It’s never an easy decision to let go of an executive, particularly when you don't have a replacement lined up. Experiencing some stress when you need to fire someone is natural. Even the great Warren Buffet has trouble doing it. He said, “It’s pure agony, and I usually postpone it and suck my thumb and do all kinds of other things before I finally carry it out.”
Much of the hesitation arises from abject fear. You dread the effect firing will have on the organization, including long-term relationships with customers. You might also panic at the prospect of being sued by the executive you're letting go of.
However, exceptional leaders must set those fears aside and do what’s good for the company.
In this article, we’ll cover these three main points:
- How to fire an executive in three easy steps
- What you should look for in an executive replacement
- How to find the right executive for your startup
Is it legal to fire an executive?
Firing an employee can be a complicated task, requiring careful documentation to avoid a lawsuit. If cause to fire an executive exists, employment contracts usually state that the employee won't receive any severance benefits.
This includes post-termination salary, health insurance continuation, and sometimes, accelerated vesting of stock. Often, it stipulates that an executive's equity is subject to repurchase by the organization at a minimal cost.
Most executives fired for cause end up receiving some severance benefits. It's usually a reduced severance package—benefits negotiated in a separation agreement. This saves the organization the possibility of expensive litigation.
Why would you need to fire an executive?
Deciding whether or not to fire an executive is difficult. It’s particularly hard if the employee isn’t blatantly underperforming but is still falling short of professional expectations.
Delaying a decision could have devastating repercussions on employee morale. It could even affect your bottom line. Your goal as a founder is to build an exceptional team that does excellent work. To do that, you need engaged and productive team members.
That's hard to do if one of your top executives isn't up to snuff. To help make your choice easier, ask yourself these questions:
- Imagine your perfect team. Is this individual on it?
- If there's an opening for the job the employee currently holds, would you hire this person?
- If the executive said they’re leaving, how much would you fight to get them to stay?
Think about the root cause
Think about the root cause of the executive’s poor performance. Does the person fully understand their responsibilities? Have they received enough training? By not giving enough supervision or not setting clear expectations, you might have colluded with the team member to create the issue.
Maybe the employee was doing well, but the company no longer needs the executive's skillset because of changing needs. You might have even hired the wrong person. That makes firing them particularly hard because it makes you question your judgment.
Understanding the reason behind your executive’s professional failures is crucial to figuring out how you’re going to approach the problem.
Make the process objective
Because firing someone is such a critical decision, it helps to have an objective way to measure the impact that a problematic executive has on your organization. This would also include an evaluation of the disruption caused by the abrupt departure of the employee.
Writing down the factors in your decision will help you evaluate the costs and benefits of the person's performance, their impact on team members, and the effect on the bottom line.
List such things as how likely it is the executive will rectify their performance deficits, the drain on your resources, and the replacement cost. If the cost of keeping an executive is greater than the cost of letting them go, it's termination time.
Ask for advice
Solicit advice from trusted coworkers before you finalize your decision. Ask them if they noticed if performance has been down in recent months and what they think might be the cause.
See if they bring up the individual in question. If they do, ask for specific examples of where the team member has failed to do their job.
Talk to the executive
Before making a decision, talk to the executive. Be honest and respectful, so they can maintain their dignity. If the employee takes ownership of the issue and expresses the desire to solve it, they might be redeemable.
Ask them, “You’re not hitting the goals we set. What do you suppose could be the cause of that?” Ideally, you and the executive should be on the same page about what the source of the problem is.
Note how defensive the individual is and whether they blame other people for their failings.
Get HR involved
Get HR involved early on in the process so you can get their input on how to handle the situation. Ask what documentation you’ll need should you decide to fire the executive.
HR might require you to do a performance improvement plan, so you have evidence that you worked with the employee to get them to change.
Gather more data
If you feel the employee is motivated to rectify their performance deficits, gather more data before making a final decision. For example, you could create a development plan that gives the employee two or three areas to work on. Include how you’re going to measure progress.
Act quickly and decisively
Once you’ve made up your mind, it’s crucial to act as quickly as possible. If the team sees you procrastinating, it could show them you don’t have the intestinal fortitude to make a tough call. This could dampen morale and cause team performance to suffer.
How to fire an executive in 3 easy steps
1. Inform the board
Letting the board know you’re planning on firing an executive is going to be difficult. It might be more challenging if this was the tenth executive in a row you had to fire or if a board member referred the candidate.
Be prepared for the probability that you’re going to upset a board member or two. However, it’s better than leaving a poorly performing employee in the role.
Ask for their understanding and support for the difficult action you're about to undertake. Talk about the root cause and how you plan to ensure it never happens again. This will reassure board members of your ability to make future hires.
Rehearse what you want to say so you don't say the wrong thing. Use declarative language—a phrase like “I’ve decided” is much better than “I think.” Once the employee hears the bad news, they’ll be fixated on their financial situation that’s suddenly been made precarious.
That’s why the severance package needs to be ready for your employee’s review. Executive packages are bigger than regular severance packages, and rightly so.
That’s because it takes about 10 times longer for an executive to find a new job than a regular employee.
3. Communicate the news
Call the employee at the end of the day to meet with you. When they arrive, let them know they’re being terminated. Ask for any company property they might have and wish them the best of luck in all future endeavors.
Let them know your decision is final, but try to preserve their reputation and dignity. The failure was most likely a team effort, and it's best to frame it that way. After letting the executive know, update the company on the change.
Start with the executive’s direct reports, because they’ll be the ones most impacted.
When letting the direct reports know, have a plan for who they will report to and what efforts the company will undertake to find a replacement. Lastly, inform the rest of the company.
What should you look for in an executive replacement?
- VISION: Being able to inspire employees with a sense of mission is a critical skill every executive should have. That’s why a replacement executive should be excellent at selling the organization's vision. This will help them recruit and hire the best talent, keep their teams engaged about the company’s long-term objectives, and attract investors.
- PROBLEM-SOLVING ABILITY: Executives should have a burning desire to solve complex problems because individuals like this tend to be superlative problem solvers. Their drive to tackle challenging difficulties will lead to positive outcomes for the company.
- RISK-TAKING: An executive should have a risk-taking mindset. There is no innovation without risk, and employees who have this trait will take the company in a good direction.
- HUMILITY: Every leader should be humble. If an executive is full of self-importance, their interactions with customers and other employees will be tainted with negativity. An executive can best build respect and trust by leading with humility.
How to find the right executive for your startup
Firing an executive is one of the most challenging management decisions you'll ever make.
A lousy executive hire can create a highly toxic work environment, which can have a devastating effect on your company's bottom line. It’s best to act swiftly and decisively to get rid of the problematic individual.
When hiring a replacement executive, consider enlisting the services of Hunt Club. We harness the power of our extensive networks of subject matter experts to help you curate a pool of top-tier executive talent.