Parting with an underperforming senior manager calls for careful procedures, advises Andrew Rowland

Senior NHS managers’ performance is under increasing scrutiny. Organisations need guidance on how to pick up poor performance, manage senior managers, raise the issue of severance agreements and obtain approval for such agreements.

Although senior managers can be fairly dismissed without being given the same opportunity to improve as junior employees, there is an expectation that they will be made aware when their performance is unacceptable. However, performance concerns may be so serious that giving an opportunity to improve puts the organisation at risk. A formal performance management route can be difficult and expensive. Ultimately, there are risks of unfair dismissal and discrimination claims.

With senior managers, it is usually possible to explore alternatives to formal performance management. One route is secondment, but a potential problem is how to deal with senior managers when secondments come to an end: some organisations have had to make large redundancy payments when people return.

“An employee returning from maternity leave raised a grievance concerning the way she had been treated”

An alternative, often linked to secondment, is a severance agreement. The senior manager agrees to leave the organisation and give up the right to bring any legal claim against it, in return for a payment. Unless these terms are contained within a properly drafted compromise agreement, employment tribunal claims will not be settled effectively.

Bringing up severance 

What is the best way to broach the subject of a severance agreement with a senior manager? Many organisations get this approach wrong. Settlement discussions are often referred to as “without prejudice” so that they cannot be referred to in court proceedings if settlement is not reached. However, discussions are only “without prejudice” if there is an existing dispute. As many such discussions take place when senior managers are unaware of the gravity of the situation, there is no existing dispute. Accordingly, the conversations can be referred to at a later stage.

One example involved an employee returning from maternity leave who raised a grievance concerning the way she had been treated during, and before, her return to work. She was called into a meeting described by the employer as “without prejudice” and told that her job was no longer viable and that her contract should be terminated. She was offered a severance package and told the matter could be regarded as a redundancy. Despite the meeting being described as “without prejudice”, the court held that the discussions could be relied on as part of her claim as there was no dispute at the time of the meeting.

Compromise agreement terms contain technical legal wording to ensure all claims have been properly settled. However, thought needs to be given to the following:

  • settlements can often be structured so the first £30,000 is tax free;
  • organisations must ensure that settlements represent “value for money” to get approval;
  • the provision of agreed references can cause difficulties where there are concerns about a senior manager’s performance;
  • whether payment for career guidance should form part of any settlement agreement;
  • it may be necessary to deal with issues around pension contributions, outstanding leave, company cars, IT equipment and notice pay.

For executive directors, the circular HSC 2004/001 provides that confidentiality and clawback clauses must be included in compromise agreements. This does not apply to foundation trusts. Confidentiality clauses must not prevent the employee from whistleblowing, NHS bodies must disclose the terms of the agreement to any future health service employer and employees must consent to disclosure of the agreement to the Department of Health and National Audit Office.

A clause must oblige the executive director to inform the NHS body of any work obtained with another NHS employer during the notice period that would otherwise have been due. The clause must empower (but does not need to oblige) the current employer to recover monies reflecting the value of that new work.

NHS bodies must follow the proper processes in agreeing compromise agreements:

  • standing financial instructions must be followed in relation to severance packages and the remuneration committee should usually be involved;
  • “novel or contentious” payments require Treasury approval;
  • a business case must be presented to the strategic health authority for severance payments at executive director level;
  • NHS bodies need Treasury approval for severance payments in excess of contractual entitlements;
  • for foundation trusts, applications for Treasury approval should be sent via Monitor;
  • importantly, approval will not usually be given to settlements that appear to reward failure, dishonesty or inappropriate behaviour. l

A practical scenario

Chief executive: I want to discuss your role and how we might move forward.

Finance director: What do you mean?

CEO: Concerns have been raised about financial management of the organisation and I might have to take these forward formally. Obviously, I’m keen to avoid this if possible.

FD: I can’t believe concerns have been raised - I’ve been in NHS finance for 15 years and never had any complaints.

CEO: Nevertheless, concerns have been expressed and need to be addressed - unless we can find some other way to resolve the problem.

FD: What are the options?

CEO: Formal performance management is one route. However, if you wish to explore alternatives such as secondment or some kind of severance package, let me know and we can discuss them. I want a solution that works for you and the organisation.

FD: What sort of figures would we be talking about as part of a severance package?

CEO: I need to think about that and get back to you. If you’re interested in pursuing that route, perhaps we should catch up tomorrow.

Top tips for performance management

  • Have robust appraisal and performance monitoring systems
  • Give senior managers a chance to improve before dismissal in all but the most serious cases
  • If it is necessary to raise the subject of a severance agreement with senior managers, do this carefully and sensitively
  • Ensure that settlement terms represent value for money and do not reward inappropriate behaviour
  • Ensure that compromise agreements are carefully drafted and obtain appropriate approvals before signing