Dr John Sullivan Talent Management Thought Leadership

Google and UnitedHealth just offered a bonus to even top performers who agreed to leave. Would you ever even consider paying one of your top-performing AI experts a large bonus if they agreed to leave your company? Would that ever be an effective method for cost-cutting?

What were they thinking?

Yes, it’s common under most Employee Buyout Offers (EBO) to offer everyone (including the most skilled, the innovators, and the top-performing employees) a significant bonus if they decide to leave. As a result, these critical “in-demand employees” are by far the most likely ones to accept a buyout and leave.

Of course, this costly exit of critical talent wouldn’t be happening if HR had the courage and capability to identify and release poor performers and obsolete employees. However, when HR lacks this courage, many corporations are forced to use a much less effective labor cost reduction program that goes by the name Employee Buyout Offers (EBO).

Unfortunately, this EBO process can unintentionally result in a dramatic reduction in the capabilities of your workforce. Your company’s workforce essentially becomes the “farm team” of your talent competitors still hiring.

I call it a “jumping the ship bonus”. Because it rewards your best for quitting…
just when they are needed the most by the company and their team.

Why Your Best Employees Will Disproportionately Accept A Large Buyout

When you offer every worker in a business unit an Employee Buyout Offer (EBO), you shouldn’t be surprised when you learn that the first group of employees who will jump at this opportunity will be those with advanced skills and the top performers in your high-impact jobs. Below, you will find the four foundation reasons why a disproportionately high percentage of your upskilled and high-performance employees will accept your EBO.

• Your best will leave at the highest rate… because they will get a new job offer almost immediately – external recruiters already know the value of your company’s high-impact workers (e.g., AI specialists). These types of employees have already been getting at least one serious recruiter inquiry each week. As a result, these valuable employees will be extremely confident they can get another job almost immediately after accepting your offer. In contrast, most of your less in-demand eligible employees will be reluctant to accept the EBO. If they do, most will fear the drudgery of a long job search and perhaps months of unemployment.

• A chance to fatten their nest egg, coupled with a chance of getting an even better-paying job, will be irresistible to your best employees – taking this offer will allow your top employees who have difficulty saving to suddenly have a significant nest egg of money for a new car/house, to invest, for retirement or even for creating their own startup. Your high-impact employees may even be able to look forward to the possibility of quickly landing another better-paying job with a sign-on bonus. A disproportionate number of them will jump at this EBO opportunity.

• Your company’s slow growth and low-resource future will drive your best to leave for better-resourced companies – your high-impact employees expect to be working in a rapid-growth environment. So when they are asked one more time to “do more with less,” instead of accepting that environment again, your best will quickly decide to depart to a place where they can “do more with more” at another company with better resources and a stronger growth agenda.

• When your top performers realize they are no longer working in a performance culture, they will decide to leave – top-performing employees demand a performance culture. Where superior performance is highly rewarded, and underperformers are quickly fixed or managed out. So when your top performers realize that under this current EBO reduction in force, work performance won’t even be considered when determining who must/can leave, they will finally realize they are not a “fit” for this culture with little accountability. And that will drive them to seek a different work environment that places a much greater emphasis on performance and accountability.

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Rather Than Saving Money, Paying Your Best To Leave May Create Numerous Costly Side Effects

The practice of letting every critical employee decide on their own whether they want to stay or leave will create many extremely damaging and costly side effects.

The most costly unintended EBO consequences include… 

The loss of so many innovators will likely slow your product development and future sales – because innovators are the most highly sought-after group by recruiters. You must assume that each one of yours will be targeted by your competitors’ recruiters. And, of course, when their recruiters dangle an opportunity to innovate at a company with more resources and less turmoil, your corporation faces the possibility of literally losing a majority of your innovators in the targeted business units.

You will lose a large number of employees who are essential for future growth –  because employees who have the highest impact on corporate growth are often the next group to be targeted by external recruiters. This group often includes product developers, strategists, strategic marketers, and leaders who have a track record of continuous growth in their business units. So when you offer your growth impact employees a significant bonus, coupled with a chance for a job at a company that is still growing, you are creating an opportunity that few in this group will refuse.

Voluntary buyouts will negatively impact other critical business areas – when you offer an entire business unit a chance to leave, those who work in the most critical high-impact jobs will be among the first to receive outside offers. Unfortunately, that means you will likely lose many of your most viable employees in areas like revenue generation, AI, data security, and customer service. Losing your best people in enterprise sales will likely also hurt both customer relationships and B2B sales. 

Your competitors will inevitably learn your plans and ideas – after your competitors target and successfully recruit even a handful of your future-focused and visionary employees, you can assume that they will quickly share your corporation’s strategic plans and your key products that are under development. Unfortunately, this knowledge will allow your competitors to close any strategic gaps much faster.

You may end up paying your future leaders to walk out the door – because strong across-the-board leadership is essential for both profit and growth. Providing your current and future leaders with an opportunity to leave the current turmoil at your corporation may be too tempting for most. And that significant loss of leadership bench strength will reduce your leadership capabilities for several years.

This EBO approach may permanently damage your corporate culture – because experienced talent is always in high demand. You need to realize that you will lose a disproportionate percentage of your experienced employees who contribute every day to the maintenance of your corporate culture. Unfortunately, once the word gets out that your culture is deteriorating, it will further hurt your ability to recruit and retain in the future. 

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Some additional negative impacts that you can expect include…

It will be hard to maintain your team’s current skill level – because a disproportionate percentage of your highly skilled employees will leave because they know they can quickly get another similar job. Rather than saving money, after many of your skilled workers choose to leave, you will be forced to devote a great deal of money toward upskilling your remaining under-skilled employees. Having to wait until employee development is completed will push back the completion dates of most of your projects.

Realize that after some of your influential employees leave, others will follow – of course, losing top talent will be initially painful. However, when some of your keystone, well-respected employees take your offer and end up working at a competitor, you can expect them to make referrals for several other desirable workers.

Getting rid of your deadwood will now be delayed – once they realize that they won’t be able to easily get another equivalent job if they take the money. A disproportionately large percentage of your weak performers, deadbeats, and toxic employees will decide to stay. And that will not only negatively impact the productivity of the entire team, it will also require your managers to spend much more of their time on performance management.

It may even affect your stock price – there is a reasonable chance that your shareholders and future investors will be affected. They may take this poorly designed EBO as a signal that your management team isn’t very strategic. And that could have both a short and long-term impact on your stock price and your corporate brand value. 

Realize that your buyout offer may not be attractive enough – you must realize that if the offered bonus is too low (because you’re trying to save money), there is a significant chance that your buyout effort won’t meet its reduction in labor cost target. It’s also important to know that your buyout offer may be less attractive. In some states, receiving a buyout payment will delay or even end your former employee’s chances of being eligible to receive state unemployment benefits. Of course, eventually, your employees will realize that the received payout is taxable, which will also lower its impact.

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Recommended Actions

Fortunately, there is a less damaging EBO option for effectively reducing your overall labor costs. Under this “targeted layoff approach” alternative, your least impactful and lowest performing employees are first identified by each manager and HR working together. A sufficient number of them will allow you to meet your labor cost reduction goal. Then, they will be immediately released with a reasonable severance package. 

If you also see the need to recognize and reward your best-performing and most impactful employees. Offer them a significant performance bonus. Half now and the other half at the end of the year if they stay and perform up to expectations. But whatever you do, don’t ever offer to pay your best or your most experienced employees to leave. Because if you do, they will invariably jump at the opportunity.

Note for the reader

This is the latest article from Dr. Sullivan, who was labeled “the Michael Jordan of Hiring” by Fast Company.

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