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Sue Ingram

Performance Resolution Ltd

Director, Facilitator, Speaker

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Settlement agreements: are they being overused?

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There are circumstances when negotiating the exit of an individual from the organisation via a settlement agreement is exactly the right action to take. The most obvious being a senior official where a drawn out exit would be costly in terms of disruption and public image. Also some high octane, fast paced cultures regularly use settlement agreements to save the organisation the time of conducting any formal procedure.

However I have witnessed an increase in situations where settlement agreements are being used as a ‘Get out of Jail Free’ card in place of strong, fair, consistent management.

Instead of managers managing, where firm expectations are set, timely feedback provided and capability or disciplinary processes followed, an individual takes out a grievance, makes accusations of bullying or discrimination against the manager and the organisation simply makes the problem go away by use of a settlement agreement.

Is this wrong?

As a single action when mistakes and poor process occur, no. It saves a lot of expense and time in defending a shaky case at an Employment Tribunal and can clearly be the pragmatic business decision to take. The danger occurs when settlement agreements are regularly used and become viewed by the organisation as just another cost of doing business.

The reason being, despite non-disclosure clauses, staff know this is the view of management and it becomes almost a right in the staff’s eyes to receive a payment in order to leave. In fact some would consider themselves foolish to leave without the money that would allow them to buy a new car, take a holiday, or spend six months at home before looking for a new job.

After all they can name people who have achieved just such a result.

In this really what can happen? 

Sadly the answer is yes. As a coach I have sat in sessions with individuals who have set out this exact strategy to me. They have already made the decision to leave the company but if they ‘play’ the system, make accusations against management, indicate that they feel aggrieved then they will be able to leave with a payment in their bank.

The hidden costs of settlement agreements

You can argue that six month’s salary for the individual leaving immediately is a reasonable cost to pay. After all it would take six months, maybe more, to follow a formal process to say nothing of the management time involved and disruption that an individual may cause during that period.

But to allow the culture to fall into the norm where payment is made when an individual simply wants to resign is clearly both inappropriate and expensive.

But the real cost comes from staff seeing their colleagues receive payment and reward for misbehaving. Management will now have lost the respect of their staff.

Management hands are now tied 

As misbehaviour is rewarded staff can safely ignore any constructive feedback given to them as the worst that would happen is they leave with a payment.

As managers experience more difficulty in managing the greater the number of settlement agreements to make problem staff vanish and the downward spiral will have begun. Any good managers and staff will leave as the levels of mutual respect within the organisation falls.

How to turn this around?

The first is to realise that the management of people takes time. Unfortunately the recession has meant that in some sectors and organisations management numbers have been slashed with the pressure to produce the same, or more, with less resource.

Although this is understandable such action runs the risk of saving expenditure on management levels today in order to incur costs through settlement agreements in the future.

The second is that many managers feel apprehensive, confused and consequently wary of conducting negative feedback conversations with their staff, particularly around poor attitude and behaviour.

They do not feel confident in their skills to present a clear and constructive feedback message to their staff and how to combine the strong feedback message and detailed expectations with the softer actions of providing reasonable support and development for improvement.

And they are fearful of employment legislation. In the worst case I have heard managers state that ‘It is impossible to fire someone who has been with you for more than two years’.

Managers need to know that employment legislation is actually very simple to apply and that, despite its apparent complexity, all that is actually being asked of them is to follow their organisational procedures and act reasonably at all times.

Is it possible to shed even the most difficult staff without a settlement agreement?

Yes. I have seen managers move even the most emotional and angry staff out of the organisation simply and easily.

By following their process with planned, firm, supportive and consistent conversations the individual simply resigns with no payment being made.

The right result for the individual, the manager and the organisation.

Author Profile Picture
Sue Ingram

Director, Facilitator, Speaker

Read more from Sue Ingram
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