Are You In or Are You Out? The Pay-to-Quit Fad

Imagine a manager calling his employee into the office and giving him an ultimatum, "If you quit right now, I'll give you $2,000." Sounds like a dream scenario, right? Well, Zappos made it a reality in 2008 (what it calls "The Offer") and some companies have followed suit since, including its parent company Amazon, which announced it, too, would pay employees to quit in its recent letter to shareholders.

What these pay-to-quit programs iterate is the idea that companies want to employ talent that believes in the company and its mission, not simply the money. As Jeff Bezos wrote in his letter to shareholders, "In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company."

While Zappos and Amazon hold the pay-to-quit policy yearlong, other companies are considering the model on an ad-hoc basis to deal with a change in leadership or purge excess employees. Heinz recently faced a major switch in leadership to a Brazilian-run management team with a results-driven focus, for example. To acknowledge the changed culture and work environment, the company offered a voluntary severance package to its Pittsburgh, PA-based employees, including at least six-months pay. But, according to CBS Pittsburgh, there was a twist: the offer had a deadline and had to be accepted by April 21. For Heinz, the pay-to-quit package provided an easy out for employees that felt the company was not headed in a direction they supported after the leadership shift.

Unionized teachers in New York City were offered a similar pay-to-quit package recently. The city still pays 1,200 jobless unionized teachers, who make up the absent teacher reserve, but in an effort to reduce the excessive pay going to those teachers, the city has proposed a contract with the United Federation of Teachers that allows the city to pay teachers to quit, according to Chalkbeat. There’s good reason to stop paying these teachers since 61 percent of them hadn’t applied for teaching positions during the last hiring season, according to the Department of Education. The exact details of the buyout, whether it’s just a severance package or includes pension credit, are yet to be determined.

Paying employees to quit may sound like a good model since one of the most forward-thinking companies in terms of employee engagement, Zappos, is doing it. But what looks good on paper and works for one company isn’t necessarily a universal solution for all companies to make sure their employees are engaged and happy.

There’s a real risk of losing high-performing employees, who likely have other offers already, with this model. Especially since the growth of passive recruiting, many top employees may consider leaving when offered a buy-out — even if it hadn’t been a consideration before, John Boudreau, professor and research director at USC’s Marshall School of Business and Center for Effective Organizations, writes on CFO. While paying employees to quit could save the money spent on documenting poor performance for some employees before firing them, the overall business benefit isn’t in cost or time. It’s in bringing a conversation about employee happiness to the table.

When managers offer employees a hefty sum of money to quit, it creates the space for conversation about what employees value about their current positions and how they fit with the company culture, Boudreau argues. Managers gain a new lens into why there is high (or low) turnover rate, and what would make employees perform better and feel happier in the office.

"Leaders should approach employee turnover more like inventory management, quality control and supply chain — that is, optimize their talent pipeline with a balance of things like probationary periods for new hires, severance packages, targeted layoffs, performance management and, yes, pay-to-quit," Boudreau says.

Photo: Can Stock