Underperforming Employee in an NGO: Is Salary Reduction a Fair Consequence?

I run an NGO where we have a few permanent employees. One of them has been consistently underperforming, and his lack of commitment to his tasks and duties is obvious. Can I reduce his salary as a punishment?

I would suggest talking to him in person and expressing your concern. Ask him about his reasons for not performing his duties up to the mark. Understand his situation first and act accordingly.

Give him a polite verbal warning to improve and observe him for a few days. Assign him tasks and check how he performs and how seriously he considers those tasks. If he is still not able to perform well, give him a written warning.

Considerations for Disciplinary Actions

The answer depends on how many people are working, whether the Factories Act or the Shop & Establishment Act applies, and whether the Standing Orders and Industrial Dispute Act apply. To be safe, it is better to give a written warning as provided in the Model Standing Orders.

Steps for Addressing Underperformance

I think you need to give two warnings and then a notice warning him of a reduction in salary if he does not improve. The warnings must be specific, giving the details of his failure or his mistakes. You cannot be vague on this matter, or the exercise is meaningless.

Addressing Employee Underperformance in Small Organizations

A small organization may not be well-organized in terms of all orders and procedures. However, when an employee is consistently underperforming, steps need to be taken to rectify the situation. How has it been determined that the employee is underperforming? Are there any output standards fixed and communicated to him or her?

Here, what I can suggest is to have a talk with the concerned employee, document the discussion, and create an action plan outlining the work required to be done and the time periods. After this effort is made, monitor the situation and issue warnings if there is a failure. If things still do not work out, a pay cut can be considered.

Natural justice should pervade company actions, duly documented, etc.

Coming to think of it, after Mr. Nathrao's post, I think you should figure out whether you should retain him or replace him with someone else better suited to your work (with due notice before you remove him so he can find another job). A person with a salary cut is generally resentful and disruptive. If you do cut his salary, it is also better if you can get him to agree to the same and let him sign the revised salary letter so there is evidence that it was not forced. The labor court is unlikely to give a judgment in his favor (note, I say unlikely because the court will consider all circumstances and even then the decision may favor the employee).

Understanding the root causes of underperformance

Please understand the root causes/reasons for underperformance. An employer can provide guidance, training, and support to employees to enhance performance/productivity. Proper communication between employer and employee will solve many problems. Lacking skills (physical/digital), lack of passion/motivation, ineffective communication, and family problems can turn a performing employee into an underperforming one. "Money" is the principal factor for motivation to work. Measure everything before reducing remuneration or manpower.

Yours sincerely,
Mohan Nair.

The answer is no, you did not meet any performance criteria. How do you justify the reduced payment for the position one held?

Have you ever apprised the employee?

Have you ever informed the employee that his performance is not up to the mark, or that the work entrusted to him is still pending or incomplete, or about any wrongful act? Is there anything in your policy that allows the establishment to reduce salary if performance is not found satisfactory? Perhaps his performance issues are due to certain shortcomings at the management level, which he could not escalate!

Consider alternative actions

You need to call the person to discuss the issue before taking any harsh action and inform him of the management's decision (when you cannot increase the salary at your discretion). Instead of reducing the salary, consider not giving an increment, which is a more balanced approach. In this particular issue, our learned colleagues have analyzed the topic from different angles to guide you. It is up to you to decide how to move forward.

I prefer the suggestion of Mr. Prabhat and would like to add a few points in line with the discussion.

Employee Classification

Is the individual classified as a permanent employee? Is the individual categorized as a permanent workman or under others?

Handling Misconduct

If the employee is found to be delinquent, gather evidence of work assignments and performance records as proof of the severity of the misconduct.

Performance Evaluation

Ensure that Key Performance Indicators (KPIs) and Key Result Areas (KRAs) are unbiased. Provide counseling to the individual during periodic reviews, documented as a record.

Compliance with Standing Orders

Adhere to the established standing orders.

Disciplinary Actions

Issue a Show Cause Notice (SCN) as the first step. Provide a warning and training. Document all interactions.

If, despite counseling, training, and warnings, there is no improvement, consider withholding the increment. The goal is to help the individual realize and correct their mistakes, not to punish. However, ensure compliance with legal requirements for disciplinary proceedings to prevent reinstatement or granting of relief.

Reducing Salary of One Underperforming Permanent Employee as a Punishment?
Trust me, reducing salary will never enhance performance. Rather, the situation will become more demotivational.

Now, coming to the topic of reduction, you have not mentioned whether it’s a part of your appointment clause. I understand it's generally not a part of the appointment letter clause. Additionally, when we talk about performance, it’s a two-way street:

From Employer to Employee & Vice Versa:
- Employee understanding of his discussion during the interview and his clarity towards his job.
- The offered role and understanding.
- Clear understanding of what kind of on-the-job training is being offered before you assess.
- Please rate your support, availability from his co-worker, team coordinator, and manager to spend time discussing the employee's understanding, doubts, and concerns.

Hence, with periodic review and on-the-job training with proper documentation, you should assess him.

Practical Advice for Managing Underperformance

1. Talk with empathy.

2. Give him a chance and resources to improve, without any bias or ego.

3. If the purpose of reducing salary is to facilitate improvement, consider whether it might be more effective to let the candidate go on his own.

4. I think it's best to terminate politely and assist in finding a relevant job according to his capabilities. This approach is less painful, and the work culture will not be spoiled.

5. Next time you hire anyone, clearly define fixed and variable pay so that this situation does not arise.