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."
Pay-to-Quit as a Short-term Solution
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.
A Stupid Move or Forward-thinking?
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
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A New Poseidon Adventure: Flipping Succession Planning Upside Down
Organizations make significant investments in efforts to hire the right candidates – the people who have the right experience and cultural fit. By carefully managing the performance and potential of these people over time, the organization can grow its leadership pipeline, keep a steady inventory of needed skills and competencies and remain nimble in the face of change (which we have plenty of all around us these day) – all of which can have serious impact on the bottom line. However, much of this pie-in-the-sky stuff relies on being able to locate and cultivate high-potential and high-performing talent across the board. Without an integrated succession management solution, recognizing and developing talent can be an ever-elusive process. The questions we are seeing asked today include: does the traditional top-down approach to succession management still make enough of a difference? Does managing succession for a slim strata of senior executives take full advantage of the kinds of talent data we now have at our fingertips? It doesn’t have to be so. Succession management can be an interactive process between senior leadership, managers and employees at all levels of the organization. And, if we trust them, we can actually let employees become active participants in their own career development. (Shudder.) Career Management (Succession Planning Flipped Upside Down) This "bottom-up" approach is gaining momentum because who better to tell us about employee career path preferences than employees themselves. Organizations actually have talent management and other HR systems in place that allow for collecting and analyzing a whole slew of data around: Career history Career preferences Mobility preferences Professional and special skills Education achieved Competency ratings Performance scores Goal achievement Training and certifications Etc. In short, pretty much everything we’d want to know to make well-informed succession planning and talent pooling decisions. For some, the leap is simply putting some power into the employee’s hands. The talent management system of 2011 is capable of displaying a clear internal career path for employees and then, on the basis of all that data bulleted out above, showing a "Readiness Gap" – what do you need to do to make the step to the next level? And if your talent management environment comes armed with a real Learning Management System, you can take it to the next level with a dynamically generated development plan that gets the employee on the right path to actually closing those gaps. Faster development, faster mobility. Organizations that seriously favor internal mobility don’t just make employees stick on pre-defined career paths – they can search for ANY job in the company and check their Readiness levels. I might be in accounting today, but what I really want to do is move to marketing. Giving employees the chance to explore various career avenues within the organization helps assure that "water finds its level" – that is, that the right people with the right skills and the right levels of motivation and engagement find the right job roles internally. Employee participation is key, but make no mistake – managers play an important role in this interactive process. They must be prepared to provide career coaching, identify development opportunities and recommend employees for job openings. The candid discussions require that employees have open access to information so they can best understand the criteria necessary to move to the next level. A Two-Way Street Employee-driven career management is just one tool. The more traditional top-down approach to succession management remains indispensable. But organizations that value talent mobility and the ability to be able to shift and mobilize talent resources quickly will find that attention to career pathing can be vital. For employees, of course, the impacts are immediate and include boosted levels of engagement, higher retention, increased productivity and more.
The Hidden Costs of Ignoring Your Talent Management Strategy
Building and maintaining a successful company hinges on having the right people to execute projects and drive results. People, we hear time and again, are your company's most valuable asset. But their success — and HR's ability to recruit, engage and retain them — depends on HR pros who are strategic decision-makers, armed with the proper tools to let them excel at their jobs. Modern HR professionals manage much more than payroll and benefits. But their technology tools, in many cases, haven't evolved past basic productivity software like email or Microsoft Word. HR simply can't be strategic with old-school tools that reduce people to statistics and give little insight into what the numbers mean. Emails and spreadsheets were not designed to deliver meaningful insights into people's performance, suggest when employees should be promoted or highlight skills gaps in a company. For that, HR needs a broader, more strategic set of talent management tools, which lets professionals manage every aspect of the workforce, from training and performance reviews to collaboration and succession planning. Yet, research shows that less than 25% of companies use a unified, holistic approach to their talent management. The Real Costs of "Doing Nothing" As a Talent Management Strategy The critical relationship between business strategy and HR strategy too often gets overlooked by senior leadership. While it may seem like the company is saving money by managing recruiting, training, performance and succession via manual and paper-based processes, in reality it’s costing your business more than you know. For example: Without a talent management strategy, a company with 2,000 employees is losing almost $2 million every year in preventable turnover alone. Businesses that don’t invest in learning suffer from decreased employee performance and engagement to such a degree that they can expect to realize less than half the median revenue per employee. That’s a direct impact on the business. In employee performance management, organizations without a focused strategy waste up to 34 days each year managing underperformers and realize lower net income. To learn more about the business impact of talent management and how to start building out your strategy, check out the eBook Why Your Nonexistent Talent Management Strategy is Costing You Money (And How to Fix It) and register for the March 19th webinar, Building the Business Case for Talent Management.
The Return of the Moderate Merit Budget – Wreaking Havoc on Pay for Performance
With the economy now on steadier ground, most organizations have returned to administering a merit budget to the pre-recession levels of 3 to 3.5%. In the years immediately following the economic downturn, many merit budgets were eliminated entirely or were reduced significantly and reserved for a select segment of the employee population. Pay for performance has become a necessity for many organizations that are expected to accomplish more with fewer resources. I often get asked: "How can I truly award my top performers with such a limited budget? Should I do so at the expense of my ’Meets Expectations’ performers? What if I need to retain my ’Meets Expectations’ performers and giving them 0% to 2% increase puts me at great risk for turnover? But if I don’t recognize my top performers, don’t I risk losing them...?" These are difficult questions to answer, however you can determine the best solution for your organization by considering the following: Are your employees paid at market pay levels? Is your organization’s performance management process mature? Does your organization have other compensation programs in place to reward top performers (e.g. variable pay)? Market Pay If turnover is a concern, and your organization needs to maintain ’bench strength’ in order to achieve its strategic objectives, your biggest priority should be to ensure that you are paying your employees at market pay levels. Why? Historically, as the labor market strengthens, organizations become vulnerable in terms of losing people. Hiring and onboarding replacement talent is not only costly to the organization, but can also cause dissension among existing employees since new hires may be getting paid more. Be sure to stay abreast of market pay levels and trends, and use the merit budget to correct disparities. Performance Management Process Organizations vary significantly in terms of the maturity of their performance management process. Closely examine your organization’s process and look for ways to improve it. If there is a perception that one management team is an ’easier grader’ than the others, the process is inherently flawed and any pay for performance program will not be viewed as credible and fair by employees. A good place to start is to get a calibration process in place and communicate broad guidelines on expected distribution ratings. Variable Pay Programs Variable pay programs (e.g. bonuses) have become increasingly more popular across all industries and career levels. These programs provide the opportunity for employees to share in the organization’s success while not adding to fixed payroll costs. Some plans have an individual performance component which can be a very effective means to recognize top performers. However, in order for this type of program to be successful, individual goals and targets must be well documented and communicated. Again, this is largely based on the maturity of the organization’s performance management process which takes time to evolve. What are the best steps to avoid wreaking havoc on your pay for performance process? First ensure your pay levels are keeping pace with the market Continue to evolve your performance programs with calibration among managers and a rigorous goal setting process Promote variable pay plans to reward high performers without adding to fixed pay roll costs It’s not always an easy journey but, in the end, it’s best to use a measured approach that is based on business needs and a realistic assessment of your current programs and processes.