Zappos Stopped Managing Its Employees. They Don’t Seem Too Happy About It.

Tony Hsieh, CEO and cultlike leader of Zappos.

Photo by Ethan Miller/Getty Images

Zappos, the online clothing retailer and Amazon subsidiary, has spent the past year and a half conducting a peculiar experiment. It’s called holacracy, and it’s the somewhat radical notion that the employees of some companies—like Zappos—would function better without managers in the mix. At Zappos, the project began in late 2013, when chief executive Tony Hsieh announced that the company would eliminate all titles and managers and transition to a holacratic structure.

In theory, holacracy has a certain appeal. Who hasn’t, at some point, wished for a world without bosses, or that a manager would just disappear for a while? At Zappos, though, it seems like the ideal of self-governance has stumbled in practice. In late March, Hsieh said in a companywide memo that Zappos would accelerate its transition to holacracy with a “rip the bandaid” approach. “As previously stated, self-management and self-organization is not for everyone, and not everyone will necessarily want to move forward in the direction of the Best Customers Strategy and the strategy statements that were recently rolled out,” Hsieh wrote.

He offered dissatisfied employees at least three months severance if they quit; 210 of them—or roughly 14 percent of the company’s workforce—took it.

There’s nothing especially odd about the severance deal itself. Zappos has long offered employees money to leave if they don’t feel the job is a good fit. New hires who feel out of place in the company’s offbeat culture are promised one month’s pay should they choose to move on. Amazon’s Jeff Bezos has adopted this management strategy at his company’s warehouses. Amazon’s “Pay to Quit” program offers workers a chance to quit once a year, with the bid starting at $2,000 and increasing by $1,000 a year until it reaches $5,000. “In the long run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company,” Bezos wrote in last year’s letter to shareholders.

What’s troubling is that 14 percent of all employees accepted. Historically, just 1 to 3 percent of new hires have taken Zappos’ severance deal. Amazon said last year that only “a small percentage” of its employees end up doing the same. The Zappos exodus suggests that employees aren’t buying into holacracy, the language of which wavers between manifesto-esque and outright cultish. (See again Hsieh’s March memo: “The people management aspects of the manager role are valuable in what the book refers to as Orange and Green organizations, but do not make sense in a self-organized and self-managing Teal organization.” And: “The right question is not: how can everyone have equal power? It is rather: how can everyone be powerful?”)

Back when Zappos first announced its holacracy initiative, I spoke with Jan Klein, a lecturer at the MIT Sloan School of Management and expert on self-management. Klein was skeptical that Zappos would be able to pull off the shift. Holacratic systems have a history of failing for one reason or another, and are notoriously difficult to scale. There’s also plenty of reason to question Hsieh’s pseudo-utopian approach to management and business. The Downtown Project, Hsieh’s multimillion dollar attempt to revitalize Las Vegas with startups and a happiness manifesto, has faced unsettling accusations: nepotistic hiring, juvenile management, and three suicides that were largely kept quiet. Last September, as many of these reports were coming out, Hsieh abruptly stepped down as the project’s leader.

John Bunch, the Zappos employee heading up the move to holacracy, told the Wall Street Journal that he’s not concerned by the 210 departures. “Whatever the number of people who took the offer was the right number as they made the decision that was right for them and right for Zappos,” he said. Presumably Bunch has to say that. But no matter how you spin it, 210 people is a lot of employees to lose at once, and an even more formidable number to consider replacing.