Why Amazon Pays Some of Its Workers to Quit
The company’s unusual offer—to give employees up to $5,000 for leaving—may actually be a way to get them to stay longer.
On Monday, Amazon reportedly began a series of rare layoffs at its headquarters in Seattle, cutting several hundred corporate employees. But this week, something quite different is happening at the company’s warehouses and customer-service centers across the country: Amazon will politely ask its “associates”—full-time and part-time hourly employees—if they’d prefer to quit. And if they do, Amazon will pay them as much as $5,000 for walking out the door.
Officially called “The Offer,” this proposition is, according to Amazon, a way to encourage unhappy employees to move on. “We believe staying somewhere you don’t want to be isn’t healthy for our employees or for the company,” Ashley Robinson, an Amazon spokesperson, wrote to me in an email. The amount full-time employees get offered ranges from $2,000 to $5,000, and depends on how long they have been at the company; if they take the money, they agree to never work for Amazon again. (The idea for all this originated at Zappos, the online shoe retailer that Amazon bought in 2009.)
Considering that Amazon reportedly already has high turnover—it is a famously efficient company that asks a lot of its workers—it may seem surprising that it would incentivize workers to walk away. Many employees at Amazon’s warehouses, as I’ve written before, say that they are constantly pressured to work harder and faster (and get fired if they don’t), and that the jobs are physically and psychologically grueling.
When I asked Amazon about these workers’ complaints, the company said that the top priority of its fulfillment centers is the success and well-being of its employees. No worker is ever dismissed without good reason, Robinson told me. And as the company grows, she added, it is “strongly in our interests” to retain existing employees. But that just makes The Offer seem more puzzling. If Amazon wants to retain employees, why would it pay them to leave?
With The Offer, Amazon seems to be making the calculation that weeding out a single unengaged worker is worth as much as multiple thousands of dollars. But there might be other, less obvious effects of providing The Offer that serve to benefit Amazon, according to some behavioral economists. The Offer might in fact be a way to make employees stay longer than they otherwise might.
The reasoning goes like this: Employees resist an initial temptation—to quit Amazon and walk out with cash—and by resisting it, they may actually feel more committed to their jobs, said Ian Ayres, a professor at Yale Law School who wrote about the concept of The Offer in his book Carrots and Sticks: Unlock the Power of Incentives to Get Things Done. Amazon employees who evaluate The Offer and then turn it down have decided they like the company enough to stay a little longer. They then want their future behavior to match that feeling, Ayres said.
When I talked to Katherine Milkman, a professor at the Wharton School at the University of Pennsylvania, she brought up a similar idea, from the realm of social psychology. She talked about the mental pressure humans feel to resolve cognitive dissonance—if people have two conflicting beliefs, they’ll try to rationalize one to make it fit with the other. In this case, workers may dislike their jobs at Amazon, but if they turn down The Offer, it means they passed on a chance to quit. It’s likely that they’ll then try to convince themselves that they actually like working at Amazon, Milkman said. To pick a more extreme example of this phenomenon, when people join a cult that says the world is going to end on a certain date and then it doesn't end, they tend to end up believing more strongly in the cult, because they can’t put up with the cognitive dissonance between what they believe and what actually happened.
Milkman also brought up “escalation of commitment,” another concept studied by behavioral economists. The idea is that when people put a lot of money or effort into something and it appears to be going badly—perhaps they bought a stock and the share price is tanking—they often double down on their commitment. “They say, ‘I want to see this turn around—I don’t want it to turn out badly,’” Milkman said. When employees see that they’ve lost $5,000 by not taking The Offer, they might mentally recommit to the company, trying to do better at their jobs and enjoy them more.
Amazon is just one of dozens of companies (many of them tech firms) that are looking for ways to use behavioral-economics findings to try to make their companies run more efficiently, and, in some cases, make their employees happier and healthier. Google, for instance, has conducted a number of experiments in its cafeterias to nudge employees toward eating vegetables or cutting down on the number of M&M’s they consume. (Maya Shankar, who had founded the Social and Behavioral Sciences Team in the Obama White House, now runs a behavioral-science division at Google.) Uber uses digital nudges in its app to try and motivate its drivers to pick up more fares and work longer hours. “I think companies are recognizing that there’s a lot to be learned from research about how to build smart incentive systems and use behavioral science to design tools that aren’t just cash,” said Milkman.
An important caveat about The Offer is that—regardless of how it may register in an employee’s mind—the people who do take it don’t actually walk away with $5,000. A big chunk of the payment is taxed, and employees who might have received benefits (in the form of 401(k) contributions or shares of stock) if they stayed to a certain date might not be around long enough for those benefits to vest. John Burgett, a current Amazon employee who has worked various positions in a warehouse in Indiana since 2014 and blogs about his experiences at Amazon Emancipatory, estimated that if he took The Offer in early 2017, he would have received a $3,000 payout. But he says he also would have lost a portion of his 401(k), which would not vest until he had been with the company for three continuous years, and also would have lost four shares of Amazon stock that would not vest until the summer of 2017. He also figured the company can pay a new employee less than it pays him, since he has received a few raises over the years. (At the time of his calculations, he made $13 an hour.) “I’ve considered it, but I’ve always said it’s a bad deal,” he told me.
Behavioral economics aside, part of Amazon’s reasoning for issuing The Offer is probably straightforward: It wants to prod unhappy employees to leave. And each year, some people—“a small percentage,” according to Amazon—do take the company up on it. They include Jim Perota, who is now 60, and worked for Amazon’s distribution center in Chattanooga for three years. He says he hated the job. He says he lost 30 pounds working at Amazon because he was on his feet so much, picking items off shelves and putting them in bins, and also packing goods into boxes. His breaks were only 15 minutes, but it would take 10 minutes to get to the break room, so he’d sit on stairs, waiting for the work to begin again, he told me. Perota had worked for the postal service, as a disc jockey, and for the U.S. Census, but working for Amazon “was the most brutal, and it took the biggest toll on my body,” he said. But he couldn’t quit, because he needed the health insurance, he said.
But then Obamacare came to Tennessee. In 2014, Amazon presented The Offer to employees at Perota’s warehouse on a Tuesday in March. On Thursday of that week, Perota signed up for Obamacare. On Friday, he took The Offer and quit his job. It was one of the best decisions he ever made, he said. “I felt pretty liberated when I walked out those doors for the last time,” he said. He now works as a nighttime security guard.
In the end, The Offer wasn’t a financial boon for Perota. He received $3,000 from the company, but says he more or less broke even because the money was taxed heavily, and he lost the employer contributions in his 401(k), because he had not been with the company long enough to walk away with it. But that didn’t matter, he told me. What mattered was that he got out.