According to estimates by the US Department of Labor, the average cost to company as a result of bad hiring decision currently can be as much as 30% of an individual’s first-year potential earnings. In monetary terms, if an employee’s annual income is USD 50,000, and happens to be a bad hire, then the company can incur a loss of around USD 15,000.
The ‘pay to quit’ concept was introduced in 2014 by Jeff Bezos, the founder of Amazon, who is well-known for his unorthodox leadership styles. While Bezos claims the concept was devised at Zappos, which is an online retailer that Amazon bought in 2009, pay to quit was initially intended to support employees transiting or moving from one job to another or having to quit for whatever reason. The program was initially intended to encourage employees to consider their career paths, provide a financial cushion for employees who wanted to transition, ensure that those who remained were invested in the vision of the company, and foster choice and facilitate personal growth.
However, it has evolved into as a strategy among some companies to ‘tempt’ employees into revealing his/her loyalty or commitment to the company in lieu of monetary gratification, and filter out and retain resolute and enthusiastic workforce. The program at Amazon ran out of steam and was discontinued due to labor shortages on the back of sudden rise of e-Commerce and surge in demand for home deliveries during the COVID-19 pandemic and stringent lockdowns and supply chain disruptions.
The concept can be counterintuitive as a strategy to weed out or cull workers who may not be inclined to continue with a certain type of job or work post training while in tenure, and this can be ascertained as early on. This approach works well for companies seeking to ensure that each candidate being onboarded for the long term is dedicated and committed to the goals of the company, and will not be a liability. Offering a bonus or incentive to employees on completion of a training program to make a decision to either accept the monetary benefits and quit, or stay as a committed employee makes sense and serves a number of practical purposes.
Companies are using this concept or strategy to cultivate a specific company culture and filtering out employees who may not be a good fit is the first step to aligning with organizational goals. While to some it may seem absurd to offer employees just out of the training program a sizable amount of money to quit, the long-term financial implications justify the move. Companies understand the impracticality of having unhappy or disillusioned employees or those who lack inspiration and drive at the time of being onboarded, incurring costs to company, and then quitting within a year.
Bad hiring decisions can be costly for any company, and challenges moving out or removing workers who have been onboarded, but are not a good fit for the company can weigh heavy in short and long term. Also, the potential losses such situations can cause as well as possible legal issues, if pursued by disgruntled employees, can create additional complexities. According to estimates by the US Department of Labor, the average cost to company as a result of bad hiring decision currently can be as much as 30% of an individual’s first-year potential earnings. In monetary terms, if an employee’s annual income is USD 50,000, and happens to be a bad hire, then the company can incur a loss of around USD 15,000.
This potential scenario supports deploying the pay to quit strategy and creation of a company payment system designed to weed out new hires who are not proving to be a good fit early on, or indications show that the employee is not a high-performance caliber or a questionable prospect for long-term employment. A number of companies and organizations may be facing challenges with workers who are disengaged and not be inclined towards responsibilities and expected productivity, but are unable to fire or terminate such employees for various reasons.
Companies in such predicaments may be edged into a corner to resort to stealth methods or placement on a Performance Improvement Plan (PIP) for firing or other strategies or approaches to disengage permanently with such employees and some methods and actions can be considered questionable. Some such strategies include lower or reduced pay during tenure, micromanaging specific employees, giving contradictory instructions, ignoring direct behavior of office bullies and their invasion of employee’s space and comfort zone, play favorites, change the rules on short notice, monitor social media accounts of employee, and demand success in areas the candidate was not trained or hired for, among others.
While these approaches are not ethically advisable and a more straightforward approach to dealing with a situation works best, employees can get a cue and understand what is going on and resort to cleaning up their act. But for most there may be no way back into favor since decisions may already have been made by the company.
However, companies also face potential backfire if resorting to unorthodox methods to incite or encourage employees to quit, either through coercion or monetary temptation, and could just end up seeing some of the best workers opting to exit instead. Such a scenario could arise if methods to drive undesired employees out are considered to be unprofessional, unethical, indirect, or underhand and targeted. Also, job security concerns can arise among other employees and have ripple effect across a company if deemed uncalled for or overbearing for the concerned employee. While much may not be said by other employees, the damage may have already been done mentally and emotionally, and some would definitely be considering exploring greener pastures following any such experience.
Counterintuitive it may seem, and increasing number of businesses across the globe are steadily realizing which employees are worthy or dedicated and committed to company goals as well as their responsibilities and jobs through deployment of the pay to quit strategy. This approach serves to render the motivated employees apart from the others, and not only is it proving to be beneficial for companies, but it is also having positive outcomes on employees. One concern arises however as to whether the right people are being asked to quit, or if those who choose to stay will be able to live up to expectations and gain a morale boost in doing so.
One such scenario in which such the strategy can play a major role is when companies need to reduce workforce size, but managers are unable to make a confident decision regarding which employee can be let go and which should stay from among a team of stellar performers. Another scenario is when disgruntled employees are underperforming but have no reason to reveal their true feelings or intent on improving performance. In such instances, companies can opt to pay for their honest feedback and inputs and also disengaged on mutual terms.
On the flipside, surveys indicate that employees who choose to remain in employment despite offer of pay to quit are more motivated after such an encounter. A sizable percentage of those who opt to remain with an organization mention feeling the need to justify that decision to themselves, and majority of these employees usually do so by working harder towards long-term objectives. Some also feel that by turning down the option to accept pay to quit in effect indicates their investment in their future with the company. From the perspective of the company, this also indicates employee’s value for their job, commitment, and dedication, which translates to increased productivity and outcomes.
Overall, this strategy positions everyone in a wining situation, and works quite positively for managers in aiding to identify which employees are really motivated and which are not through their own preferences and actions. The strategy also enables disaffected employees to depart amicably with money in hand, and allows motivated employees to really demonstrate their commitment. Another purpose it serves is revealing new situations and outcomes to companies and employees, and serves to steer situations onto more positive pathways. For instance, if a new hire does not accept pay to quit option and is retained, the company can extend necessary training and help, following which the candidate develops renewed loyalty, commitment, and capabilities and reaches or exceeds performance expectations.
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