Whatever happened to the termination payout as a viable staff management practice?
In the era of modern human resource practice, the mutually agreed payout seems to be an outdated methodology. But should it be?
Consider the options.
Someone in your workforce is either actively disengaged, willfully underperforming or a poor cultural fit, so we try seemingly never-ending rounds of appeasement strategies....mostly with little to no effect on the situation.
Here’s a tip. If they have had one or two rounds of coaching over underperformance (and this is always the first option!), and there has been little or no change in their work output or attitude, then perhaps it’s time to consider the process of redundancy. Make it a mutually agreeable compensation figure for their time at work, and move them on. They walk away happy, and you are also happy that chapter is closed and you can move on to dedicating your energies towards productive, engaged staff.
I will give you two reasons why the termination payment works.
- From a bottom line perspective, the cost of paying someone out is a cheap investment compared to the ongoing underperformance and the effect it will have on the wider team. Do the sums. If they are on, say $60,000pa, and operating at 60% of their efficiency and you keep them on for the next two years, then add the impact of lowered productivity on the wider team, it might be costing you in excess of $100,000 over a 2 year period. Stats gained from the Society of Knowledge Economic’s recent paper on comparing high performing workplaces (HPW) in Australia against low performing workplaces showed HPW employees are worth $40,000 more profit per person. To terminate someone with a $10,000-$40,000 handshake makes economic sense.*
- From a health perspective, you might be putting years on the lifespan of both the employee and the manager. High stress coupled with long periods of exposure have marked effects on our long term well-being. Letting people move on with their lives and find happier places is a win-win on so many levels from a health perspective.
Zappos, the revolutionary customer-service culture champion has reverse-engineered the payout to great effect. They actually offer every employee a payout figure of $4000 in their first week of employment! That’s right, part of the way through a new Zappos employee’s induction, they table the offer of 4K to walk away, no strings attached. Their reasoning? If people are working for the paycheck only, then they aren’t a cultural fit for us.
Human resources as an industry is filled with highly intelligent, well-meaning practitioners with a humanistic tendency to give everyone every possible chance to rectify or remedy substandard working processes...it’s both honorable and admirable. But in all areas of life, sometimes ending a relationship is the greatest respect you can pay the other person. Perhaps it’s time for organisations to re-think the payout just like Zappos have done so successfully.
*Now we understand some people reading this newsletter might be thinking “What if people in my organisation deliberately start underperforming to get paid out?”. Well if that is a reality, you’re still in front. Move them on and get people in your place of work who see a purpose in their work beyond the paycheck, and work damn hard on fixing the culture that created the option in the first place.