Dan Ariely: Zappos and "the Offer"
Dan Ariely is the James B Duke Professor of Psychology and Behavioral Economics at Duke University. He is the founder of The Center for Advanced Hindsight and co-founder of BEworks, which helps business leaders apply scientific thinking to their marketing and operational challenges. His books include Predictably Irrational and The Upside of Irrationality, both of which became New York Times best-sellers. as well as The Honest Truth about Dishonesty and his latest, Irrationally Yours.
Ariely publishes widely in the leading scholarly journals in economics, psychology, and business. His work has been featured in a variety of media including The New York Times, Wall Street Journal, Washington Post, Boston Globe, Business 2.0, Scientific American, Science and CNN.
Dan Ariely: The biggest line item for any company is employee compensation. That’s it. Any company in the world, the main thing they should care about is employee compensation and motivation. And sadly, almost nobody is testing it out. Almost nobody has figured out how to do it better. The most companies do is they go to these consulting companies that are specializing in compensation - compensation advisors. And you know what these compensation advisors tell them? They tell them what other companies are paying. So it ends up that the whole game is basically to equate salary with other companies. And nobody is thinking innovatively about how we get people to care. Sure, money is one way, but it’s only one way. And I think these compensation consulting companies are just making things worse and they’re just making everybody pay the same, not taking really into account the truly vast array of possible human motivations.
There’s another kind of really interesting practice at a company called Zappos. Zappos is a shoe company, a really good shoe company. They sell shoes for relatively a lot of money online, but their customer service is incredible. They were bought by Amazon, but they were kept as a separate company. And they have an interesting process. If you are interested in working in their customer service, you come in and you get 10 days of training in which they tell you all about the system and the processes, and you get to meet people and you play games and sing Kumbaya. And at the end of this process, they tell you, "You know what? Welcome to the family. We really love you. We want you to stay here. But you know what? This is not for everybody. And if you decide today that this is not for you, we will give you $3,000 to not take this job." Now, you can think about it. You could say, what a strange idea. How did they come up with paying people not to take a job? And by the way, this is, I don’t know, a $12 an hour job. This is not something people get lots and lots of money per hour. So $3,000 is quite substantial.
It turns out it has two goals of doing that. The first one, is they don’t want people who are not really dedicated because people who are not dedicated are not good employees themselves and they can also pollute the people around them. Right? If you sit in the floor with other people who don’t care about the job and they talk badly to customers, you know, this could penetrate and make the whole atmosphere much worse. So that’s the first thing. But the second thing is something calledcognitive dissonance. And cognitive dissonance is the idea that if you act a certain way and your beliefs are not consistent with this action, what can you do? You can’t change your action. Your action has been established and you remember what you did, so you change your beliefs to be consistent with this action.
So what happen? This offer that Zappos give doesn’t last forever; it lasts for, I think, 48 hours. And then if you didn’t take this offer after this 48 hours and you wake up every day going to work, you think to yourself, "Why didn’t I take this $3,000?" And you probably say to yourself, "It must mean because I really love this company and I’m really dedicated and I really care about it," and therefore you go to work and you’re even more careful.
This is a really interesting approach, right? It clears the edge of the tail of people who are not caring about Zappos and it gets everybody else who takes this offer to be actually more motivated. And I think it’s really a shame that only startups, only companies who start small and start from a blank slate, are really innovative in terms of how to motivate people, and the rest of the companies, the big companies, are really not finding anything interesting. And of course, the pinnacle of this is to think about Wall Street, where compensation is basically boiled down to nothing but salaries and bonuses, as if people don’t care about anything else and this is the only thing that can motivate people. And I think we actually need to look at startups and need to look at new models and also try to innovate in that regard in big companies.
Psychologist and Author Dan Ariely says Zappos' policy of offering potential customer service employees $3000 not to take the job is money well spent.
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