Anonymous,
Tom has given you the "quick answer" that many people would offer with limited information about what is truly going on in the project. I think that these situations are usually more complex than what you can address in a discussion forum - but I'll play devil's advocate and offer a different view.
It sounds like the problem employee is the one managing the team and you don't want to lose that person. Usually that's the situation when the team lead does a lot of the project work themselves. This person might have a lot of technical knowledge and feel indispensible - likely a great "do-er" and a lousy manager.
Reading into the situation even more, it sounds like you don't want to terminate them, but are rather concerned about keeping the person on board.
I'd say that you absolutely have to address the situation formally in the PA, but within the context of the project results and legal exposure. If the project lead created a legal risk through their behavior, you have to quantify that risk in the review and take appropriate action (for a first offense, that's often just a written warning). If the departure of the team member caused a delay in the project or some other damage to the organization, quantify that as well and include it in the PA. Balance the negative with whatever positives you are seeing that cause you not to want to lose the project lead.
Using this approach you accomplish three things:
1. You have documented the issues so that if they happen again, the person can be terminated. The project lead then sees the actions he/she took as unacceptable.
2. You have balanced the negative with the positive so the person knows there can be a positive way forward.
3. You have established your position as a supervisor that faces issues head on. People respect that and its really the only way to have a solid working relationship.
Also, take a look at this deliverable template - Project Manager's Skills Tune Up. It might give you a good structure to have the conversation within.
PMI Team Member
