Why Are So Many Zappos Employees Leaving?

Last year, the company’s turnover rate was 30 percent.

Flat, flat, flat. (Jorge Silva / Reuters)

The online shoe retailer Zappos has always stood out for its unconventional human-resources philosophy. For nearly a decade the company has been making something it calls “The Offer” to new hires—an opportunity to take a $2,000 stipend instead of starting the job. The company prides itself on the attentiveness of its customer service and the devotion of its workers, and “The Offer” is an attempt to weed out those who aren’t thrilled about the work ahead.

But now, one of the company’s unusual approaches has led to what’s being called a Zappos exodus, as 18 percent of the company's staff have taken buyouts in the last 10 months. That takes Zappos’ turnover rate for 2015 to 30 percent, which is 10 percentage points above their typical annual attrition rate.

Why are so many employees leaving? Backtrack to 2013: Tony Hsieh, Zappos’s CEO, started promoting a new management structure called holacracy. It’s a setup that’s supposed to encourage collaboration by eliminating workplace hierarchy—meaning no more titles and no more bosses. The system instead asks workers to track all strategy decisions and their outcomes in a web-based app called Glass Frog. Roger Hodge, writing in The New Republic, called it “a radical experiment … to end the office workplace as we know it.”

But there was a result of holacracy that the company didn’t anticipate (but probably should have): confusion. Self-governing produced a bit of a mess, with some workers telling reporters that they weren’t sure how to get things done anymore. The New York Times reported last year that those in charge of payroll, for instance, had trouble determining salaries after titles had been banished, and some employees wanted a boss to consult when making important decisions.

In a statement posted online on Friday, Zappos attributes the widespread departures to a recent buyout—a special version of “The Offer” made after the company began changing its internal structure. The company says that the additional turnover in 2015 “was mostly due to us giving long-time employees the opportunity to pursue their dreams (average severance paid out was about 5.5 months pay when we last analyzed the data).” Additionally, the company seems unbothered by the numbers: “We have always felt like however many people took the offer was the right amount of people to take the offer, because what we really want is a group of Zapponians who are aligned, committed, and excited to push forward the purpose and vision of Zappos.”

Flattening workplace hierarchies has been a management trend for several years, it’s accrued its proponents and detractors. The argument for such a radical break from tradition is that so-called “flat” workplaces are in theory more likely to spark unlikely collaborations, which in turn can lead to creative new initiatives. There is also the undeniable appeal of cost-cutting: Consultants tend to like organizational philosophies that reduce the number of employees necessary.

But while some case studies have shown this system’s effectiveness, it’s far from certain whether it’s a good idea for all companies (particularly large ones). And, as those concerned with management theory have noted, flattening hierarchies runs the risk of taking away employees’ motivation to stay at a company because there’s no ladder to climb.

In fact, recent research seems to indicate that flattening workplace hierarchy is not only much more complicated than it seems, but that people prefer a pecking order. One Stanford study found that egalitarian work structures were disorienting. Workers found hierarchical companies were more predictable, and therefore preferable, because it was easy to figure out who did what and how compensation should be doled out. Another Stanford paper, which looked at why hierarchical structures in the workplace have such staying power, concluded perhaps the obvious: Hierarchies work. They are practical and psychologically comforting.

Hsieh, for his part, seems to understand that holacracy isn’t for everyone. Last year, in a 4,700-word memo (which he acknowledged takes about 30 minutes to read), he told employees that they could either get onboard with holacracy or take three months’ worth of pay and quit. He wrote:

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. Therefore, there will be a special version of “the offer” on a company-wide scale, in which each employee will be offered at least 3 months severance (and up to 3 months of COBRA reimbursement for benefits) if he/she feels that self-management, self-organization, and our Best Customers Strategy and strategy statements as published in Glass Frog are not the right fit.

Which takes us back to the exodus. Over the last 10 months, employees have been taking Hsieh up on this offer. It’s not clear how many of these departures would have come about in the form of layoffs, as their COO Arun Rajan initially told Quartz that many offer-takers were managers, and that the managers (whose status was diminished by holacracy) who hadn’t taken the buyout would have likely been laid off as the company restructured. Contradicting Rajan, Zappos now says that those in traditional managerial roles would not have been laid off, and the managers who wanted to stay would be offered the opportunity to switch roles at the company. Whichever is the case, it’s clear that Zappos is going through a rough transition—one that it anticipated, and one that could make it stronger in the end.