Contractor’s Corner: Hiring new employees and when to cut your losses - March 2020

By Dave Safford

Popular rules for successful investing include those from Warren Buffet. Rule number one: never lose money. Rule number two: remember rule number one. To this, many add a “stop-loss” philosophy; that is, establish a pre-determined point at which you exit a losing investment position. I suggest you apply the same principal in hiring employees, in which you are often investing a great deal of both time and capital, whether you think of it in those terms or not. Please note that these comments are from my experience or mistakes, and nothing I say should be taken as offering legal advice.

TAKE YOUR TIME IN HIRING
A marriage made in heaven is what you always hope for in hiring, rather than one that descends into hell. I have run various types of ads to fill a position and used word of mouth as well as invested in bonuses or finder’s fees and fee-paid employment agencies. As my firm evolved from a smaller to a larger company, we set up a variety of screening devices to replace “you look pretty good, come on down” with written applications, integrity profiling, position testing, background criminal and credit checks, multiple personal interviews, written job offers and acceptance letters-all designed to avoid expensive mistakes and legal challenges and to uncover unsuitable candidates.

Possibly the worst mistake is to skip steps in your hiring protocol under pressure to fill that sales position. Invariably, there are skeletons waiting to be uncovered.

ESTABLISH A WRITTEN PROTOCAL
Have a written, internal protocol for each type or class of position. This should include compensation range, fringe benefits, evaluation method, probationary period and a “stop-loss” point when goals or targets are not being met. When you do find that perfect candidate and they have aced your hiring protocol, you’ll still be right only about 50% of the time. Protect yourself by following the same steps (however boring they might be) with everyone interviewed to avoid hiring bias.

There is great potential for misunderstanding when you rely on a verbal offer. In a written offer, you should also be laying the groundwork for severing relations with the new employee. The offer should include the date of employment is to begin, outline the extent of any probationary period, how often reviews will be done, compensation/fringe benefits, and any specific goals or targets that must be met. This will also force you to think about how filling this position will fit into your overall budget and personnel mix.

GATHER FEEDBACK
A team approach with feedback should be used in the new employee evaluation and begin with the initial orientation. It is always helpful to ask a star employee to mentor a new hire, and it’s also good training for them. This method will properly introduce the incoming employee to company culture and provide someone to answer questions that will arise. It also spreads the evaluation feedback among several layers of personnel. “Hey, Dave, I thought you said this guy had experience in estimating. When I handed him a floor plan, he didn’t seem to know where to start.”

I asked Jack, who was partnering with our newest employee, Steve, for insights into his progress: “You know, I have been really impressed with how quickly he’s picked up the order entry and installation estimating protocols. His accuracy has been great. I haven’t heard screams from our installation supervisor, either. I’m impressed so far, and he asks good questions. He also has a good personality and seems to ‘play well with others.’”

Get as much feedback as possible from all areas of the company. Jot notes to yourself that summarize important points, the date, and the employee who offered feedback. Drop this into a folder and use these notes for background at review time.

Obvious problems like alcohol and drug abuse or verbal and sexual harassment should be dealt with immediately in a direct manner and more formally.

Good feedback or praise may be handled informally, “Steve, I’ve been getting excellent reports on your work, keep it up.” Perhaps an informal weekly meeting for ten minutes to give and receive feedback is appropriate, though this should not replace a more formal review.

Perhaps you’ve decided a 30-day probationary period is right for Steve’s position. Stay on schedule; do the formal review within a day or two of its due date. This is a time to re-evaluate and consider your “stop-loss” point. Is Steve performing as expected, above or below your expectations? Use this time to find something good to say or a warning of spotty performance and some remedial training.

In one unfortunate case: “Jerry, you’ve performed below expectations, and I believe you would agree that in spite of our high hopes, you’re just not cut out for commercial estimation. Your error rate, slow pace and frequent ‘breaks’ are just not compatible with what we need in this position. You have also stated some frustration with the workload.” Jerry agreed he was stressed out and unhappy, and his resignation was effective immediately. Much better to allow a resignation than to make a termination.

SCHEDULE FORMAL REVIEWS
The basis for cutting your losses begins with a systematic review process.

For administrative positions, do regular reviews and integrate a scoring checklist based on the most important aspects of the position with a numerical ranking. During a review, discuss each aspect of the position and the score you’ve given. This written review will allow you to keep track of how one is performing and where improvement needs to be made. Absent some flagrant abuse of company policy, it may be hard to defend a termination that is seen to be subjective. You should be able to tell if there’s a good fit within the probationary period.

