Do Performance Improvement Plans Work? The Pros and Cons

Does your company use PIPs? Do Performance Improvement Plans actually work? What are the alternatives?

Companies’ use of Performance Improvement Plans (PIPs) to address employees’ work shortcomings is on the rise. Despite the dread they evoke and their well-known flaws, PIPs will likely remain prevalent as companies embracing AI demand greater efficiency from their remaining human workforce.

Keep reading for a look at the pros and cons of PIPs, and some alternative management methods.

Employee Performance Improvement Plans

A Performance Improvement Plan (PIP) sets specific objectives that employees identified as struggling must achieve within a defined timeframe to keep their jobs. Companies’ use of PIPs and other formal performance actions has increased in recent years, with 44 out of every 1,000 workers placed on performance plans in 2023, up from 33 in 2020. The rise comes as CEOs tighten budgets, embrace AI, and push for greater efficiency, increasing the demand for humans who remain on staff to do exceptional work.

PIPs were initially created as supportive tools to help employees improve performance through clear, measurable objectives. However, their function and reputation have shifted dramatically over time—they now serve a more disciplinary purpose, with both workers and HR professionals viewing them as punitive.

PIPs typically follow a standardized format that documents performance failures, required changes, and explicit termination warnings if workers don’t improve. They sometimes come after other interventions have failed, such as coaching. Do Performance Improvement Plans work though?

Pros of PIPs

Proponents of PIPs cite several advantages to using these plans:

• Performance improvement. When properly implemented, PIPs can effectively address specific skill gaps and help employees through temporary challenges.
• Legal protection. Plans provide necessary documentation to defend against wrongful termination lawsuits.
• Process fairness. PIPs demonstrate employers’ commitment to fair treatment and due process while reinforcing performance standards. 
• Improved team morale. Addressing performance issues can reassure other team members who have been compensating for colleagues’ shortcomings.
• System insights. The PIP process can reveal systemic issues that managers can address to prevent future problems. 

Cons of PIPs

While companies may experience benefits from PIPs, research and extensive feedback from HR professionals, managers, and employees reveal fundamental problems with the plans. 

Design Flaws:

• False premise. Many companies use PIPs primarily as documentation to terminate employees rather than help them improve.
• Wrong target. PIPs often incorrectly treat poor performance as the problem of an individual worker when, in fact, organizational factors drive results—including unclear business strategies, poorly trained managers, inadequate communication, and limited career development opportunities.
• Measurement problems. PIPs often rely on vague metrics and assess subjective traits like workers’ personality and attitudes rather than technical skills, making success heavily dependent on individual managers’ interpretations. This is particularly problematic in knowledge-based roles, where improvements in areas identified as problems—like collaboration or client interaction—are inherently difficult to quantify.
• Reactive approach. PIPs typically arrive after performance issues become serious problems, making them less effective than early interventions, like regular coaching.

Impacts of PIPs:

• Performance deterioration. The intense scrutiny of PIPs can decrease workers’ performance by triggering fight-or-flight stress responses. While fear of job loss may spark temporary performance improvements, they rarely last without addressing underlying issues. Just 10-25% of employees survive PIPs. 
• Morale damage. The PIP process typically blindsides employees and creates no-win situations—leading 90% to leave their company within a year regardless of the outcome.

What You Can Do Instead of PIPs

To build a strong team, you must manage your employees’ performance in some way. In his book The First-Time Manager, Jim McCormick offers three ways to do this.

1. Give Regular Feedback

According to McCormick, a good manager makes sure their employees know how well they’re performing by providing feedback on a regular, ongoing basis. There are two types of feedback you can give: praise to encourage positive behavior and constructive criticism to help someone improve their behavior or performance.

When giving praise, describe in detail the work or behavior you’re praising. This helps people understand what behaviors you’re looking for and makes them more likely to behave similarly in the future. Also, describe the positive outcome that resulted from their actions because people enjoy feeling like they’re contributing to something greater.

When giving constructive criticism, McCormick recommends you focus on addressing the behavior and not judging the person, which degrades people’s confidence and performance. Treat the behavior as a misunderstanding, ask for their input instead of doing all the talking, and give this criticism in private, such as in your office, so people feel less embarrassed.

2. Conduct Performance Reviews

In addition to having informal feedback conversations, McCormick advises that you also conduct formal performance reviews once or twice a year to improve your team’s performance. These are periodic evaluations of each employee’s work that let them know how well they’re meeting expectations and how they can improve. According to McCormick, employees often want more feedback than many managers may assume.

McCormick adds that you should be fair, honest, and objective when conducting performance reviews. Avoid rating every team member as satisfactory or above. This may be tempting to do, but giving inaccurate ratings deprives employees of the opportunity to grow and improve.

3. Resolve Work Problems and Enforce Discipline

You’ll also need to know how to resolve work problems and take disciplinary actions when appropriate. This ensures your team maintains high standards and people are fairly rewarded for their efforts.

If you experience behavioral or performance problems with an employee, McCormick suggests you create a performance improvement plan. You can make one by dividing a sheet of paper into three sections—strengths, areas of improvement, and goals. Then, work with your employee to fill out each section and decide on a time frame for the goals.

You may need to occasionally dismiss an employee. Before you fire a worker, McCormick suggests you consider all possible alternatives, such as giving them additional training. However, while firing people can be hard, it’s often beneficial for the employee—they’ll likely be thankful to be in a position that better suits their strengths. Before dismissing someone, McCormick suggests you check that you have their performance or behavior documented to avoid potential lawsuits.

Looking Ahead 

Recognizing PIPs’ limitations, some companies are exploring alternatives. LinkedIn, for example, now offers employees a choice between improvement plans or exit packages with severance pay and health coverage. 

Yet as AI advances push companies to demand increasingly exceptional human performance while reducing workforces, most organizations continue to use PIPs—suggesting that although execution methods may evolve, formal performance management tools will likely continue to play a significant role in how companies manage their staff. 

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