Monday, April 14, 2014

Pay employees to quit

While paying employees to quit may be old news, few and far businesses have practiced this rather adventurous idea. Since we have talked a lot about how to reduce unemployment, I think it may a nice change to talk about how to encourage people to leave a job that is not a good fit for them.

http://www.washingtonpost.com/blogs/on-leadership/wp/2014/04/14/why-more-companies-should-pay-employees-to-quit/
Gallup has shown that companies that have 9.3 "engaged" employees (those who are emotionally connected with their jobs and willing to go above and beyond) for every one "disengaged" employee saw 147 percent higher earnings per share on average in 2011-2012 when compared with their competitors. Meanwhile, employers with just 2.6 happy workers for every unhappy one saw earnings per share that was 2 percent lower than their competitors. Gallup estimates that "active disengagement" costs the United States $450 billion to $550 billion each year.
 
But that's not the only reason the idea is something more companies should adopt. For one, it has the potential to improve hiring upfront. If managers have to budget for a $5,000 quitting bonus for employees who don't stick around for the long haul, they might be more careful about truly hiring for fit rather than simply for a warm body. That's particularly the case for high-growth companies such as Zappos or Amazon that are experiencing very rapid expansion.

At the same time, it could also save companies both risk and cost later on. Employers could potentially pay more than $2,000 or $5,000 in severance if they decided to lay off those disengaged workers in the future, rather than motivating them to leave of their own accord. They also risk fewer termination-related lawsuits if more of their workers choose to leave on their own.

Do you think this is a wise approach, at least for fast growing companies? What is the flip-side of it?

8 comments:

  1. It seems like it could create an incentive to take a job with the intent of being disengaged and thus paid to leave right away. However, as the article points out, companies have had success with this model. I think it can be a great idea, but it all comes down to the execution, particularly with the process for hiring new employees.

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  2. I think this is an interesting idea that should be explored more by corporations, especially if it is costing the U.S. half a trillion dollars per year. As a sports 'junkie' this is a concept that professional sports team use on an annual basis. In the contract there can be 'buyout clauses." If the management of a team is unhappy with either the engagement or performance of a player, they can 'buy them out" to sign a different player that fits their organization and team better. This could also have drastic negative effects in the business world to an employees mental state.

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  3. I also agree with Joe and Mark. It is a good idea and it may increase incentive to take on employees who fit the job. I think that this method could work for some not all employees depending upon their psyche.

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  4. I remember Zappos being a case study in this practice, and just recently Amazon announced that it would do the same (http://blogs.hbr.org/2014/04/why-amazon-is-copying-zappos-and-paying-employees-to-quit/). I think this can be an effective way to remove the stigma from quitting and to ensure that employees happy about their job stay. I do not know of any companies other than these two that have this practice, but I wonder if it will become more popular in the future.

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  5. this idea can make the job market much more competitive than it already is, i.e. employers become aggressive during the hiring process in search of the "perfect" fit for the open positions. on the flip side, i wonder if big companies would misuse power to quickly hire and fire, and use this to justify unfair termination.

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  6. I don't know about this but it doesn't really sound like a good idea/approach to me. I think the companies could just motivate their workers in certain ways that improve their productivity, they could try things like bonuses, insurance, longer vacation day etc. whether people quit on their own or not it will still lead to an increase in unemployment rates and that would be bad for the economy at this time.

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  7. I think it sounds as a good idea as long as you use it for the right purpose. I know Zappos actually uses this to ensure that all the employees that make it through training are actually the right fit for this customer service oriented company. At the end, if you take the money to stop working there, you probably were not going to be a good investment for the company because there is no enough commitment/passion/interest that the company is looking for.

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  8. I agree with Joe, it all comes down to execution. Furthermore, I don't think it would be a success story for every field just because it worked in Zappos and Amazon. The operation model is not the same for every company. It might be a great idea for some companies out there and be a nightmare for other.

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