Is it a good idea to demote an underperforming employee? Why should you think twice before demoting someone?
According to Ray Dalio, you should think twice before demoting an employee. There are only two situations in which demotion may be a good idea: 1) when a high performer fails to meet the same standards in a managerial role, and 2) when the employee possesses skills that would better serve them in another role.
Here is why you should beware of demotion, according to Dalio.
Beware of Demotion
If the person is failing in a role they were promoted to, Dalio cautions against letting them step back into their previous role. The person may resent being demoted to a job they probably can’t advance beyond. It may be better for them to start anew elsewhere. It’s hard to fire people you like and care about, but it’s necessary for the good of the organization.
|Is Demoting an Employee Ever a Good Idea?|
While Dalio says you should beware of demoting people, there are two situations where a demotion might work:
A high performer doesn’t translate their performance into a managerial role. You might promote a strong individual contributor without considering if their skills translate well into management. If you see them struggling, try training them first. If you don’t see any improvement, consider restoring them to their previous role where they were able to make good contributions.
The employee has skills that don’t match their current role. For example, a salesperson with weak interpersonal skills but strong technological know-how might do better if they step down to a sales support role.
As Dalio says, an employee may resent getting demoted, so handle it with care: Say that the organization would like to offer them a position that’s better suited to their skills, let them know that you want them to stay, and map out a more viable career plan for them.
Look Elsewhere for Fit
Figure out whether the person is a better fit for another job in the organization. But be careful—understand why they failed, and make sure this won’t happen again in the new job. (Shortform note: If you’re considering an internal transfer for an underperforming employee, communicate that your goal is to help them make use of untapped skills and to help them reach their full potential—but, make sure those untapped skills actually exist. Otherwise, the employee just becomes someone else’s problem.)
For People Who Are Excelling
Great people with great values and capabilities are rare. Dalio doesn’t offer detailed tips for managing these people. He only says that you should think about how to keep them and encourage them to speak up about how things are going.
(Shortform note: Companies that find ways to recognize high performers have a turnover rate that’s 31% lower than “low-recognition” companies. In Measure What Matters, venture capitalist John Doerr writes that you can establish a “high-recognition” culture by introducing a peer-to-peer recognition system, where employees can show their appreciation for their colleagues. For example, you can allot time during weekly meetings for employees to recognize colleagues who did good work. You can also use the company newsletter to tell stories of how people contributed to achieving the company’s goals.)
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