Should You Pay Employees to Quit?

by Amber Cruz, PHR, CEBS, SHRM-CP

Bulletin,  Performance Management

We all know the positive effects on the bottom line when a company is full of engaged employees. Productivity goes up, customer service is better, income increases.

In fact, a study conducted by Gallup in 2013 found that employers with 9.3 or more engaged employees for every one actively disengaged employee had 147 percent higher earnings per share than their competitors. However, companies with 2.6 engaged employees for every one actively disengaged employee had 2 percent less earnings per share than their competitors.

With numbers like that, employers rack their brains to come up with ideas to keep employees engaged. One creative solution is the concept of paying disengaged employees to quit. Zappos, the originator of this concept, provides what it calls “the offer” to all new hires. Most new Zappos employees, regardless of their position, go through a four-week training boot camp. Most of that time is spent in the call center where Zappos instills that customer service is the most important priority. During the four weeks, Zappos also emphasizes company culture—which is a little quirky—and core values to new employees. Then, in the third week of this boot camp, employees are offered $4,000 to quit! 

Another company that has embraced this idea is Amazon. When Amazon bought Zappos, it adopted “the offer,” but tweaked it. (As part of the purchase, Zappos was allowed to continue autonomously, and kept “the offer” as-is.) Amazon only offers to pay fulfillment-center employees to quit, but they receive this offer once a year. The first year’s offer is $2,000, with an increase of $1,000 every year until it is capped at $5,000 indefinitely. Amazon’s program is called “pay to quit,” and the title of the page employees receive with the offer states, “Please don’t take this offer.”

Why would a company pay someone to quit? Author David Burkus explains in his book, Under New Management, that the concept of paying employees to quit is based on a few psychological premises.

The first consideration is putting the employee on the spot: “Do you care more about money, or do you care more about this culture and the company?” The idea is that anyone who is willing to take the money is not a good cultural fit for the company, and that the cost of continuing to train, manage, and encourage an employee who will eventually check out and leave is more than the cost of the quit bonus.

Another goal is to negate the “sunk costs fallacy.” In short, we as humans are more likely to stick to a decision, even a bad one, if we feel we have put effort, time, money, and resources into that decision. This is true for both employer and employee. It takes time and resources for an employee to apply, interview, accept, and start training for a job. It takes time and resources for an employer to post, interview, offer, and start training for a job. The quit bonus gives both sides an out from the sunk costs.

Third is the idea of “cognitive dissonance.” For the purpose of the quit bonus concept, it means that once an employee has made the conscious decision to turn down the money in order to stay in the job, he or she will make adjustments in his or her thinking. “If I turned down the money, I must really be engaged in my job.” In other words, turning down the money might actually increase the engagement of an already engaged employee.

In addition to engaged employees, Zappos has seen other benefits, including less turnover and solid interviewing and hiring techniques. Turnover is expensive and can be harmful to morale and productivity. Zappos’ annual call-center turnover rate is less than one-third of the national average of 150 percent. They also spend more time up-front in the interview process not only assessing the applicant’s knowledge, skills, and abilities, but drilling down into the applicant’s fit with the company and how they align with the core values. If you take the time to hire the right individuals, there is less chance they will take an offer to quit when presented with it. In fact, only a small percentage of individuals take “the offer” at Zappos.

Although there are several advantages to this concept, know that there are always disadvantages that must be brought to light. First, a poorly administered program could detract from performance management and employee feedback conversations. Particularly in Amazon’s annual offer, it might be easy to depend on the employee’s decision to stay or go and avoid having performance conversations. Secondly, presenteeism, based on the “sunk cost” concept, might also appear. An employee might think his or her sunk cost is not having taken the offer. For example, employees at Zappos might think, “Why quit for free when I could have quit for $4,000 when I started?” Amazon has the advantage here, because employees would wait, at most, a year.

Lastly, for many companies, this would just be too expensive to administer. However, employers who are interested but can’t afford it should look at other methods of offsetting the sunk costs of having accepted a job, or hired an employee, that is not a good fit. Any program that provides a “well-lit, safe exit path” would have a similar effect. It could be something as simple as allowing an employee to take time off to go on interviews without having to hide what he or she is doing, resume help, or networking, etc.

Any program an employer offers that forces an employee to examine the reasons they work for you is bound to confirm their original decision of choosing you as an employer and will enhance their engagement in the company. Ultimately if they decide on the money, maybe they aren’t the right employee for you at this time.

About the author
Amber Cruz, PHR, CEBS, SHRM-CP

Amber has been an HR Consultant in the Integrated Human Capital Services department at Employers Council since 2007. She currently works and consults with member organizations in many facets of Human Resources including benefits administration, compensation administration, staffing, retaining and engaging employees, performance management, and workplace violence. She is also a frequent trainer and presenter in the areas of employee benefits, compensation administration, retaining and engaging employees, and addressing workplace violence. Prior to joining Employers Council, she worked in human resources in the for profit and not-for-profit sectors. Amber possesses a Bachelor’s Degree in Sociology from the University of Northern Colorado, is certified as a Professional in Human Resources (PHR), a SHRM Certified Professional (SHRM-CP), and a Certified Employee Benefit Specialist (CEBS).