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Question: How do you encourage communication among employees? 

Tony Hsieh: There’s lot of ways of communicating with employees. But for us, really, we think the best communication is not communication from the top down, but it’s communication that happens naturally amongst friends. And so that’s why we encourage 10% to 20% of people's time, especially if you are a manager, to be spent outside the office hanging out with other employees and people that you work with. Sometimes when we do the new manager orientations and we encourage them to spend 10% to 20% of their time outside the office, if they’re someone new, then the reaction we get is, "Well isn’t that wasting time? We’re not really working." But then we ask people that have done it "How much more efficient is your team because there’s higher levels of trust?" Communication is better, people are willing to do favors for each other because they are doing favors for friends instead of co-workers and the answers we get back range anywhere from 20% to 100%. So, kind of worst-case scenario, you break even, but you’re having more fun. 

Question: What’s the least painful way to fire someone? 

Tony Hsieh: Well, so there's different ways of firing employees and firing, you know, in some cases may be even too strong a word. For example, during the training program, at the end of the first week, we make an offer to everyone. And the offer is that we’ll pay them for the time they’ve already spent training, plus a bonus, or $2,000 to quit and leave the company right then. And that’s actually a standing offer until the end of training. And we’ve extended it even a couple of months after that. 

So, technically, it’s the employee making their own choice on whether this is the right company for them. And in Las Vegas, starting pay for a call center rep is $11.00 per hour. There’s plenty of other call centers. So, $2,000 is a pretty significant amount of money. So we want to make sure that we get employees that are, really believe in the long-term vision of the company, want to be a part of that, and really believe that this is the company that is right for them from the culture perspective. And you know, we do occasionally have people who take that offer, and I actually think it’s a win-win for both sides. 

Question: How did you go about laying off 8 percent of your staff in 2008? 

Tony Hsieh: So, in late 2008, we had to lay off about 8% of our staff and that was actually a pretty tough thing to do. We were actually still growing year-over-year, but this was during the whole financial crisis and we had planned for much more growth than we actually had and so we had hired into that. And then we realized that we weren’t going to be making our numbers. So we ended up laying off about 8% of our staff. But we wanted to do it in a pro-active way. Most companies were waiting until they were forced to lay off employees when they couldn’t make payroll any more or they would lay off employees and give them maybe two weeks of severance. For us, we wanted to make sure we took care of our employees and we actually gave everyone at least two months of severance and on top of that, anyone who had worked with the company for more than two years, we gave them one month for every year they worked at Zappos. And then we also covered their COBRA payments for six months after that. 

And it was really more about making sure that we were pro-active in taking care of our employees and we were very transparent in why we had to make that decision and emailed that, not only out to our employees, but posted it publicly on our blogs as well. And so, I think for us, one of our core values is about being open and honest and we tried to be as open and honest with all of our employees and made sure that we weren’t backed into a corner, because we could have actually waited a few more months. But we wanted to make sure that they got a decent amount of severance instead of doing what most other companies seemed to be doing which was just letting them to with very little severance. 

Recorded on May 27, 2010
Interviewed by Victoria Brown

More from the Big Idea for Wednesday, June 30 2010


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