Corporate America Has a New Favorite Way to Fire People. It's the PIP

"In the messy business of getting rid of employees, the PIP is having a moment.

A performance improvement plan is usually a list of tough-to-achieve goals to be completed within 30 to 90 days. Can't shape up? You're out.

The percentage of workers who are subject to performance actions, including PIPs, is on the rise. In 2020, 33.4 people for every 1,000 workers had documented performance issues, according to software firm HR Acuity, which conducts an annual survey. In 2023, 43.6 workers out of every 1,000 were involved in formal performance procedures. That includes PIPs and performance counseling, among other measures.

PIPs are intended to bring consistency and fairness to the way employees are judged and managed. Their stated goal is to lay out a path to improved performance -- and sometimes it works. That said, many workers and even managers say they're used primarily to provide legal cover from employment lawsuits or to cut costs without announcing layoffs.

Here is a field guide to PIPs.

A PIP is . . .

"An oxymoron," says Anna Tavis, a human-resources executive who worked at the financial giant AIG and other companies. "I spent 15 good years on Wall Street and other places. It's a cover up. It's window dressing. None of these performance improvement plans lead to improving performance." In most cases, says Tavis, now at New York University, "it's an excuse to walk you out of the door and say, 'We gave you an opportunity. You didn't perform, and off you go.'"

"It's just a legal thing to make it so that we warned you that you're going to be fired," says Howard Lerman, the former chief executive of software company Yext who now runs a tech startup called Roam that makes software to create virtual offices. "I will always fire someone right away because it is better for us and it is absolutely better for them."

Larry Gadea, founder of software maker Envoy, uses PIPs at his 250-person company and said PIPs often arise because managers fail to set clear expectations early on. He estimates that 10% to 25% of employees who get put on PIPs survive the process, a figure that several other CEOs and HR professionals echoed. "A lot of the time, they're done," Gadea said of underperformers. "They're burned out, they need a break. And now you're asking them to work harder."

Why now?

CEOs are tightening budgets and looking for efficiencies. In the AI era, there's increasing pressure to show that the humans who remain in roles are exceptional; managers are told to raise expectations and tolerate less mediocrity.

Then there's Covid. Many companies abandoned performance reviews or lowered hiring standards during the frenzied pandemic years -- only to end up now with staff poorly equipped for their roles.

All of this is prompting managers to push out weaker performers now.

"Within Silicon Valley and tech, from 2020 to 2022, it was a four-hour workday for top dollar and there wasn't really a lot of accountability for results," said Janine Yancey, founder of Emtrain, a firm that designs HR compliance and harassment training. "Now they're starting to pare down the staffing so the unit economics actually work."

The pace of change is a factor, said Kurt Kober, a consumer products executive who was recently a division president at Honest Co., which makes baby and beauty items. "Think of the nature of how fast strategies have to evolve, because of technology, geopolitics, the economy."

The boss perspective

A PIP creates a record of an employee's failures and mistakes ahead of either improvement or a termination.

PIPs are designed to protect a company from wrongful-termination lawsuits, lawyers say. "Employment lawsuits are now the most commonly filed lawsuit in California, so there's a significant incentive for employers to make sure they're dotting their i's and crossing their t's," said Christian Keeney, a California-based attorney with management-side law firm Jackson Lewis.

Employers started to rely on PIPs after the economic recession of 1981. Before then, companies rarely let go of white-collar workers, said Peter Cappelli, a management professor at the Wharton School at the University of Pennsylvania. But in the early 1980s, some high-profile employers began conducting performance-based layoffs, which gave other firms permission to do the same, he said.

That shift, combined with a growing number of wrongful-termination lawsuits, led to a risk-averse approach to managing people, Cappelli said.

The employee view

Some workers describe feeling blindsided. Some feel set up to fail. Patrick McGah was a research scientist at PrimeAir, Amazon's drone-delivery division, and was placed on Focus, the first step in the company's two-part performance plan, in 2021. "I asked, why am I going on Focus? 'You're not raising the bar,'" he said. "What do I need to do to get off of Focus? 'Well, you need to raise the bar.'"

He continued: "There was stuff I had no idea was an issue. 'Pat struggles to create structure in ambiguous situations." What the hell does that even mean? It sounds like a fortune cookie."

McGah ultimately decided to take a severance package and left. He's now a principal engineer at a nuclear-energy company in the Seattle area.

"Like most companies, we have a performance management process that helps our managers identify who on their teams are performing well, and who needs more support," an Amazon spokeswoman said. "Most of our colleagues regularly meet or exceed expectations, but for the small number of employees who don't, we provide coaching and opportunities to help them improve."

Brett Holzhauer is a former marketing manager at M1 Finance, an investment platform. In May this year, he was offered a PIP at a time when the company was already "trimming the fat," he said. He decided to leave the company.

Representatives from the company didn't respond to requests for comment.

Alternatives to the PIP

HR veteran Steve Cadigan says his thinking -- that PIPS are almost always a bad idea -- was shaped when he worked at Cisco early in his career. "We did a five-year lookback at every PIP and found that 90% of people who were placed on a formal PIP, whether or not they survived it, left within a year of that warning. Which to me suggests there's a fundamental break in the trust of that relationship," says Cadigan, who went on to be the HR chief at LinkedIn and now advises companies on HR strategy.

So he sets out to avoid them. "We give you two envelopes," Cadigan says. The first is a PIP. The second offers generous severance with a separation agreement and Cobra, or continued health insurance. "Seventy-five percent of the time people take option two. So we circumvent the whole PIP process and just say, for whatever reason it's not working out."

This approach is increasingly popular, particularly in tech. It's used in some form, and sometimes on a case-by-case basis, at companies including Amazon and Meta.

What to do on a PIP

An employee of a white-shoe law firm in New York survived a PIP. He created a document, listing point-by-point how he would respond to his bosses' criticisms and their goals outlined for him. He shared it with human-resources staffers, and asked for their feedback.

"I did not dispute anything," the worker says. Instead, he used the response document outlining the specific ways he planned to change his behavior, as "my plan to your plan." For example, one of the PIP goals was to speak up more in meetings. So he vowed to ask questions, even if he felt uncomfortable doing so.

Bosses liked it, and the strategy worked: Two months later, the company took the employee off the PIP.

Others start job searching when they sense a PIP is coming. A corporate employee placed on a PIP at Amazon earlier this year says he sees performance plans as a timer, ticking down until an almost inevitable termination. "The smartest people see it coming," he says, "and find another job before it happens.""[1]

1.  EXCHANGE --- Corporate America Has a New Favorite Way to Fire People. It's the PIP. Weber, Lauren; Cutter, Chip.  Wall Street Journal, Eastern edition; New York, N.Y.. 30 Nov 2024: B.1.