There is a consistent theme emerging from my conversations with CEO’s lately. Loyalty. While many people enjoy bashing Fortune 500 CEO’s for showing no loyalty to employees, the bigger issue for smaller organizations is too much loyalty. I see too much loyalty to long-time employees who are not performing, and too little loyalty to everyone else who is.   Truth be told, I’m not really a fan of Jack Welch, but he did have an interesting column about misplaced loyalty.

Most business leaders really struggle with their loyalty to long-time employees who are no longer effective, and while I think loyalty in general is both admirable and good business . . . blind loyalty is not. It is dangerous. The context matters.

Sometimes the person’s performance just waned over time – they “got comfortable”,  sometimes the person was simply over-promoted (Think: Peter Principle), sometimes the person took on a job that appeared similar but required different skills (Think: salesman promoted to sales manager), perhaps the most common is when a growing company simply “outgrew” one of the original employees.

Often the problem person was a good steward during normal times, but simply cannot adapt to the chaos of the current environment.  They resist change, ignore market signals and get in the way of new initiatives – doing what is comfortable and familiar, instead of what is right.

My conversations with CEO’s generally go something like this:

Me:  “One year from today what results do you want to achieve?  In what direction are you headed?

CEO:  “Well we want to achieve X, but the results so far have been disappointing.  I’ve tried X and Y, but it’s still not working.”

Me:  “Well, who is most responsible for driving that initiative?”

CEO:  “Well, I put Jim in charge of that.  He was with us since the beginning and really knows our company.  But he’s really struggled to get traction, I just don’t know what to do about it.”

Me:  (after some conversation) “Hmmm, from what you said, it sounds like Jim doesn’t really have the ability to drive the results you need.”

CEO:  “Yeah, I agree, but he’s with us a long time and what kind of message does that send to everyone else if we fire him?”

And that is exactly where most managers get trapped – in the loyalty fallacy.  They falsely assume the other employees would be upset and would become less loyal to the organization – that firing Jim would cause a catastrophic breach of faith with other employees. Actually, the reverse is often true.

Organizations that handle poor performance in a fair and consistent manner become happier, more productive places to work, and have a far easier time attracting and retaining people who drive results. Trust me on this one – we do this every day – performance management trumps blind loyalty every time. Fast forward a few months and you’ll wish you had done it sooner. But why is this not obvious?

If you have been managing performance, and holding people accountable all along, then when someone is underperforming, everyone around them knows it, because bad performance affects everyone’s results. Top performers are grateful when you remove an underperformer – no matter how long they have been around. Have you ever fired someone and then afterwards people start telling you horror stories about them?  You always wonder why they didn’t tell you sooner. So what’s that all about?

It’s simple.   Top performers pick up the slack for others – it’s just part of their DNA – but after a while they wonder why you haven’t noticed and done something about it. They won’t complain or “rat someone out,” but they will become concerned if you let it persist. The smart folks at HumanR have done research on employee retention and found some really interesting things. In their (free) white paper “Four Factors that Predict Turnover” one of the predictive factors is how your employees answer this question: “Do I have confidence in my leadership’s ability to handle the changes that significantly challenge the business?” If you are not handling poor performance, and have weak players in key positions, how do you think your top performers will answer that question?

So while you are “being loyal” to an underperforming long-time employee, your best people are watching … and becoming less loyal to you. Doing nothing about poor performance is always a mistake – you are “appearing” loyal instead of “being” loyal to your top people. Top performers want to be around other top performers, so they will only give you so much time to address the problem.

To help you with this difficult conversation, download our Guide to Replacing Underperforming Employees.

To gain more perspective on performance management and employee turnover, visit “What Drives Employee Retention and Employee Turnover?”