How the Best Companies Handle Their Underperforming Leaders

If you read this column in its entirety, I need you to make me a commitment.??

"I commit to participating in a wrestling match with my beliefs."?

Because what you are about to read is the definition of a wrestling match between two popular and compelling characters, but the other side doesn't believe it is very good.? It's Hulk Hogan versus Rick Flair.? It's the PGA Tour versus LIV Golf.??

In the same way, two opposing views can be compelling in different situations; organizations have a strategy around underperforming employees, specifically leaders.

The replacement strategy is in one corner, standing at 50% in popularity. In the other corner, the development strategy also stands at 50% in popularity.??

The Costs and Benefits of Replacing Leaders

If you sit in the corner of replacing underperforming leaders, it can lead to immediate improvements in productivity and performance.? New outside talent will bring fresh ideas, perspectives, energy, and approaches to turning the ship around.?

However, the cost associated with replacing employees, and specifically executive leaders, can be significant.??

Replacing an employee can cost up to 150% of their annual salary.?Using recruiters isn't cheap either. On average, executive search fees range from 20% to 35% of the first-year executive wage.? Beyond the direct cost of using a recruiter, there is also a massive indirect cost. The time team members will spend interviewing and discussing candidates adds up to thousands of dollars.

There are countless examples where organizations replace an underperforming employee, and the new leader changes everything. The energy, vision, and standards of performance are dramatically different. Look no further than the world of College Football. Deion Sanders at Colorado and Curt Cignetti at Indiana are phenomenal examples of how a replacement strategy can be dynamite.?

However, keep in mind:

One leader can change everything, but one leader can't do everything.?

If you typically opt for a replacement strategy, please stop expecting one leader to do it on their own. The only way transformation happens is to support their new vision and energy with resources and the right people.?

The Cost and Benefits of Developing Employees

More often than not, if you find yourself in the corner of developing employees, you are leveraging a more cost-effective strategy. Developing internal talent can be 6 times more cost-effective than hiring externally.?

Your investment typically includes leadership development programs , executive coaching , and an increased 1-1's.? While the cost of these events isn't insignificant, they promote a culture of continuous improvement so employees feel valued and supported.?The downside of development is growth takes time, and there is no guarantee of success.

The downside of development is growth takes time, and there is no guarantee of success.

If that wasn't enough, since it's impossible to judge how quickly someone can implement the skills necessary to deliver better results, the organization will undoubtedly face a period of underperformance.? Additionally, there will be opportunity costs if the time and energy spent on development could have been allocated to other areas.?

If your organization has a high sense of urgency and must deliver results immediately, the idea of development is likely a song you would prefer not to sing. However, companies should invest in ongoing employee development from the start. Not waiting until there is a performance issue.?Here is how I know, companies that invest in employee development report:

• 24% high profit margin
• 14% increase in productivity

Said differently, If you are waiting for performance issues before investing in development, it is too late. This is why the majority of PIPs end in termination or when the employee voluntarily leaves.

Which Strategy Wins to Improve Performance?

Ultimately, the decision to replace or develop an underperforming leader is personal to you or your company.? Factors such as strategic goals, financial pressures, employee potential, and space for development must be considered.

However, an all-or-nothing approach is never the right recipe.? Some world-class companies use the replacement strategy 70% of the time and others only 10%.? The key is to have a balanced approach, where leaders assess each situation individually and choose the strategy that aligns with both short-term needs and long-term organizational objectives.

If you ever get a place where you are 100% to 0%, the probability of sustained success is 0%.

Which strategy does your organization employ? What have you learned one way or the other?

How to Increase Accountability on a Team Sign up to join John for this free workshop on November 14th at 12 PM EST.

John's free leadership newsletter that comes out every Thursday: To get complex leadership skills broken down into simple principles, join 15,000 other leaders by subscribing to my free newsletter here .

Accelerate Leadership Program: Looking to turn your managers into highly effective leaders? Instead of having high expectations, now is the time to also provide a high level of support. Leverage the Accelerate Leadership Program for managers in your organization. Learn more here.

About the Author: John Eades is the CEO of LearnLoft . He was named one of LinkedIn’s Top Voices. John is also the author of Building the Best: 8 Proven Leadership Principles to Elevate Others to Success . You can follow him on Instagram @johngeades .