Businesses have put employees' performance at the top of their agenda in a challenging economy.

Employment specialists at law firm Shoosmiths say performance management is becoming increasingly important for companies but partner and national head of employment Kevin McCavish has claimed many employers avoid tackling capability issues head on.

He said: "There are various reasons for this, including a reluctance to have difficult conversations with under-performing individuals; a misguided belief that it is ‘kinder’ to encourage someone to retire or to make them redundant than to dismiss them on performance grounds; and an unwillingness to spend time and resources on an effective performance management process.

"In the current financial climate, though, not only is under-performance more visible, but businesses simply can’t afford to let it to go unchecked.

McCavish also said when the default retirement age of 65 is abolished in October 2011, it will no longer be an easy option to allow someone to ‘glide’ to retirement. He added: "Employers may be forced to consider performance-managing older employees out of the business.

"That means they’ll have to have a clear process for dealing with underperforming employees, which reduces the legal risk as far as possible, and which managers feel confident in implementing."