For sales positions, a similar checklist plus a tangible sales and profit target should be set after the probationary period. Of necessity, your basis for any termination will be more subjective, unless for cause, during the initial employment period. After the first 30-day period, a quarterly target of written, delivered and collected sales performance becomes critical.

I’ve been guilty of “a wishing and a hoping” that someone would succeed and been unwilling to admit my mistakes, and so will you. That’s the main reason for establishing a “stop-loss” threshold-to protect you from yourself. As much as you might like the new hire, figures don’t lie.

Do you know how much it will cost for that new star you’ve hired? Added to salary, draw write-off, expenses, fringe benefits, insurance and estimated training costs, a commercial sales position will be a $100,000-plus annual investment. Contrast that with actual costs incurred for personnel in similar positions. By all means, look at your previous mistakes. That will be instructive. I used to figure I’d be lucky to break even during the first year of a successful employment.

WARNING SIGNS
Warning signs and potential legal challenges can arise at any time but may occur just before, during or after an adverse review.

When Arthur was confronted with his lapses in performance, he became irate and said I had not given him enough time to “settle into the position.” I explained that the quality of his work was part of the issue, but his workplace conduct and short fuse with others was the deciding factor. Arthur then alluded to possible bias against him. When asked for specifics, he could not provide them. At that point, I gave him the choice of resigning or being terminated and scheduled an exit interview for the next day. At the beginning of the exit interview, Arthur stated he would resign so long as we paid accrued salary and earned commissions for the entire month. Although I had to grit my teeth, I saw this accommodation as the best for everyone. Arthur wrote up his short resignation letter and so ended that saga.

A long-term employee, Walter, had been warned about using a company computer and the Internet for personal business. This time, his computer screen was left on, and images from a pornography website were clearly visible to anyone who walked by his workstation. He had also printed the image onto a company printer located in an admin office. I was handed several pages of erotic images by a red-faced receptionist, “Please do something, this is not the first time it’s happened with Walter.”

A previous warning had not worked, and there was the potential threat of a workplace harassment filing if not immediately handled.

Within 30 minutes, Walter’s computer was shut down; he was brought into my office and confronted with the written evidence and the complaint. “I have an addiction to porn sites, but I did not mean to print out the information.” In spite of his contrition, Walter was suspended for 30 days and required to seek counseling or face termination for cause. He was then escorted out of the building. When he showed up for work after the suspension, he could not provide any written proof of counseling, stating, “I was just too embarrassed and felt I could do this on my own.” His suspension converted into a termination for cause.

PULLING THE PLUG
Making the decision to sever employment can be gut-wrenching, so here are some tips from my mistakes.

Have you made your decision? More than once, I have let myself be talked out of a decision but always regretted it. If you seem vulnerable or uncertain, it will show. You will be seen as indecisive. Stick with the decision that brought you to this point.

It will be helpful to have a witness at the meeting, especially if there is any history of an employee’s volatility or litigious nature. In spite of having a supervisor present, William said, “You can’t just fire me. I’ll see you in the parking lot after work and beat your a**.” I was nervous but restated why we needed to end our association, and I handed him his paycheck without further incident. I had the supervisor write up his account of the meeting and what was said and included my notes for the employee’s file.

Make the termination effective immediately unless the parting is amicable. And even then, it does not need to be drawn out. I had a meeting on Monday with Terry but delayed until a Friday effective date to allow time for pulling files and a clean exit. What a mistake! Everyone had four days to see Terry’s long face and mournful looks as he assembled his files. Much better to make the physical termination an immediate one and compensation cut-off effective a few days later. Have a trusted associate or an assistant collect files and develop information on ongoing projects after the meeting and then escort him out of the building.

When the physical exit and compensation effective date are different-or when an employee is resigning to join a

competitor-schedule an exit interview to hand over final compensation. Use a prepared exit interview form of five or more questions to be asked of the departing employee. Some will agree to participate; others will not. When there is some acrimony or bad feelings, you’ll always find out things you’d never expect. “You guys did a terrible job in training, and I had trouble getting accurate answers to questions of what to do. I felt ignored.” Shame on us.

Whenever possible, leave them smiling and happy to be on their way. “Jenny, you have a great future, but it’s just not here. You’re talented and well-liked. However, as we’ve seen, there is not a good match between what we need and your goals. We wish you well.” Avoid making the termination a personal assault; it should be a win-win for both of you.

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