Jeff Bezos’ Shareholder Note Reveals Why Amazon Offers Employees $5,000 to Quit Their Job
The question is: would you take the money?
PHOTO CREDIT: Getty Images
Each year, the company asks its employees if they want to take 'The Offer'. They can take the money and run, but if they do, they can never work at Amazon ever again. The amount starts out at $2,000 for workers who have been there for a year and goes up another $1,000 each year until it reaches $5,000.
This idea initially came from Zappos (now owned by Amazon) whose Pay to Quit program offered new workers $1,000 to leave the company. The shoemaker reinstated a similar version of the program when transitioning to a new management structure called Holocracy. Nearly one-fifth of workers took the offer.
Why would Amazon do this? What was Bezos' plan here?
The right kind of retention
First, Amazon only wants to keep people who love being there. It's a simple concept - workers who enjoy what they do will perform better when compared to those who hate their jobs. According to Gallup, a disengaged employee costs the company 34% of their salary each year. In other words, this move benefits the company in the long run.
Second, rejecting the offer encourages people to work harder. It's a classic concept in behavioral economics called 'escalation of commitment'. Someone who turned down their $5,000 will want to invest more into their work, similar to how someone might double down on a bet or investment when losing money.
Lastly, turnover costs are incredibly expensive and harmful to the company's bottom line. The exact numbers may vary-some estimates say that replacing an employee costs six to nine months of their salary, but the consensus remains the same: it's expensive. Factor in recruiting, training, HR, and other areas and you end up with a hefty, recurring bill.
"The goal is to encourage folks to take a moment and think about what they really want," Bezos wrote in a 2014 shareholder letter.
Amazon knows what it wants - highly engaged and passionate employees. This idea is just a way to ensure that both parties are satisfied. Sounds like the right direction to me.