How do you know when terminating an employee is the right decision?

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VP - Head of Information Technology in Software, 1,001 - 5,000 employees
At a former company they had an interesting policy on the negative side of performance management. Our CEO told all the leaders, "There's no such thing as a performance improvement plan (PIP) here. If you feel like someone needs a PIP, what we really need to do is escort them out." But he also said, "I'm going to interview anybody we terminate and if they're surprised by the termination, you're in trouble." And what he meant was that you have to be coaching people. If they're not aware that they're not doing a good job and you just surprised them with a termination, then you're the one who's going to be in trouble. It worked really well. Not having PIPs was a big improvement, because PIPs don’t tend to work effectively in my experience. They just demean the person that's on the PIP.
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Senior Director CIO Office in Software, 1,001 - 5,000 employees

Usually you start the PIP because you really want the person to leave.

CTO in Software, 201 - 500 employees

Interesting approach. I think in most cases PIP is really a euphemism for the last official warning (something that HR might need to do to comply with policy and to manage risk). If it has come to that point it means that initial attempts at coaching/mentoring failed. If an employee is surprised we have a failure of management.

Senior Director CIO Office in Software, 1,001 - 5,000 employees
A friend of mine taught me not to give third chances. Some people need extra coaching and support to get their performance to the level that's required, which is fine. But certain individuals who need that extra guidance will drop back down to their original level once you take away that helping hand. They’re okay when you're organizing their priorities and giving them feedback on the quality of their work, but when you stop, they’re back to where they were before. You have to stop carrying people, it's not worth the time and energy. In our current world, there's much more of an inclination to give folks third, fourth or even fifth chances.
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VP - Head of Information Technology in Software, 1,001 - 5,000 employees

I agree with you, you're not doing them any favors by keeping them around. I've also run into this scenario a few times where somebody is unable to accept the positive aspects of change. At a former company that had just gone through a dark era, the senior leadership were setting things right and things were going much better. It had been better for over a year, but this person was still being negative. Finally we just said, "Today's your last day." They were dragging everybody else down and they were not being successful themselves.

It's not fun to terminate someone but it's more painful to keep them on board, especially when people have to work harder around that person. That's another termination scenario I’ve been through: everybody else had to work harder to keep this person on staff because they were just dropping the ball. Other team members ended up spending more time cleaning up after this individual than they did doing anything else, so it created negative output.

Director of IT in Software, 201 - 500 employees
You need to coach and guide the employee and provide honest feedback and constructive criticism. As a manager is your role in helping your employees be successful and grow. The team’s success is your success.

It’s not an easy decision to terminate someone and should be done after everything else has been exhausted when it’s clear that the employee does not improve their work ethic and performance and is negatively impacting the team. The whole team needs to work harder to finish the work.

If you tolerate a bad employee for a prolonged period, good employees will start leaving the team.

The termination might not always be due to performance issues, although it’s usually the most common. Suppose you have a good performer but do not get along with anyone in the team. If the employee is consistently hostile and negatively influencing and is poisoning the workplace or harassing the team,  it would be best if you let them go. It can be the best performer, but it’s not worth keeping it around.
Senior Vice President - Engineering, Self-employed
Collect a 360 feedback from all the stakeholders of the employee. Validate all the data points that show the employee is not performing. If enough conversations have been had already and there are no signs of improvement, best to pull the plug. Also, help the person find a new role and assist them in whatever way possible.
CTO in Software, 201 - 500 employees
Like pretty much anything involving leading and/or managing people this is a tough one. Each organization, each situation and circumstance are different and need to be treated accordingly. We often reference - exhausting all other options, doing everything possible, taking extensive corrective actions, putting in place performance improvement plans, coaching, mentoring, guiding, ... - all of these play a role, but you still need to find the right balance. The recipe for that is one part art, one part science, seasoned with a generous dollop of experience.  Be engaged, be fair, be decisive. 

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