The cost of turnover is estimated at 150% of annual salary. But what if you could only spend $5000 to find out which of your employees are engaged, and which ones are thinking of leaving? That’s what Amazon is trying with its new “Pay to Quit” initiative, an unorthodox retention method borrowed from Zappos, another online retailer and subsidiary.
“Pay to Quit”
The idea is simple: once a year, Amazon will offer to pay associates to quit. The first offer is $2,000, and then it goes up $1,000 a year until it reaches $5,000. Amazon CEO Jeff Bezos announced the new program in a letter to shareholders, where he went into more detail about the philosophy behind it:
“The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.”
While this is true in a business sense, it might seem questionable to offer cash bonuses for employees to quit. That is, until you factor in Zappos’ 97% retention rate achieved through the program. What can account for its success? A few observations:
1) An unproductive employee is far more costly than $5,000.
It may seem like a hefty offer, but when you consider that disengaged and unproductive employees cost the US economy $450-$550 billion a year, you begin to see the method to Amazon’s madness: it is more valuable to lose disengaged employees for up to $5,000 than it is to keep them on for the months or years it may take for them to leave on their own volition.
2) It encourages automatic self-evaluation
The business world is constantly scolding itself over the importance of employee self-evaluation and goal-setting, yet it’s notoriously difficult to motivate employees to do it in earnest. The $5,000 incentive is a respectable enough amount to compel the employee to seriously evaluate their goals within the company—how valuable is that to an organization?
3) It creates a positive dialogue with employees
In a sense, Amazon is telling employees “We respect your time.” Too often employees in bad work situations can feel like prisoners without a voice, and never express their misgivings. “Pay to Quit” reaches out to those employees, in essence telling them they are not forsaken. Ironically, this simple act of compassion can increase engagement and bring on positive discussions about improving the workplace.
“Pay to Quit” is certainly not for everyone. Companies like Amazon with a few extra billion to burn can get away with experimental incentives. But in Amazon’s case, where they have thousands of employees in high-turnover positions at fulfillment centers all over the country, it manages to improve on several aspects of employee engagement in one fell swoop, and that’s something you can’t put a price tag on.