It’s a manager’s job to keep an eye on the bottom line. So when an employee who doesn’t seem to add much value leaves, it may be typical to assume that significant savings are on the horizon.
But that may be too hasty a conclusion, says Charlie Trevor, professor of management and human resources at the Wisconsin School of Business. Along with co-author and WSB doctoral student Rakoon Piyanontalee, Trevor looked at three three types of employee separations—discharges, poor-performer quits, and layoffs. They created a framework to talk about them as “valued exits:” departures deemed advantageous or desirable to managers because they believe the organization will be improved financially and otherwise without these employees.
“These are exits that are perceived by management to outweigh the costs,” Trevor says. “That doesn’t necessarily mean management is right. It’s a perceptual term, as we assume some leavers are individuals that managers feel they are better off without.”
An expert in employee turnover and compensation, Trevor says the premise behind the concept of valued exits had germinated for some time, both as he reflected on his own employment trajectory as well as the existing assumptions and the overall absence of research on the topic within the management and human resources field.
“Often when we put things under the microscope, we find that the issues are considerably more nuanced than we first thought,” he says. “It just seemed a little too easy to me to presume that this complicated process of people leaving companies could be thought about as, ‘well, we are better off in some cases.’ Are we really? How do we know?”
Trevor and Piyanontalee examined existing studies in the literature that included three distinct types of departures: discharges, poor-performer quits, and layoffs. Of these, discharges and layoffs are involuntary or “forced” exits but, on balance, are considered advantageous by managers. Poor-performer quits are voluntary, but unlike the loss of star employees, these exits tend to be considered welcome as a way to offload organizational deadweight. Trevor and Piyanontalee coded the types of departures, looked at the antecedents and the consequences of each exit, and formulated a framework that can function as a roadmap for understanding valued exits.
Their analysis indicates there’s greater complexity around the issue of valued exits than organizations may realize, Trevor says, and he hopes the work sparks further research on how these departures impact the bottom line. In essence, valued exits may ultimately be a net loss.
“If you are a manager, those cost savings you are counting on via layoffs, or poor-performer quits, or terminating a bad apple may actually be outweighed by the costs,” he says. “We need to think more about the replacement costs—areas like recruiting, hiring, managerial time, training, severance. We also need to consider the operational disruption created by departures. For example, the loss of a team member leaves a hole. How long will it take for a replacement employee to reach the level of competence the previous employee achieved in that position? How much will team productivity suffer in the meantime?”
Trevor says researchers may want to reconsider how poor-performers are handled—not by eliminating terminations or layoffs but through a more informed exploration of the consquences of these types of exits and their impacts on the organization.
“Often firms and researchers do a poor job of identifying enough of the relevant data associated with employee exits,” he says. “Knowing if the exit is a quit, discharge, or layoff, or other key characteristics of the leaver such as job performance and demographics, allows us to look for patterns that might provide clues as to what we could do better. We also need information on the quantity and quality of replacements as well as knowledge about the remaining workforce. Only then can we really get a more comprehensive look at the human capital stock and flow and ultimately better understand the impact of valued exits.”
Read the paper: “Discharges, Poor-Performer Quits, and Layoffs as Valued Exits: Is It Really Addition by Subtraction?” published in Annual Review of Organizational Psychology and Organizational Behavior
Charlie Trevor is the Ruth L. Nelson Chair in Business and a professor in the Department of Management and Human Resources at the Wisconsin School of Business.