Management Accounting Section Midyear Meeting

Paying Employees to Quit: An Experimental Study of Sorting and (De)motivational Effects

• In Event: Contracts

Abstract

We study whether pay-to-quit incentives (i.e., an incentive paid to employees that resign from the firm) can help organizations maintain a workforce of employees who highly identify with the organization. While pay-to-quit incentives are growing in popularity in practice (Semules 2018; Amazon 2019), our research is amongst the first to empirically examine its sorting and motivational effects. We conduct a laboratory experiment where we manipulate the level of employees’ organizational identification (neutral or positive) and the type of incentive provided for employees to remain or exit their organization (pay-to-quit, pay-to-stay, or no incentive). Consistent with our expectations, we observe that employees who reject the pay-to-quit incentive and stay with the organization tend to have higher levels of organizational identification than those who accept the incentive and exit the organization. Moreover, a pay-to-quit incentive is more effective than no incentive in sorting out employees with positive but relatively low levels of organizational identification. We also observe that after forgoing the pay-to-quit incentive, employees’ work effort marginally increases. This research contributes to the rising literature in accounting that examines the sorting effects of incentives and shows that pay-to-quit incentives are an effective mechanism in both retaining and motivating employees who highly identify with their organization.

Authors

• Leslie Berger, Wilfrid Laurier University

• Lan Guo, Wilfrid Laurier University

• Kelsey Matthews, Wilfrid Laurier University

• Bradley Ruffle, McMaster University