Hundreds Leave "Boss-less" Zappos As "Get-Paid-To-Quit" Scheme Backfires

Many workers dream of one day being their own boss. At online clothing retailer Zappos — an independent subsidiary of Amazon — employees can realize that dream via the company’s “Holacratic” corporate culture. Holacracy is, in the words of CEO Tony Hsieh, “a system that removes traditional managerial hierarchies allowing employees to self-organize to complete work in a way that increases productivity, fosters innovation and empowers anyone in the company with the ability to make decisions that push the company forward.” So essentially, it’s a boss-less structure aimed at driving productivity and innovation by allowing employees to take ownership of their respective goals and responsibilities. 

On the surface, one might imagine that everyday employees would be thrilled to work in an environment free from overbearing supervisors (that class of non-farm laborer who, in America, is enjoying record wage growth even as those they manage have seen their pay stagnate) harboring false notions of superiority. This is probably why Hsieh felt comfortable distributing a memo which criticized the company’s lack of progress in shifting to a completely Holacratic structure, to Zappos’ 1,500 employees. 

In the memo, Hsieh essentially gives employees a deadline for full implementation before reminding them that they are free to take “the offer”, a reference to Zappos’ practice of offering to pay employees to quit. The rationale behind the practice is to ensure that everyone who works at Zappos truly wants to be there. Historically, only around 1-3% of employees accept the pay-to-quit proposition and as such, it likely came as quite a surprise to Hsieh when more than 200 people chose to take the money and run rather than work in an environment with no managers. Here’s WSJ:

About 14%, or 210, of the company’s roughly 1,500 employees have decided to leave the firm, according to Zappos. The exodus comes amid the company’s transition to an unusual management structure called Holacracy, in which employees essentially manage themselves, without traditional bosses or job titles.

 

The company has acknowledged that the transition to this new form of self-management has been a difficult one. In March, Mr. Hsieh sent a 4,700-word memo to staff stating that Zappos, an independent subsidiary of Amazon.com Inc., was taking too much time switching to this new management structure. He offered all employees at least three months’ severance if they decided by April 30 that working in Holacracy was not for them.

 

In its training for new hires, Zappos promises a month’s pay to anyone who decides the company’s playful culture, in which employees have dressed up in animal costumes during the firm’s all-staff meeting, isn’t for them.

Here are excerpts from Hsieh’s memo:

We’ve been operating partially under Holacracy and partially under the legacy management hierarchy in parallel for over a year now. Having one foot in one world while having the other foot in the other world has slowed down our transformation towards self-management and self-organization. While we’ve made decent progress on understanding the workings of the system of Holacracy and capturing work/accountabilities in Glass Frog, we haven't made fast enough progress towards self-management, self-organization, and more efficient structures to run our business. (Holacracy is just one of many tools that can help move us towards self-management and self-organization, but simply abiding by the rules of Holacracy does not equal self-management or self-organization.)

 

After many conversations and a lot of feedback about where we are today versus our desired state of self-organization, self-management, increased autonomy, and increased efficiency, we are going to take a "rip the bandaid" approach to accelerate progress towards becoming a Teal organization (as described in the book Reinventing Organizations)...

 

Teal organizations attempt to minimize service provider groups and lean more towards creating self-organizing and self-managing business-centric groups instead. As of 4/30/15, in order to eliminate the legacy management hierarchy, there will be effectively be no more people managers…

 

Self-management and self-organization is not for everyone, and not everyone will want to move forward in the direction of the Best Customers Strategy and the strategy statements that were recently rolled out. As such, there will be a special version of “the offer” to everyone who reads Reinventing Organizations and/or meets some other criteria (outlined towards the end of this email).

We’re sure there are lessons in here somewhere both about workers’ desire for guidance and structure and about whether it’s a good idea to force people into choosing between a seemingly unpopular ultimatum and free money, but we’ll leave you with the following gem from the Zappos employee who we cannot say is “in charge” of the transition to Holacracy because to say that would be to violate Holacratic principles, so we’ll just say he’s ‘interested’ in facilitating the transition:

“Whatever the number of people who took the offer was the right number.”

It's hard to argue with that.