Why the Most Hated Way of Firing Someone Is More Popular Than Ever
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What is the main topic discussed in this episode?
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Here's your money briefing for Thursday, December 5th.
What trend is driving the rise of performance improvement plans (PIPs)?
I'm J.R. Whalen for The Wall Street Journal. As companies tighten budgets and look to boost efficiency, they often use performance as a metric when looking to downsize staff.
What is the stated purpose of a PIP and how does it work in practice?
For employees not meeting their goals, performance improvement plans, or PIPs, are on the rise.
Because a PIP is really do or die. It usually says on the formal document that you receive when you're put on a plan, failure to meet these expectations or meet these goals could result in termination.
We'll talk to Wall Street Journal workplace reporter Lauren Weber after the break.
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The percentage of workers subject to performance actions, including performance improvement plans, has increased about 30% since 2020. Wall Street Journal reporter Lauren Weber joins me. Lauren, what is the purpose of a performance improvement plan?
On the face of it, it's to improve someone's performance. The idea is that if an employee is not meeting expectations or underperforming, that you come up with a systematic list of things that they can do within a certain amount of time in order to improve.
How common are PIPs and how much have they increased since 2020?
get back on track and keep their jobs. That's the outward reason for it. In many cases, what we found from speaking to people is that both managers and employees is that by the time the PIP comes along, the performance improvement plan, a company in some cases has already decided they want to terminate someone. And so this is more of an exercise in documentation in order to help the company avoid legal liability down the road.
How common are these plans?
We found some data showing that in 2023, they were used on about 43.6 workers out of every 1,000. We're involved in some kind of formal performance procedure, which includes a PIP. That is about a 30% increase from four years ago in 2020, when they were used with about 33.4 workers out of every 1,000. So their use has gone up quite substantially.
Why are more companies doing this?
There's a lot of reasons for it. One is kind of a hangover from the pandemic. You remember the labor shortages from like 2021, 2022, when companies couldn't find enough workers quickly enough, and in some cases would just hire anybody who would show up for the job and continue showing up for the job. So what that... meant was a lot of people who were not a good fit for certain jobs got hired or maybe not qualified for certain jobs, didn't want to be in those jobs. Part of this now is a little bit of a culling of some of that hiring that happened then that was perhaps ill considered. Another piece of it is the economy is just a little bit weaker, more tentative. Companies are worried about profits.
Why are employers using PIPs more often instead of formal layoffs?
They're worried about growth. And so there's a certain amount of culling of people. And one way to do that without having a formal layoff, where in some cases you have to alert the government that you're laying off a certain number of people, it's very disruptive for companies. What we found is that PIPs are often used as a quiet layoff to quietly let go of people who may not be considered long-term or be good at the job long-term.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:36
2
What trend is driving the rise of performance improvement plans (PIPs)?
0:36–0:49
3
What is the stated purpose of a PIP and how does it work in practice?
0:49–2:38
4
How common are PIPs and how much have they increased since 2020?
2:38–4:17
5
Why are employers using PIPs more often instead of formal layoffs?
4:17–6:51
6
How are employees notified they’ve been placed on a PIP and what should they expect?
6:51–8:10
7
What kinds of goals or expectations are set in PIPs and are they realistic?
8:10–8:55
Speakers
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