The Most Hated Way of Firing Someone Is More Popular Than Ever. It’s the Age of the PIP.
Performance improvement plans are on the rise. Workers dread them. Managers do too.
(From Wall Street Journal today. Otsuka plays this game very well. Even if you turn your performance around, you will still be laid off. On top of it, Otsuka will try to deny you Unemployment compensation. Have seen it first hand with another employee.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.’”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.
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. “The vast majority 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 was 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.
In recent quarters at Capital One, several former employees said, managers were told to increase the portion of employees given “below strong” ratings, often a precursor to a two-step process that can begin with a coaching plan and then escalates to a PIP.
One senior manager, himself later put on a PIP this summer, said that leaders faced pressure to hold down head count expenses by being tough on performance. When this manager reached out to mentors for guidance about whether his own PIP was survivable, several told him that it would be difficult given the company’s focus on cutting costs.
A Capital One spokeswoman disputed that characterization.
“Our performance management process is about performance, not about cost cutting. We continue to hire thousands of new employees every year,” she said in a statement.
“People know when they’re not performing,” Pizzorno says. “We do it real time, as opposed to formal 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.
You’ve been put on a PIP. Now what?
A common tactic for people placed on PIPs is to file for a leave of absence, often under the federally protected Family and Medical Leave Act. A leave stops the clock on the PIP. Even if they’re not getting paid, workers can use the time to job hunt while still employed so there’s no resume gap to explain to a prospective new employer. The leave could also give workers some leverage to allege retaliation if they’re fired after they return.Some bosses are unclear how to respond to such a tactic, but acknowledge it’s happening. “That trend is real,” says Blair Ciesil, a partner and global leader for talent attraction at McKinsey & Co., who has chatted about the issue with peers across the industry. “Every manager I talk to, that is something that they say that they really struggle with.”
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.”