Zappos loses 14% of workforce to controversial new leadership system

In March this year, Tony Hsieh, CEO of US based company Zappos, gave his workforce an ultimatum.

Workers were told that if they were not on-board with the company’s overhauled management system – which stripped away traditional management roles and titles – they had to make a decision to resign in exchange for three months’ pay.

The Washington Post reported that Zappos said it had offered the option to eligible employees so that it could fully and rapidly implement the new system.

Since the April 30 deadline passed, 210 employees – around 14% of the company’s staff – took the option to resign.

Zappos confirmed the statistic, but declined to specify seniority demographics.

John Bunch, who is reportedly helping Zappos’ transition to the new system, speculated in an email why such a large number of employees took up Hsieh’s offer.

“The offer was a big incentive to leave Zappos and people took the offer for various reasons,” he wrote. “Some Zapponians took it because they are not in line with the vision of the company, others took it to pursue other passions including starting businesses. Ultimately, however many people took the offer is the right number because they are doing what is best for them and for Zappos.”

Reports say that Hsieh sent out a memo before giving the ultimatum, in which he acknowledge that the new system was not being implemented “fast enough”. In the memo, he also acknowledged that “self-management and self-organisation is not for everyone”.

The new, radical system includes a trademarked concept called Holacracy, in which traditional corporate hierarchies are replaced with self-governed teams known as “circles”. This is designed with the intention of making organisations more agile and innovative.

Hsieh said in his memo that his intention was “to make Zappos a fully self-organised, self-managed organisation by combining a variety of different tools and processes”.

Zappos has also had a long-term deal in place for employees, which offers them US$2000 to resign if they feel that they are not a good fit for the company.

In 2004, when the company relocated to Las Vegas, Hsieh offered to help pay for employees to return to San Francisco if they were unhappy in the new company headquarters city.

In March, Bunch predicted that the new management style would not have a 100% success rate. In an interview, he that Zappos’ new system had been successful with some workers, but there were “other people for whom maybe it [hasn't] resonated as strongly”.