Performance Management: Best Practices for Employers

Performance management is one of the most important – and often challenging – responsibilities that comes with leading a team. Whether you’re running a small business or scaling up, knowing how to manage employees effectively can make the difference between a thriving workplace and one struggling with low morale, lagging productivity, or even legal disputes.

Yet, many employers aren’t 100% clear on what performance management actually involves. Is it just about performance reviews, or something more? And with Australia’s Fair Work framework, how do you manage underperforming employees correctly and legally?

In this guide, we’ll walk you through what performance management really means, why it matters, and the best practices to help you get it right. We’ll also highlight the legal requirements in Australia, so you can confidently support your staff, manage workplace performance, and avoid the pitfalls of unfair treatment claims.

What Is Performance Management?

At its core, performance management is an ongoing process to help employees achieve their best at work. It’s more than just an annual performance review. Instead, it includes setting clear expectations, giving regular feedback, providing support for growth, and dealing with issues like underperformance in a fair and structured way.

When you ask “what is performance management,” think of it as a cycle:

• Setting goals and standards
• Monitoring performance
• Regular communication and feedback
• Providing support, coaching, or training
• Addressing issues early and constructively
• Recognising achievement and development

Performance management is about helping staff reach their full potential, not just correcting mistakes. It’s proactive, not just reactive.

Why Is Performance Management Important?

Strong performance management helps create a positive, engaged culture where employees know what’s expected and feel motivated to contribute. When done well, it can:

• Increase productivity and job satisfaction
• Reduce absenteeism and turnover
• Support employee growth and progression
• Identify and address issues before they grow
• Build trust through fair treatment and open communication
• Protect your business from unfair dismissal claims and workplace disputes

Plus, with workplace laws such as the Fair Work Act 2009 in play, following a fair process isn’t just good practice – it’s essential.

How To Manage Staff Performance Effectively

Performance management doesn’t have to be complicated or adversarial. Here’s how to manage employees and their workplace performance, step by step.

1. Set Clear Expectations from Day One

The starting point for effective staff performance management is clarity. Every employee should know:

• What success looks like in their role
• What standards or targets they’re expected to meet
• How their goals link to the wider business objectives

Put these expectations in writing – this could be in your employment contracts, position descriptions or workplace policies.

2. Provide Regular Feedback – Not Just Once a Year

Ongoing feedback is key. Instead of saving it for an annual review, make it a habit to check in regularly. This could be through:

• Monthly or quarterly catch-ups
• Quick informal conversations after a project
• Constructive comments via email or performance management systems

Positive feedback should be specific and timely, as should constructive input about areas to improve.

3. Offer Support and Development Opportunities

When an employee struggles, the best approach is supportive, not punitive. Consider:

• Extra training, mentoring or coaching
• Adjusting workloads or clarifying tasks
• Setting up peer support or buddy systems

Remember, part of your duty as an employer is to equip your staff to do their jobs well.

4. Address Issues Early and Fairly

If you notice a drop in performance or conduct, don’t wait. Talk to the person early in a supportive way. Often, you’ll learn there’s a fixable reason (lack of resources, personal issues, misunderstanding of expectations).

Make sure you follow fair work underperformance procedures – more on that below.

5. Recognise and Reward Good Performance

Positive reinforcement goes a long way. Take time to:

• Acknowledge achievements in team meetings
• Provide opportunities for advancement or responsibility
• Incentivise outcomes with bonuses or benefits (where appropriate)

Simple recognition can have a big impact on morale and retention.

Managing Underperforming Employees: What Does the Law Require?

Managing performance is not just about developing high performers – it also means tackling underperformance or misconduct promptly and fairly.

Australian employment law, especially the Fair Work Act 2009, sets out the requirements for performance management and managing underperforming employees. Following the right process is crucial not only for fairness, but also to protect your business from legal claims, like unfair dismissal.

Here’s what you need to know.

What Is a Fair Performance Management Process?

The Fair Work Commission expects employers to follow a fair and objective process. This means:

• Clearly explaining performance concerns and giving the employee a chance to respond
• Allowing reasonable time to improve (with clear action steps and support)
• Documenting every step – including meetings, improvement plans, and feedback
• Providing warnings before taking further action (unless it’s very serious misconduct)
• Ensuring decisions are based on evidence, not assumptions or bias

This fair approach is sometimes called a “performance management plan” or “performance improvement plan” (PIP).

Performance Management Legislation in Australia

Key parts of the legal landscape you need to know include:

• Fair Work Act 2009: Sets out requirements for fair dismissal and the minimum entitlements (like warning procedures and the right to respond) – and applies to most Australian employers.
• National Employment Standards (NES): Cover basic rights for employees around notice, termination, and procedural fairness in performance management.
• Modern awards and enterprise agreements: May provide extra requirements for disciplinary processes, support, or review. It’s important to check the rules that apply to your industry.
• Workplace Discrimination Laws: You cannot performance manage or terminate someone based on protected attributes (like age, disability, race, gender, family responsibilities, or union activity).

For detailed information, check out our guide on Fair Work requirements for modern workplaces.

How To Performance Manage Someone: Step-By-Step Guide

When you need to manage underperformance, following a clear, structured process protects both your employee and your business. Here’s how to performance manage someone fairly and lawfully in Australia.

