"A system of revival" comes before "the art of letting go"… Standards required by the courts and solutions pointed out by global data

In every organization, there are employees who fall short of expectations. The problem is not the fact itself, but rather that most organizations deal with this issue by "not dealing with it." Managers postpone uncomfortable conversations, HR departments only record performance ratings, and management suddenly orders a "restructuring" one day. In the meantime, underperformance spreads from an individual problem to a team-wide problem. As of 2026, managing underperformers is no longer a choice between compassion and decisiveness. Procedural standards required by the courts are becoming increasingly sophisticated, and global data shows that a significant portion of underperformance stems from the management system rather than the individual employee.

Employees Lacking Engagement Are Eating Away at Global GDP

The most authoritative data showing the scale of the underperformance issue comes from Gallup’s annual State of the Global Workplace report. According to the 2025 report, only 21% of employees worldwide reported being engaged in their work. This marked the first meaningful decline since the pandemic, and Gallup estimated the resulting productivity loss at approximately $438 billion. In the 2026 report, this figure dropped further to 20%, continuing the downward trend.

What is more noteworthy is the group driving this decline: managers, not ordinary employees. In Gallup’s surveys, manager engagement fell from 30% in 2023 to 27% in 2024, and down to 22% in 2025. This means that the so-called "engagement premium" previously enjoyed by managers is disappearing. Gallup has analyzed that about 70% of the variance in team engagement originates from managerial factors. When managers waver, the team wavers, and when the team wavers, underperformers increase. South Korea’s situation is even more severe. Based on Gallup’s 2024 report, the work engagement rate of South Korean workers hovered around 13%, significantly below the global average.

The message this data sends to management is clear: a significant number of underperformers in organizations are not people lacking capability, but people whose engagement has been turned off, and the person holding that switch is none other than the manager. This is why the starting point for managing underperformers must be an audit of managerial competency, not individual evaluation.

Five Gateways Demanded by the Courts

When discussing the management of underperformers in South Korea, a mandatory baseline is the Supreme Court ruling of February 2021 (2018Da253680). In this ruling, the Supreme Court systematically outlined the requirements for dismissal based on underperformance to be recognized as justified. 

First, there must be a regulatory basis in the employment rules making underperformance a ground for dismissal.
Second, the evaluations forming the basis for judging underperformance must be conducted according to fair and objective criteria.
Third, work performance or ability must go beyond merely being relatively lower than other employees, and must fall short of the minimum standards generally expected for a significant period.
Fourth, despite being given opportunities for improvement such as training or reassignment, the employee must fail to improve, making future improvement difficult to recognize. Finally, considering all these circumstances, the employment relationship must have reached a point where it cannot reasonably be maintained under general social norms.

The core takeaway is that a "lower tier ranking in relative evaluation" is not enough. The courts demand a substantive shortfall falling below the minimum level required for job performance, rather than a relative lagging compared to other colleagues. This means that dismissal cannot be justified solely by forced-distribution evaluation results where someone inevitably falls into the bottom 10% every year. Subsequent rulings follow the same trajectory. 

In December 2023, the Supreme Court reversed and remanded a lower court ruling (2021Du33470), holding that dismissal could potentially be justified in cases where long-term, systematic performance management was implemented and multiple opportunities for improvement were provided. Conversely, around the same period, dismissals were ruled invalid in cases where fairness in evaluation or the provision of improvement opportunities was lacking. Ultimately, what the courts examine is not the outcome of dismissal, but the entire process the company undertook to reach that point.

PIP: A Performance Improvement Program That Became a Double-Edged Sword

Amid this judicial trend, many companies have introduced Performance Improvement Programs, commonly known as PIPs. This is a system where underperformers are provided with goals, training, and coaching for a set period, and their progress is measured. Indeed, the courts have recognized well-designed and properly operated PIPs as core evidence of providing improvement opportunities. Around 2023, successive rulings affirmed the legitimacy of underperformer programs operated by major corporations, leading to PIPs—once centered mainly around large enterprises—spreading to mid-sized and small businesses.

However, depending on how they are operated, PIPs can receive the exact opposite legal evaluation. If they degenerate into a pressure tactic to force resignation under the guise of improvement, they can be reported as workplace harassment or lead to liability for illegal acts. In one actual case, when a commercial bank forced an employee to participate in community service against their will as part of an underperformer management program, the court viewed this as an illegal act and recognized the company’s liability for damages. Humiliating work exclusions or the provision of formal, superficial training also fail to pass muster as having "granted opportunities for improvement." Legal experts note that when faithfully executing the full process of evaluation, providing improvement opportunities, and re-evaluating, it typically takes several years to dismiss an underperformer. Management must first accept that a PIP is not a rapid exit tool, but a process requiring considerable time and cost to prove fairness.

The Cause of Underperformance Is Often the 'System'

Before legal procedures, a fundamental question must be asked: Why did that employee become an underperformer? While McKinsey’s research indicates that companies excelling in performance management are 4.2 times more likely to outperform competitors, it simultaneously points out that performance management in many organizations is perceived by employees as bureaucratic and unfair. In McKinsey’s survey, 60% of respondents who perceived their performance management system as fair also answered that the system was effective. This implies that the perception of fairness dictates the effectiveness of the system.

Practically speaking, the causes of underperformance fall largely into three categories: capability issues, motivation issues, and environmental issues. If it is a lack of capability, training and coaching are the primary prescriptions; if it is low motivation, role redesign and recognition systems; and if it is environmental issues such as job mismatch or conflict with a manager, job reassignment comes first. Applying the same program to all underperformers without this diagnosis is no different from prescribing the same medicine without knowing the disease. As Gallup pointed out, if most team engagement stems from managers, the recurring phenomenon of underperformers in specific departments should be read as a signal to audit that department's leadership, not the employees.

Execution Principles for Management: Documentation, Communication, and Consistency

Synthesizing the above legal principles and data makes the execution principles for managing underperformers relatively clear. First, the codification of performance expectations. If expected performance standards by job role are not shared in advance, it is difficult to claim fairness in any evaluation. Second, early and honest communication. The moment signs of underperformance appear, feedback based on concrete facts must be provided and documented. Suddenly notifying an employee of a low rating at year-end leaves the employee feeling betrayed and the company legally vulnerable. Third, the substantiality of improvement opportunities. The courts examine whether education and support were provided to enable actual skill enhancement, not just the passage of time. Fourth, procedural consistency. If a company is lenient toward one employee for the same level of underperformance while being strict with another, that inconsistency itself destroys the objectivity of the evaluation.

Finally, what must be emphasized is the balance between separation and recovery. When improvement is not achieved despite going through all procedures, ending the employment relationship may be the right conclusion for both the organization and the individual. However, before reaching that stage, the organization must ask itself: Did we create the conditions for this employee to succeed? As Gallup's data shows, the key to engagement lies with the manager, and as court precedents show, the justification for dismissal stems from the process undertaken by the company. 

The essence of managing underperformers is not the art of weeding people out, but building a system where no one easily becomes an underperformer. Only organizations equipped with such a system can make decisions even at the inevitable moment of parting without legal risks or damage to organizational trust.