Are We Too Afraid of Firing?

If you work in the software industry, your employer can probably fire you at any time, for any or no reason. That's because most software companies offer at-will employment.

And yet, in my entire professional career, I've never encountered a company that fires people casually. Sure, some companies react to bad quarters with drastic layoffs, decimating the rank and file while sparing the management responsible for key decisions. And company lawyers surely appreciate the defensive advantages of an at-will employment agreement when terminated employees threaten to sue.

But my experience is that no one, not even Mitt Romney, likes to fire people. To the contrary, companies and managers hate firing people. They give poor performers countless opportunities to shape up. Mediocre performers may not receive promotions or raises, but their jobs are usually safe.

That might sound like a good thing, especially to those of us thankful to have good, stable jobs in a fragile economy. But the unwillingness to fire is symptomatic of loss aversion, a fundamental cause of irrational decision making. And it's ultimately bad for employees in at least two ways.

First, because firing is rare, there's a strong stigma of being fired. Hence, many employees worry more about avoiding being fired than optimizing for their career development. That's bad for both employees and companies. Your career is an investment, and an optimal investment portfolio is never risk-free. But the extreme downside (or perceived downside) of being fired causes people to sacrifice expected gains to minimize worst-case losses.

Second, employers have learned to be overly risk-averse in the hiring process. If the cost of a mistake is too high, then interviewers use any uncertainty about a candidate as a basis for rejection. A certain amount of risk aversion is rational. But no interviewing process -- not even mine -- is perfect. And a loss-averse hiring process penalizes the candidates who would most benefit from an opportunity to prove themselves.

In short, our fear of firing punishes the very employees in whose careers we should be most invested. I don't have a simple solution, and I'm certainly not suggesting that companies go on firing sprees to compensate.

But we should strive toward rationality.

• Building companies where employees do their best work and develop their careers, rather than obsess about job security.
• A hiring process that accepts a certain amount of risk in order to reap the rewards of giving people a chance.
• And, most importantly, less stigma when people are fired.

Reid Hoffman and Ben Casnocha tell us that you should manage your own career as a startup. Well, 90% of startups fail. An irrational fear of failure prevents us from taking intelligent risks. Much as Silicon Valley has succeeded by overcoming the stigma of failure, we as employees and employers need to overcome the stigma of firing. Only by doing so can we adapt to the future, invest in ourselves, and transform our careers.