Companies often find it difficult to determine how motivated or committed their employees are, because employees know it’s against their self-interest to express themselves. uninspired or undone. The solution to this problem is for companies to put in incentives that encourage employees to reveal how they really feel. In this article, the author, a behavioral economist, describes an incentive plan that has been successfully deployed for this purpose – the so-called Pay-to-Quit program, where companies offer employees large amounts of money to leave their jobs.
Companies often need to reduce the size of their workforce. But how do managers decide which employees to let go and which to keep?
An often overlooked parameter in the decision-making process is motivation. The math is simple: All things being equal, the more motivated employees are, the higher their value — which means managers should prioritize keeping highly motivated employees. The problem is, employees know that companies value motivation, so they have a strong incentive. SHOWS be encouraged, even if they are not. To work against that tendency, managers need to create incentives that encourage employees to reveal their true motivation levels.
The Pay-to-Quit Program
One such strategy is to offer money to employees who voluntarily resign – the so-called Pay-to-Quit strategy. Zappos, the online shoe and clothing retailer, was the first to use the strategy, making what is known as “the offer”: a bonus for new hires who quit after four weeks of training phase when they don’t feel the job is good for them. Zappos started the bonus at $100. When almost no trainees took the offer during training, they raised it to $4,000, and almost no one took it – a sign that the company’s workers were very motivated.
Amazon, which bought Zappos in 2009, adopted a variation of this strategy. Here’s how Jeff Bezos did it it is explained in his letter to shareholders in 2014, the first year Amazon implemented the program:
Pay to Quit is simple. Once a year, we offer to pay our partners to quit. The first year the offer was made, it was for $2,000. Then it increases by $1,000 a year until it reaches $5,000. The title of the offer is “Please Do Not Take This Offer.” We hope they will not accept the offer; we want them to stay. Why are we making this offer? The goal is to encourage people to take a moment and think about what they want. In the long run, an employee staying in a place they don’t want to be can be unhealthy for the employee or the company.
Amazon has made its program available to warehouse workers for several years, but at the beginning of 2022, due to the tightening of the labor market, the company the program is suspended for warehouse workers and is now only offered to graduates of its Career Choice upskilling program.
In the work I’ve done as a behavioral economist advising organizations, I’ve found that the Pay-to-Quit strategy can be very effective. In many organizations, disgruntled employees have no reason to reveal their true feelings, but you can encourage them to do so by offering them money to resign, which will cost them dishonesty. -anon. One consequence of this strategy is that those who stay are more motivated, of course. But an added benefit is that those who stay feel the need to justify that decision to themselves – which they usually do by working harder and longer on those goals. When they turn down the Pay to Quit money, they are actually investing it in their future with the company. This boosts their productivity and commitment.
Everyone wins with this strategy. It allows managers to identify which employees are truly motivated and which are not; it allows disgruntled employees to make a peaceful exit with cash in hand; and it allows motivated employees to truly demonstrate their commitment. And if no one takes the offer, as recently happened with Trainual, a company that provides automated training and onboarding processes, that is also a positive result: The company ends up learning a something important about its new employees and giving them an encouraging development – at no cost.
Program Testing
It is difficult to judge the success of such incentive-based programs without conducting a controlled study. How do you know if the right people are quitting, or if those who stay get a moral boost from doing so? To find out, you need to run an experiment that includes a control group that is not offered incentives, which you can compare with a group that is offered them.
I recently worked for a large consulting firm that conducted such testing. The model is instructive. The company has decided to implement a significant technological change in the way it operates – a change that will require older employees to invest time in learning new technology and be flexible. to change their working methods. Some of these employees are enthusiastic about the opportunity, and some are not, but management cannot distinguish between them.
Company leaders know they need to figure that out in an important context — when they’re considering which employees to name a partner. Why? Because when the company chooses who to promote, it declares that they are competent and valuable, which immediately attracts them to other companies, which often start efforts to attract them. The company wants to avoid a situation where it trains employees and encourages them to become partners at the expense of others, only to see that partners take their knowledge and training and go elsewhere. In addition, it is difficult to fire colleagues even if they are not doing a good job or adopting the necessary changes in how the work gets done. So the company wants to know which employees are most motivated HISTORY it decides which of them will be named partner. If the company can do that, it can make its investment in training more strategic and cost-effective.
The Pay-to-Quit strategy seems perfectly suited to this situation. So the company launched an experiment. In some of its many offices around the world, it offered employees an exit bonus if they chose to leave before the partnership decision, and then compared offices with relatively similar ones (the control group) where none’ y bonus offered. To be considered a success, the program must lead to retention rates in the offices where the program is offered better than the control group.
So far, the program has been successful. Of the offices that offered the bonus, about 12% of employees chose to take it. Turns out, those employees aren’t the worst performers on the team, suggesting that the program is doing the work it needs to: identify talented employees who don’t necessarily feel a strong commitment of the company and may leave after being named partners. The retention rates of new partners in offices where the bonus was offered were also higher than the rate of the control group. The program was temporarily halted due to Covid-19, but the company now plans to relaunch the program on a larger scale.
How to Launch a Pay-to-Quit Program
If you are considering adopting a Pay-to-Quit program, make sure you follow these five rules:
1. Be transparent.
When you launch the program, be sure to explain how the program works and why you decided to launch it. Employees are more responsive to the program when they understand its purpose.
2. Offer the right amount.
The amount you offer should be enough to encourage a few employees to take it but not too high to get too many of them. That amount varies from company to company, so run a pilot to find out what works best for you.
3. Be selective.
Not all employees are necessarily eligible for the offer. Determine which groups or positions are most likely to benefit from it (as the consulting firm above did, when it targeted potential partners), and limit the offer to employees.
4. Set a deadline.
The program should not be open-ended. Give employees a relatively short period of time in which to decide whether to accept the offer, and make it clear that the offer cannot be used after that date.
5. Monitoring and evaluation.
The program will only be successful if you regularly measure its effectiveness and make changes as needed. This can only be done if you first clearly define your long-term goals and then monitor and evaluate success in relation to them.
Finally, the Pay-to-Quit program is an instructive example of how companies can use the power of incentives to learn more about their employees. Remember, talk is cheap. Simply asking employees about their preferences may not reveal what you need to know — but with a smart inventive plan, you’ll learn a lot.
