of your office's resources.

* Conduct an exit interview. What you hear in an exit interview could be the most candid, insightful criticism you'll get. But hardly anyone does one after firing an employee. And yet, it's worth it. The best approach: keep it simple. Chris Carey, CEO of Datatec, conducts exit interviews over the phone a week or two after the terminated worker has left. "I ask them what it was like to work here and if they could give me some advice on what I could do to make it a better place to work." Assure the ex-employee that what he or she says won't cause you to withhold a good reference or other benefits you've already agreed upon.

* Do a postmortem. Each time you fire someone, review your firing process. What was unacceptable about the fired person? How could you have predicted it in the hiring process? How could it have been corrected in the managing process? If you don't change anything after firing someone, then you're doomed to repeat the mistake.

Your firing experience could be the best instructor you ever have. Not just because firing is something every business owner has to learn, and not only because you'll learn to hire better. What happens is simple: a thorough analysis of your firing requires you to change your focus from solely your product or your market to managing human beings. What you'll be able to achieve with a high-quality, well-managed work force coupled with that really terrific product or unique marketing approach will lift you a magnitude above what you'll get from products or marketing alone. Getting there is not quick or painless. But it's the right journey to be making.

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Research assistance for this article was provided by Karen E. Carney


The Five Basic Steps of the Firing Process

Wrongful-termination suits filed over the last 20 years have skyrocketed by more than 2,000% (compared with the 125% that overall civil cases have grown by in the same time period). We're not recommending you install a purely defensive firing strategy, designed to prevent lawsuits by disgruntled former employees. But you should know what legal experts advise clients about firing an employee over performance problems. Here are the five steps of a bare-minimum firing process:

1. Act on problems immediately. Employees most likely to sue you are those who feel their firing was unjust, indefensible, or discriminatory. So you must communicate with them about weak performance immediately. A minor problem can be handled in an annual performance review and follow-up meetings. Larger shortcomings should be conveyed right away and tracked through weekly or monthly sessions.

2. Document carefully. Write memos about your talks with employees. Be extremely specific in both talks and memos. Don't simply say that the employee doesn't have the proper attitude, enough initiative, or the ability to get along with people. Substantiate your characterization by describing instances. Give a copy of any memo that goes into an employee's personnel file -- and there should be one for every session with an employee -- to the employee.

3. Include the employee. Have employees evaluate themselves. If the employee acknowledges the problem, then you'll be much closer to solving it. "If the employee denies the problems, the employer has the additional ammunition -- if this ever goes to court -- of being able to show that the employee did not respond to constructive criticism," says Eric Wallach, a partner at Rosenman & Colin, in New York City.

4 . Act quickly. If the employee's performance does not improve, don't sit on the decision. That could look as though your company wasn't seriously affected by the worker's subpar job, weakening your grounds for dismissal. There is no legal requirement that you issue a warning or put a worker on probation. But you must follow your company's policy as laid out in your employee handbook, if you have one. If you're firing your only female or minority worker, that employee could argue the termination was discriminatory. Your comprehensive record (numbers two and three above) should reflect that poor performance is the reason for dismissal.

5. Be candid. Candidly and clearly, tell the employee why he or she is being terminated. Be prepared to make your severance-pay and benefits proposal. Have someone else from the company present to witness and record the termination and the employee's response to it.


For managers on the firing line

Every year more than 3 million Americans are fired or laid off by employers seemingly ill-equipped to deal with claims of wrongful discharge. To avoid potential courtroom appearances, you should master the art of preventive employee relations. Thinking about firing an employee? You can do it humanely and legally while staying out of court, and guarding precious cash, by taking a few tips from the experts.

E. Kenneth Snyder's Employee Matters: A Legal Guide to Hiring, Firing and Setting Employee Policies (Probus, Chicago, 800-776-2871, 1991, 173 pages, $24.95), written for the legally untrained executive, clearly and thoroughly lays out tried-and-true methods for creating effective personnel policies and resolving employee complaints. When litigation is likely, the guide offers strategies for minimizing damages and maximizing the chances of a favorable ruling.

BNA Plus (800-452-7773, 202-452-4323 in Washington, D.C.), the Bureau of National Affairs' research arm, publishes model procedures for discharging employees and conducting exit interviews and audits and will send them to you for $23 plus $5 shipping and handling.

The Friedman Group, an executive training and consulting firm, produces a no-nonsense video, "How to Legally Fire" (800-351-8040, 40 minutes, $79). The concise program lists the dos and don'ts of firing, shows how to test for "just cause," and demonstrates negotiating skills. It also shows employers how to avoid firing altogether by taking corrective action to enhance employee productivity. The video comes with a helpful workbook chock-full of diagnostic checklists.

If all's lost and you're ready to fire, contact Margaret Bryant (914-328-0404) of Jackson, Lewis, Schnitzler & Krupman, labor-law specialists. She'll fax you the firm's soup-to-nuts "Termination Checklist," a 4-page quiz on discharge basics and firing techniques. It's appropriate for all levels of an organization.