Poor executive performance hurts a company, causing waste or drift and preventing other employees from advancing. It can happen for many reasons, but, in particular, senior executive leadership requires a winning style, superior judgment and deep talent. Failure in any of these capacities can undermine an otherwise exceptional employee, and if you want to keep him you must demote him. He may do well in a lesser executive position, especially if he agrees that he has not performed well in his current job. This is the best-case scenario, though, and many demotions fare worse. A smooth process requires careful preparation.

Demotion versus Termination

The only time you should offer a demotion to an executive, instead of firing her or forcing her to resign or retire, is when the leadership team has good cause to want her to stay with the company. Demotions can create a logistical mess in the organization. They also are usually humiliating for the demoted employee, and can hurt her loyalty to the company and perhaps even her commitment to perform well. These outcomes aren’t inevitable, but they are common enough and serious enough that your company shouldn’t risk them unless the executive offers excellent value to the company in another capacity. Senior executives often do possess such talent, and can be put to much better use in another role even if it is not as senior.

Preparing for the Demotion

Once you commit to carrying out a demotion, make all necessary preparations prior to going through with it. Clearly identify the new position you would have the employee occupy. Draw up a preliminary timetable on the transition, though leave room for negotiation on the details. Confer with human resources to get full information on any changes that will occur to his compensation and benefits, which can be quite complicated for senior executives, and have this information ready. Speak with legal counsel to discuss the possibility of a lawsuit, as high-level employees often possess the knowledge and wherewithal to sue in these circumstances. Anticipate questions and objections from the executive.

Offering a Severance Alternative

Many people will choose to quit rather than accept a lesser position. They may do so out of indignation, opportunism or honest disagreement with the decision. Whatever their reasons, executives know they have strong skill sets to have made it so far, and can rely on those skills to get a new job elsewhere. Plan to show your executive that you have anticipated this by preparing a reasonable severance package as an alternative to her demotion. Severance packages are customary for executives in American businesses, and can ward off legal challenges in these situations.

The Demotion Interview

Plan a firm but warm interview. Bring the executive into your office, along with any other members of the leadership team who played a direct role in making the decision. Explain to the executive clearly and firmly that his performance in his present role is inadequate and that the leadership team wants him to consider taking another job in the company. This is where the warmth comes in. Explain why he would be a good fit for the lesser position. Emphasize the position’s importance. State that you’re offering him the new job because he still has lots to offer and you still want him at the company. Explain the severance alternative and make it clear that he can choose resignation or demotion, but that these are his only two options. Answer all his questions and give him a week or more to decide.