Zappos’ adoption of holacracy—which eliminates managers and distributes authority among sovereign, self-organizing teams—was greeted by observers as a big and bold step. The move might have seemed even more radical had it been made by most any CEO not named Tony Hsieh.
In his 15 years at the helm of the Las Vegas-based online shoe and clothing store, Hsieh has earned a reputation for employing innovative and unconventional people practices. His progressive approach has worked too, as Zappos has become an online retail giant and one of Fortune’s “100 Best Companies to Work For.”
It’s no secret, however, that holacracy hasn’t been universally embraced by the Zappos workforce.
This past April 8, Hsieh sent a memo notifying his approximately 1,500 employees that the organization would be accelerating its implementation of the holacracy system, which Hsieh felt wasn’t moving quickly enough. The following month, the company reported that 210 workers would be leaving voluntarily, rather than sticking around to see how this whole holacracy thing works out.
Fast forward eight months, and it seems that many Zappos employees still aren’t sold.
A recent Atlantic article reports that 18 percent of Zappos’ staff has taken buyouts in the last 10 months, bringing the company’s 2015 turnover rate to 30 percent—10 percent above Zappos’ typical annual attrition rate.
The same piece delves into the possible reasons why this new manager-free structure may be driving workers away, and concludes that the system might be doing as much to confuse employees as it is to empower them.
To wit: Atlantic Associate Editor Bourree Lam references a 2015 New York Times article in which payroll employees shared their struggles in determining salaries once holacracy was put in place and job titles were effectively abolished at Zappos.
For its part, Zappos maintains that holacracy and its disdain for traditional hierarchies has had little bearing on recent turnover rates.
In fact, a Jan. 15 statement posits that last year saw employees leaving in larger-than-usual numbers “not because of anything related to holacracy or Teal, but because the economics of the offer were too good to pass up.”
(“Teal,” if you’re wondering, is the state of self-organization that author Frederic Laloux describes in his 2014 book Reinventing Organizations. Within Zappos, the “Teal Offer” is a version of the company’s long-standing proposal in which employees who aren’t 100 percent on board with the organization’s plans for the future can opt for a buyout. In the aforementioned memo, Hsieh announced that those who felt the new self-management style wasn’t for them would be offered at least three months’ severance if they chose to leave.)
According to this statement, the company says the 10 percent spike in turnover in 2015 “was mostly due to us giving long-time employees the opportunity to pursue their dreams.”
For example, some long-time employees were offered more than a year of severance or one month for every year worked, whichever was greater. Meanwhile, other veteran workers were offered the same severance, as well as the chance to rejoin Zappos after 12 months, which “allowed people the opportunity to pursue their new startup ideas, or take time off to take care of that sick relative, for example.”
That may smell a bit like spin, but Zappos maintains that the number of employees who have taken “The Offer” is in line with what the company expected.
Be that as it may, the retailer has certainly taken a hit since adopting holacracy, losing more than 200 workers and evidently ruffling the feathers of at least some who stayed.
It will be interesting to see how, if at all, the hoopla surrounding holacracy affects Zappos’ employment brand beyond the short-term. Given Hsieh’s track record, I think it’s a safe bet that Zappos will fully recover. Lam seems to agree.
“ … It’s clear,” she writes, “that Zappos is going through a rough transition—one that it anticipated, and one that could make it stronger in the end.”