Pay and Benefits

Many of us will have heard the term “garden leave” and might have nodded in a way that indicated we knew what it was. Actually not many people really understand it and, even when you do; it is a slightly unusual process to get to grips with.

Garden leave is a euphemism for getting somebody out of their role and out of their office or offsite, or just plain out of the way. So why does it happen? This article explores the pros and cons of this process, looking at why organisations go through it, what the benefits are and how to go about implementing it.

Garden leave is usually precipitated by a resignation. The employer’s response is that it needs to de-risk itself by taking somebody out of their job and their workplace by sending them away. The risk that they’re managing is that this employee has information, which is important to someone else – usually competitors. This is the biggest benefit of the process – the management of risk to the organisation.

It is also a way for the organisation to manage, in a simple way, how to stick to the letter of a contract, particularly regarding notice periods. In a nutshell, it’s to get a difficult problem out of the way. The organisation will pay someone’s normal salary and benefits, rather than wrestle with any difficult issues in that situation and at that time. So this is another benefit – it is simple and clean administratively.

Another factor in support of garden leave is that employees know what the organisation’s attitude to resignation in certain situations will be. This transparency can be useful. It is going to save time, the employees concerned will not disagree with the decision to send a colleague on this type of leave and it will not come as a surprise to the employee affected. Being a simple administrative process can help too. Typically the areas affected by an employee taking garden leave will include payroll (the pay and benefits area), IT (for systems access) and the security department (for buildings access, etc).

On the other hand, where an organisation uses garden leave, employees not only know about it but work it to their benefit. If for example, an employee is intending to leave and join a competitor, they will be able to work out the optimal time to resign despite knowing full well that the response will be to leave immediately. This may be to their advantage for personal issues like planned holidays. From this point of view, using garden leave more judiciously might work more effectively overall.

This might seem a touch arcane in the 21st century. Although contracts in employment have become more sophisticated, they have also needed to be looser, based on the entitlement to work under human rights legislation in Europe. Garden leave, because it doesn’t get invoked that frequently, allows organisations to check their notice periods – they are not always good at checking them frequently – and reducing them. Often the reason is that they tend to be quite timid; fearing the loss of key workers (plus it is another administrative job among many and can get forgotten). It is easy to set longer periods of notice than might be optimal or even appropriate.

It might even be more appropriate to reduce notice periods when employees leave to go to specific employers. Why hold on to someone who is joining a competitor when it is in everyone’s interest to move on. If garden leave is necessary, why not get them to do some useful work for you; complete a project that involves a knowledge transfer to other colleagues, or whatever?

Even considering garden leave is a defensive approach. What would we think of our own organisational reputation if someone were to explain that garden leave was part of another firm’s policies? We might ask ourselves what is it that we are afraid of, because garden leave is all about limiting risks. It’s not about anything positive for either the organisation or the individual employee. You might want to hold an employee in purdah, effectively suffocating them from any access to colleagues, your systems, your offices, in exchange for a moratorium period where they are not doing anything or going anywhere. Put like that, is it worth it?

What is a process such as this actually doing for the organisation? Possibly keeping a competitor at bay because it can only limit the risk if it’s a competitor you’re afraid of. What you can do is to use that time to analyse and potentially identify any critical information that you believe may have been taken from the organisation. Years ago, before the data evolution/computing power, that information would have been a diagrammatic representation of drawings or patents (information typically copied and taken away in a briefcase) but today it is harder to analyse if it is undertaken as a software transaction. So the garden leave process buys you time to undertake that sort of examination, which may lead to something serious, such as some form of legal challenge that you may be able to level at an employee – if you find any evidence.

Outside of this type of issue, however, garden leave is actually likely to be a costly and ineffectual policy. The interesting thing for those involved in a professional capacity, in a compensation and benefits role, is to look at the relevance of the individual in their position. In other words, how important is what they do and, in the event of termination of contract, what they carry over to another organisation? An exploration of that issue will show that, actually, more senior people generally are not such high risk. They may be a higher commercial risk if they are privy to strategic options being discussed, but they are less likely to be risky in terms of technical know-how. Those in senior leader management positions perhaps don’t have the technical depth to be dangerous. The people who are most likely to be of risk to you and your company are going to be in the middle, in the main activities of the business, whether that’s software, engineers, aeronautical engineers – because it’s their core and professional expertise that’s absolutely critical. This is the area of competitive advantage and where the patients are likely to be.

 

In many organisations, compensation and benefits specialists sit at the heart of the enterprise but are not always involved in all critical human resource processes. In the context of garden leave, the case is made for the compensation and benefits specialist to be involved early in the recruitment process, for example, and to agree the appropriate and relevant notice periods for people of different competences. This is not based on pay level but on the critical know-how that the new employee is bringing to the business. How much will they know and how much will they be involved in?

Notice periods have changed significantly in the last 20 years, partly driven by golden parachutes for senior employees. Since the 1980s, the tenure of the most senior worker has become less stable and as a result, people taking on senior jobs have been starting to negotiate contracts which protect them in event of job loss. Part of this has been negotiating their notice period so, in the event of being asked to finish, they would have one or two years’ worth of pay. The whole issue of notice periods, garden leave and so on has been related to this issue.

If you were to examine most companies’ notice periods, you will typically find that the most junior employees are on the shortest notice period and the most senior are on the longest. In the context of this debate, that is not actually the most effective or efficient way of running your organisation. Garden leave is either irrelevant or a costly process.

Pay and benefits professionals have a strategic role to play here. Except for the large infrastructure businesses where long-term investment projects underpin the operations of the business, for most organisations, pay is the largest cost. Pay and benefits professionals are working in this area every day of their working lives and they have the opportunity to see the inconsistencies in policy and in line management interpretation. Notice periods and garden leave are good examples of how pay and benefits can get involved more directly in an effective way.  

Individual employees and employers will ideally want to have a happy ending to a contract; as “happy” as the original signing up of the worker was. For both parties to be able to walk away with no obligation, no money changing hands, no notice and no euphemistic gardening leave would be terrific. All reputations would be intact.

Mostly, when an employee and an employer part company, it is for good. It should be a time to celebrate, say thank you and to depart. Sometimes, though rarely, when an employee leaves and goes to a competitor but then finds they are not happy and wants to return, it is a huge coup for the original employer. The employee will have seen that the grass is not greener and will now also see what opportunity exists to return to their original employer. The employee comes back with a higher level of understanding and a greater level of commitment – such a difficult issue to measure but so important to motivation, energy and performance. This is an incredibly important opportunity for the organisation.

Increasingly, as employees have more fluid careers, the chances will increase that an employee will leave and choose to come back again – having gained greater value for both parties. This might be an issue for the pay and benefits team to be discussing with their colleagues in the talent area.
Putting somebody on garden leave and implying that you don’t trust them or want them is not a great way to create a happy ending. There are pros and cons in whatever an organisation decides to do.

 

Simon North is Director and Co-Founder of Position Ignition.