When an international tech company expanded to Indonesia, managers introduced a Western-style Performance Improvement Plan (PIP) to address underperforming employees. While common in global HR practices, the company quickly realized that applying PIPs in Indonesia required careful alignment with local labor law and cultural expectations.

Legal Framework

In Indonesia, employment relations are primarily regulated by:

• Law No. 13 of 2003 on Manpower, as amended by Law No. 11 of 2020 (Job Creation Law).
• Government Regulation No. 35 of 2021 on Fixed-Term Contracts, Outsourcing, Working Hours, and Termination.

Neither the law nor regulations explicitly mention “PIP,” but poor performance can be used as a ground for termination only if:

1. It is documented objectively,
2. The employee has been given clear targets and fair opportunity to improve, and
3. Proper industrial relations procedures (negotiation, bipartite settlement, or severance obligations) are followed.

Real Case Example

In 2020, a Jakarta-based finance company dismissed an employee citing “failure to meet performance standards.” However, the company had no documented PIP or appraisal records. The Industrial Relations Court ruled in favor of the employee, emphasizing that termination for poor performance requires written evidence of warnings, coaching, and improvement opportunities. The employer was ordered to pay severance.

Best Practices for Implementing PIPs in Indonesia

To align with both law and culture, foreign employers should:

• Define Clear Metrics: Link PIP goals to KPIs in job descriptions or contracts.
• Communicate Respectfully: Deliver feedback privately, using indirect but constructive language, respecting Indonesia’s collectivist and high-context culture.
• Set Reasonable Timelines: Common practice is 1–3 months, with documented reviews.
• Document Everything: Written records of meetings, coaching, and progress should be signed by both parties.
• Integrate Support: Provide training, mentoring, or role adjustments to help employees improve.
• Avoid Immediate Termination: Use PIPs as a genuine tool for improvement, not just a legal shield before dismissal.

Conclusion

PIPs in Indonesia must balance compliance with labor law and sensitivity to cultural values. Done correctly, they serve as a fair mechanism to improve performance while protecting employers from legal disputes. For foreign companies, adopting structured, respectful, and well-documented PIPs ensures both compliance and stronger employee relations.

References

1. Law No. 13 of 2003 on Manpower (as amended by Law No. 11 of 2020).
2. Government Regulation No. 35 of 2021 on Employment Agreements, Outsourcing, Working Hours, and Termination.
3. Ministry of Manpower – Guidelines on Employment Termination and Performance Management. https://kemnaker.go.id
4. ILO Jakarta – Indonesia: Employment Protection and Termination Practices. https://www.ilo.org/jakarta