This is part 5 of Employing people: a small business guide — a plain-English series on taking on staff. See the full guide.
You've hired well and settled someone in. Now the job is to help them do good work, day after day — and to step in when they're not. That's performance management, and it needn't be the stiff, form-filling exercise the phrase brings to mind.
At its heart, performance management is simply staying close to your people: being clear about what you expect, talking to them regularly, telling them when they're doing well and when they're not, and helping them get better. Do that steadily and most problems never grow into big ones. Neglect it and you end up with quiet frustration on both sides — you wondering why the work isn't up to scratch, them never quite sure what "good" looks like. This guide covers how to do it simply and fairly, from everyday conversations to what happens when someone genuinely isn't performing.
Start with clear expectations
You can't hold someone to a standard you've never set. So the foundation of all of this is making sure each person knows what's expected of them: what their main responsibilities are, what a good job looks like, and what they should be focusing on right now.
This doesn't need a complicated system. For most small businesses, a handful of clear, honest objectives — written down, in plain language, and revisited now and then — is plenty. The test is simple: could your employee tell you, in their own words, what they're meant to be achieving? If not, that's the first thing to fix.
Talk regularly — the one-to-one
The single most useful habit in managing people is the regular one-to-one: a short, private catch-up between you and each member of staff to talk about how things are going. Not a grilling, and not only when something's wrong — just a steady, dependable chat.
It's where you clear obstacles, answer questions, give a bit of feedback, and pick up on niggles while they're still small. For many small businesses, once a month works well, though a newer or busier role might need more. Half an hour of genuine attention every few weeks does far more good than a single formal review once a year — because problems get sorted early, and people feel looked after.
The appraisal — the bigger picture
Alongside the regular chats, many businesses hold a fuller appraisal once or twice a year — a chance to step back and look at the whole picture. There's no law that says you must, but done well it's genuinely useful.
A good appraisal is a two-way conversation, not a verdict delivered across a desk. Look back honestly at how the year's gone, recognise what's gone well (people remember being appreciated), talk openly about what hasn't, and agree what to aim for next. Give the person space to talk about how they think it's going, what they'd like to develop, and anything getting in their way. Keep a brief written note of what you agreed — it's useful for both of you, and it means next time you've got somewhere to start from.
Delivering effective feedback
Feedback is the engine of all this, and most of us find it awkward. A few simple habits make it far easier:
Be specific. "That report was really clear and the client noticed" beats "good job", and "the last three jobs have run over time" beats "you need to be more organised". Be timely — say it while it's fresh, not saved up for months. And balance it: people can only hear the difficult stuff if they also hear when they've done well, so make praise a normal part of how you talk, not a once-a-year event.
Above all, be honest. Ducking a difficult conversation feels kind in the moment, but it isn't — it leaves someone carrying on without the chance to put things right.
Developing your people
Performance management isn't only about fixing problems; it's about helping good people get better. That might mean training, a new responsibility, time with someone more experienced, or simply asking what they'd like to learn next.
For a small business this matters more than you'd think. Good people stay where they feel they're growing, and leave where they feel stuck — and losing someone good, then hiring and training a replacement, is far more expensive than helping them develop in the first place. A little investment in your people is often the cheapest thing you can do.
When someone isn't performing
Sometimes, despite all this, someone genuinely isn't doing the job well enough. Handling that fairly is one of the most important things you'll do as an employer — for them, for you, and for the rest of the team who notice when poor work goes unaddressed.
Start informally. Have an honest, private conversation to understand what's behind it — because the cause matters. Someone struggling because they've never been properly trained needs something very different from someone who's stopped trying, and something different again from someone dealing with a genuine difficulty in their life. Be clear about where the work is falling short, agree what needs to change, offer whatever support or training is reasonable, and give it a fair chance to improve.
If things still don't improve, you may need to move to a more formal process — sometimes called a capability procedure — where the concerns, the standard required and the timescale are all set out properly, in writing. The golden rule at this stage is fairness: follow a clear, reasonable process, keep records of what was said and agreed, and give the person a genuine opportunity to improve before any decision about their job is made. This is where performance management shades into formal territory, and we cover how to run a fair process — and, if it comes to it, a fair dismissal — in the next guide on [grievance and discipline](/blog/grievance-and-disciplinary-procedures).
The one thing not to do is ignore it. Poor performance left alone rarely fixes itself, and it quietly tells everyone else that the standard doesn't really matter.
What's changing — and why it matters now
The habits above have always been good practice. One legal change makes them more important than ever: from 1 January 2027, employees will be able to claim unfair dismissal after six months' service rather than the current two years.
In plain terms, if you ever need to part ways with someone over their performance, you'll need to have handled it fairly far earlier in their employment than used to be the case. That's not a reason to panic — it's a reason to get the everyday basics right: set clear expectations, address problems early and honestly, and keep a simple record of the conversations you've had. Do that, and a fair process looks after itself.
Your performance management checklist
Set clear expectations — make sure everyone knows what they're responsible for and what good looks like.
Hold regular one-to-ones — short, steady catch-ups, not just when something's wrong.
Give honest, specific, timely feedback — including praise, not only criticism.
Review the bigger picture once or twice a year, as a two-way conversation.
Invest in developing people — it's cheaper than replacing them.
Tackle underperformance early and fairly — understand the cause, agree improvements, offer support, and keep records.
Move to a formal process only if informal steps don't work — and follow it fairly.
The bottom line
Performance management sounds formal, but the reality is refreshingly human: be clear about what you want, talk to your people often, be honest when it matters, and help them grow. Get those everyday habits right and you'll rarely need the formal machinery at all — and if you ever do, you'll be doing it from a fair, well-documented starting point.
Of course, sometimes things go wrong that go beyond performance — a serious falling-out, misconduct, or a complaint that needs handling properly. That's where we head next: grievance and discipline — how to deal with problems fairly, follow a proper process, and protect both your people and your business.
A good start pays for itself — and we can help you build one
Performance management sounds like hard work, but at heart it's just staying close to your people: being clear about what good looks like, talking regularly, and dealing with problems while they're small. Do that and you'll get the best from your team — and rarely need the formal stuff at all.
At HiThrive, we're business consultants first and foremost — we help owners build better, more resilient businesses. That includes setting up simple ways to manage and develop your people, thinking a tricky situation through with you, and pointing you towards specialist HR or legal advice when formal action or a dismissal is on the cards.
If you'd like a hand getting performance management working in your business, we'd love to help. Get in touch and let's talk it through.
Summary: managing employee performance
How do I manage employee performance in a small business?
Keep it ongoing rather than saving it for a yearly review: set clear expectations, hold regular one-to-ones, give honest and timely feedback, and invest in developing your people. When someone's underperforming, deal with it early and fairly — start informally, offer support, and only move to a formal process if things don't improve.
What is a one-to-one and how often should I hold them?
A one-to-one is a short, regular catch-up between you and a member of staff to talk about how things are going, clear obstacles and give feedback. Once a month works well for many small businesses, though newer or busier roles may benefit from more often.
How do I handle an underperforming employee fairly?
Start with an honest, informal conversation to understand what's behind it, agree clear improvements, and offer support or training. If it doesn't improve, follow a fair, staged process, keep records, and take advice before any formal action or dismissal.
Do I have to give staff an annual appraisal?
There's no legal requirement to, but a regular review is good practice — it's a chance to step back, recognise good work and agree goals. The ongoing conversations matter more than the once-a-year form.
Why does fair performance management matter more now?
From 1 January 2027 employees can claim unfair dismissal after six months rather than two years, so handling performance fairly and keeping good records matters earlier in someone's employment than it used to.
