LAS VEGAS, Nevada—On Tuesday, May 19, Zappos CEO Tony Hsieh stood nervously before his employees at the company’s Q2 All-Hands meeting at the Smith Center in downtown Las Vegas. It was just days after 14% of his company accepted a voluntary buyout offer if they weren’t fully committed to the company’s shift toward self-organization. That percentage could still rise depending upon how many employees take him up on a second, more lucrative offer.
Since 2013, Hsieh has been pushing his employees toward Holacracy, a relatively new organizational structure developed by a software engineer that does away with traditional managers and strips employees of their internal titles. In order to accelerate his new strategy, Hsieh offered employees an ultimatum in a 4,700-word memo, first reported by Quartz, on March 24: take three months’ severance and leave or get all in with the company’s new mandate.
Soon after making the first offer, Zappos extended a second offer to 9% of the company— known internally as the “SuperCloud offer”—to help the company complete its migration to parent company Amazon’s technical infrastructure, giving them until the end of the year to make their decision with the promise of a bigger payout. Most employees who were extended the second offer work with the tech team, or are in other ways integral to the SuperCloud migration. Sources familiar with that cohort tell Quartz that the number of employees who plan to take the second offer is significant; Hsieh told Quartz that those numbers won’t be finalized until 2016 and that the company’s overall attrition rate will likely decline in coming months as a result of the offer. Another Zappos executive told Quartz that 17 of the 132 employees extended this option decided to take the initial offer.
Hsieh, wearing his signature Zappos T-shirt and jeans, spoke with surprising vulnerability at the meeting about how difficult the past six weeks have been, with some employees calling for his resignation. ”It seems crazy to the rest of the world,” he said, alluding to his goal of self-organization for Zappos. “The typical story of corporate America is that you are a different person on the weekends and then come into the office. At Zappos, we want people to bring their full self to the office.” Hsieh has long been revered by his employees and has made his personal and company platform about Delivering Happiness, also the title of his bestselling book. He shared that many friends and long-term employees who had been with the company for a decade decided to take the offer.
Notable departures include Zappos CTO Brent Cromley; Pam Tidmore, VP of customer service, HR and recruiting; Augusta Scott, the company’s life/goal coach; and Alexis Gonzales-Black, who co-led the transition to Holacracy and left just before the initial offer was announced. In the weeks leading up to the first offer deadline of April 30, employees shared with Quartz that a number of the company’s “cultural icons” were leaving.
For many, the offer was simply too good to refuse: three months’ severance plus an additional month for each year worked beyond four years. Some took the opportunity to relocate, travel, retire, or start a business—or leave a company they felt is struggling to deliver on its promise to deliver happiness to employees. And unlike with the standing offer that Zappos makes with new hires—paying them to quit, a strategy that Amazon has also adopted—this particular offer gives employees the chance to return to Zappos. Some shared with Quartz that a guaranteed severance payout was more attractive than not knowing what their salaries would look like under the new structure.
The company has yet to announce exactly how it will compensate employees in coming months, but it will be tied to “badging,” where employees earn badges based on their skill sets instead of being compensated for holding a single title. At the meeting Hollie Delaney, who leads the People Ops/HR circle, shared that everyone will retain their current salaries as long as they continue to hold their same roles (thus earning an initial Grandfather Badge). However, it’s unclear how this will work out for former managers, who ostensibly need to find new roles to fill by the end of the year. In a recent memo to employees, Hsieh asked for feedback on how the new system should work, and shared his thinking on the process. He proposed putting the value of all the badges in a transparent company database, and displaying what it takes to earn those badges.
As Hsieh reflected on the past six weeks, he explained that he re-read his autobiography and said he wants the company to “get back to its roots” of customer service. Instead of sharing the stage as he usually does, he MC’d the event solo. Guests included David Allen of the consultancy by the same name, which practices Holacracy, and Frederic Laloux, the author of Reinventing Organizations, who prepared a video segment. Another guest poked fun at Hsieh’s penchant for experimentation and said that hopefully Hsieh doesn’t read another new management book and force his employees to try “Pin-ocracy.”
The energy in the room was distinctly different from the last quarterly meeting, where a number of employees chose to leave early instead of participate in a companywide team-building exercise. During a break one Zappos executive remarked in passing, “It’s not all doom-and-gloom, is it?”
In the final segment, a Zappos Labs employee invited anyone to come to the stage and thank someone. A young man wearing a bright neon shirt jogged up and took the microphone to give a shout-out to his CEO: “I wanted to thank Tony. People are calling for his resignation but I didn’t even think of taking the offer,” he said to applause and catcalls from the audience. “I’m in it to win it.”