3 strategies that are more effective than firing a bad employee

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Letting go of an employee is one of the hardest things a manager has to do. But Neal Hartman, a senior lecturer in managerial communication at MIT Sloan School of Management says that to be an effective leader, you must be willing to terminate relationships with underperforming employees.

"It's probably far better to sever those ties and help the employee move on to a job or organization where the fit is much better and where he or she may be a more productive employee," he tells CNBC Make It.

For many leaders, that's easier said than done. Managers find firing an employee to be uncomfortable, and they usually don't want to create conflict within the workplace, says Hartman. Plus, it isn't always the best route.

Hartman says that terminating an employee outright should generally be reserved for specific situations, such as theft or a physical altercation.

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When dealing with underperforming employees, designing a plan that encourages an employee to leave the company, rather than an immediate termination, could be a much more effective technique, he says. Known as "managing out," this strategy is particularly useful within an organization that already practices continuous feedback.

Hartman notes that using this method gives an employee the chance to improve their performance, lowers the risk of litigation once an employee leaves the organization and is considered more humane and empathetic than an immediate termination.

"Overall, it gives the organization and the employee a little more time to see [whether] specific performance and specific behaviors can change," he explains. "And if not, then [you] have to recognize that the employee is not going to work in this organization."

Here are three strategies for managing out underperforming employees:

1. Setting performance targets

One of the most common techniques is to set up performance improvement targets, says Mitchell Marks, professor of leadership at San Francisco State University and president of the consulting firm JoiningForces.

This strategy involves asking an employee to complete a project with a measurable outcome, such as a deadline or pre-determined accuracy rate, he tells CNBC Make It.

A performance improvement plan is particularly effective when you're fairly confident the employee cannot meet those targets or will find them challenging, says Marks. It also creates a paper trail for you to fall back on when it comes to time to give an employee review or performance feedback.

However, one thing to keep in mind is that honesty is key, says the professor. Before setting up a performance target, discuss the employee's shortcomings in a face-to-face meeting and notify the person that their job is contingent on meeting those set goals.

Then, if you're still not seeing improvements after a predetermined period of time, you can be more direct with the employee in discussing their transition out of the company.

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2. Providing incentives

Providing incentives to quit is another great way to encourage an employee to leave a company of their own volition. Workers who are disengaged typically know when they aren't performing at their full capacity, says Marks. In turn, they may be more likely to quit on their own if given an enticing offer.

This is a strategy that Amazon employs. Once a year, the retail giant offers certain employees up to $5,000 to quit in order to push out employees who no longer want to work there or who feel checked out.

However, you can use other incentives besides monetary awards, says Marks.

He suggests offering to keep the employee on board for a set period of time, so they aren't dinged for having a gap on their resume when applying to other jobs; promising to write a stellar letter of recommendation if the person quits; offering to cover the employee's health insurance for a specific amount of time after leaving the company; or promising a few weeks of severance pay.

If you work at a large organization with a sophisticated HR team, you can offer to provide outplacement and career counseling services to assist the employee in finding a new job.

"Try to make [quitting] as attractive to the person as possible," Marks advises.

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3. Restructuring the organization

Another mechanism for moving an employee out of an organization is through a restructuring of jobs and responsibilities, says Hartman. This can be done by removing a position entirely or merging two roles together. As a result, a manager can then tell an employee to start seeking work elsewhere, because their role is no longer needed within the company.

"In this managing out spectrum, an organization will suggest they're eliminating a position," explains Hartman, "but they're really doing that, essentially, to move that particular employee out of the company."

One problem with this technique is that in many countries there are regulations which stipulate that a certain amount of time must pass before hiring a new employee for that same position, Hartman says. Plus, an employee could sue for discrimination if, for example, you manage out someone who is over 40 and rehire a younger employee to fill that exact same role.

To avoid this liability, Hartman suggests officially changing the title and the description for said role before rehiring, in order to reflect a true restructuring.

Regardless of which technique you use, Hartman notes that the need for an exit should never come as a surprise to the employee. Your feedback throughout this process must be ongoing and you should be able to point to previous conversations or performance assessments as evidence of a continuing problem, says Hartman.

Doing so, he says, will hopefully nudge the employee to come to the realization on their own that it's time for them to move on.

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