Step 1: Identify the Issue and Gather Facts

Don’t rely on hearsay or vague impressions. Collect evidence such as:

• Examples of work not meeting standards
• Attendance or punctuality records
• Previous feedback or incident reports

Be objective and specific – this avoids any claims of discrimination or unfairness.

Step 2: Organise a Performance Management Meeting

Schedule a performance management meeting with the employee. Give advance notice and let them bring a support person if they wish (as required by the Fair Work Act).

In the meeting:

• Explain your concerns, backed by facts and examples
• Ask for their perspective and really listen
• Work together to agree on areas that need improvement
• Document everything discussed for your records

Step 3: Develop a Performance Improvement Plan

Create a simple plan outlining:

• The specific improvements needed
• Support or resources to help (e.g. training, regular check-ins)
• Realistic timelines for improvement (reasonable, not rushed)
• How and when progress will be reviewed

Share this plan in writing and set a date for a follow-up performance meeting.

Step 4: Follow Up, Document, and Support

Meet regularly to discuss progress. Recognise improvements, adjust support as needed, and keep notes after each check-in.

If performance lifts – great! Keep supporting your team member. If there’s still no improvement despite clear support and warnings, you may consider further action (like formal warning or, ultimately, dismissal). Always follow Fair Work and contract rules along the way.

Step 5: Consider Final Action if Needed

If, after a genuine process and reasonable time, the employee hasn’t improved, termination may be the next step.

But before you dismiss, ensure:

• Every stage of the process has been documented
• The employee has had ample time and support
• You’ve given appropriate warnings
• The reason for dismissal is clear and lawful

If you’re considering ending employment due to underperformance, it’s a good idea to get advice from employment law experts.

Performance Management Meetings: Tips for Success

Performance meetings can feel intimidating for both managers and staff. But with preparation and the right approach, they’re an opportunity for growth – not just a “telling off.”

Here are some tips:

• Be prepared: Know the facts, and be ready to explain what needs discussing – avoid surprises.
• Be specific and objective: Focus on actions and results, not personality or assumptions.
• Stay calm and professional: Even if you’re frustrated, keep things respectful.
• Listen actively: The employee may have helpful insights or relevant circumstances you’re not aware of.
• Make it a conversation: Aim to problem-solve together, not just issue demands.
• Follow up in writing: After the meeting, confirm what was discussed and agreed in writing.

If you need a script or template for these meetings, our guide on conducting performance reviews may be useful.

What Are the Risks of Poor Performance Management?

Getting performance management wrong isn’t just bad for morale – it can have very real legal and financial consequences for your business.

Some of the key risks include:

• Unfair dismissal claims: If you terminate someone without following a proper process, they may be able to lodge a claim with the Fair Work Commission.
• General protections claims: Employees who feel they’ve been treated unfairly for discriminatory reasons can claim adverse action.
• Low morale and high turnover: Staff feel unsupported, and strong performers may leave – costing you time and money.
• Reduced productivity: Unaddressed issues can drag down team results and impact your bottom line.

That’s why following the right framework, keeping organised records, and treating everyone fairly is so important.

What Legal Documents and Policies Should I Have?

Having the right legal documents sets the foundation for clear, fair, and lawful performance management. Consider these essentials:

• Employment Contracts: Clearly outline duties, standards, and expectations from the start. See our guide to employment contract templates.
• Staff Code of Conduct/Workplace Policies: Spell out expected behaviour and the process for dealing with issues.
• Performance Management Policy: Explains how your business will handle performance concerns – including steps for improvement, documentation, and timelines.
• Disciplinary Procedure: Sets out a fair framework for issuing warnings and, if needed, ending employment.
• Records of Meetings/Warnings: Document every step of performance management for your legal protection.
• Termination Templates: Structured letters for warnings, improvement plans, and termination can help you meet Fair Work requirements. Check out our employee termination documents suite.

We can assist with tailored agreements and workplace policies suited to your business and industry.

FAQs About Performance Management in Australia

Is Performance Management Only for Handling Underperformance?

No – employee performance management is about supporting all staff to reach their best. It includes setting goals, providing feedback, growing talent, and addressing issues proactively.

Can I Dismiss an Employee Without Warnings?

Generally, no. Dismissal without warning is allowed only in cases of gross misconduct (for example, theft or serious safety breaches). For performance-related issues, you must provide clear warnings, opportunities to improve, and follow a fair process.

What If My Employee Is Still on Probation?

You should still be fair and communicate expectations. Probation doesn’t remove the need for good practice – and discrimination, adverse action, or breach of contract laws still apply.

Do I Need to Follow a Formal Process Every Time?

For best results (and legal protection), it’s wise to have a structured process for all performance management – not just for serious or ongoing issues.

Key Takeaways

• Performance management is an ongoing, structured process to maximise workplace performance and help your team succeed.
• It involves regular feedback, support, and clear expectations – not just annual reviews or reacting to problems.
• Managing underperforming employees requires a fair, documented process under Australia’s Fair Work Act and related legislation.
• Failing to follow best practice can expose your business to unfair dismissal claims and workplace grievances.
• Set yourself up for success with clear employment contracts, workplace policies, and proper documentation.
• Seeking tailored legal advice ensures your performance management process complies with current laws and protects your business.

If you’d like a consultation on setting up or improving your employee performance management, or need support with employment contracts and policies, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

---