Oct 7, 2015 · 6 minutes

You have to make it through almost 7,500 words of Roger D Hodge fascinating New Republic profile of Tony Hsieh’s Holacracy experiment before you get to the most important part.

That’s 7,500 words of Airstream parks and open mic nights and Fernet shots and all the other crap that forms part of Hsieh’s standard multi-day media charm offensive. Most of us have read it all before, and some of us have even written it before: The obligatory preamble about all the crazzzzzy things Hsieh is doing in Vegas and all of the absolutely bonkers people he surrounds himself with. The only thing that seems to have changed recently is that, rather than putting reporters up gratis in the Ogden, Hsieh [Disclosure: a Pando investor] now forces them to slum it in the hipster trailer park that he too calls home.  

The Downtown Tour is indicative of Hsieh’s mastery of the press -- his ability to throw enough weirdness at reporters -- THERE’S A GIANT PREYING MANTIS, HSIEH ONLY WEARS ZAPPOS T-SHIRTS, LLAMAS LLAMAS LLAMAS!!!, MAN MY READERS ARE GOING TO LOVE THIS SHIT!!! -- that by the time they get to the “and yet….” part of the article, most people have stopped reading.

And now journalists have to bolt on an additional thousand words or so explaining the maddening hell that is Holacracy.

And so it’s very likely most New Republic readers won’t have made it to the most important “and yet” of Hodge’s profile. Which is a shame, because that part comes when Hodge actually talks to Rachel Murch, Zappos’s head of ”Organizational Change, Learning and Development.” Aka, one of the key people actually responsible for implementing Holacracy, and so best placed to say how it’s actually working.

Murch is piiiiiissed.

A Las Vegas native who was recruited five years ago as a change manager, Murch told me she saw a draft of Hsieh's March email before it was sent out. “I thought, 'Oh my God. I have to figure out a way to make this better.'” She believes the final version was better than it had been, but she still thinks the whole thing had been handled badly. She immediately set out to organize a series of weekly “Teal Talks” to help employees make sense of the changes. 
Murch believes the talks have been helpful, but feels like she and the other organizers were playing catch-up. “We're now doing what we should have done months ago, before the offer was made, to prepare people and educate them,” she said. “Tony had no idea how people would take this.”

No, I mean she’s really pissed...

In June, I contacted Murch to see if things were beginning to settle down at work. “No one knows how to get things done anymore,” she wrote to me in an email. “It's easy when there are bosses with budgets. Now we still don't have any answers to how budgets are going to work, and no one is willing to make any decisions because they don't know if they have the authority to do so. My Zappos life is not very productive right now and I hate that. Hopefully things will get better soon.”

The person responsible for “Organizational Change, Learning and Development” hates her “Zappos life”.

But there’s more…

When I followed up in September, Murch told me things were slowly improving, or at least that people were figuring out how to get their work done. When I asked if anything had been decided about how compensation was going to be set, however, she sounded less enthusiastic. In fact, she sounded pretty frustrated. Increasingly, she said, compensation at Zappos was being tied to something called “badges” and a confusing new internal currency called “People Points.” Everyone at Zappos has 100 People Points that add up, roughly, to the percentage of time they spend on all of their roles.
The badging system seems to be modeled on scouting merit badges. Employees can earn badges for attending workshops or events. These are “suit up-show up” badges, Murch said. And badges exist for a variety of accomplishments, which are created mostly by employees themselves, or perhaps by lead links in particular circles, or by Hsieh. Then there are the compensation badges, and these, she said, were getting a lot of attention right then, for obvious reasons. “People are starting to go, OK, I'm ready for a raise, what do I have to do?”

And more…

One thing Zapponians now have to do is their own research about salaries, to find out the market rate for jobs at other companies that correspond to their roles. In a normal corporation, such things are taken care of by the human resources department. Not at Zappos, not anymore. Instead, if Murch wants a raise, she has to do all the research into what she's worth, create a badge, come up with qualifications for receiving the badge, and then design the actual look of the badge. Then it all has to be approved by the People Pool & Comp circle. And who happens to be the lead link of that circle? “Now, instead of trying to convince your boss that you deserve more money,” said Murch, incredulously, “you have to convince Tony Hsieh.”

That last line is the kicker. As I described in my own long profile of Holacracy back in July,  Holacracy doesn’t get rid of all bosses, it gets rid of all bosses except Tony Hsieh. As a result, Hsieh’s radical new management policy hasn’t turned Zappos into a democracy, it’s turned it into a dictatorship. A dictatorship headed by a man who is pathologically averse to making tough decisions.

Still, at least Hsieh’s conflict avoidance means Murch is unlikely to be fired for her comments. Not least because, as she explains, no one gets fired at Zappos any more. Rather, they get kicked to a bizarre purgatory called “The Beach”

The lead link can't fire you anymore, so someone at Zappos came up with the fairly terrifying idea that people with no roles should be “on the Beach.”
...Zappos culture, she said, had always been one of “hire slow and fire fast.” People who were identified as bad “culture fits” were quickly weeded out. With the coming of Teal, however, and the creation of the Beach as a kind of holding pen or killing floor, the culture had taken a brutal turn. Some people who got beached found themselves being shunned as if they were contagious.

And what kind of crimes might render one “contagious” at the new Zappos? Former manager Tammy Williams explains…

Williams told me the story of one woman, named Rosemary, who had been removed from her role in CLT shortly after she completed new hire training. Her lead link didn't think she was connecting emotionally with customers, even though the woman had 13 years of call-center experience. As it turned out, Williams said, Rosemary was simply too polite. She said, “Yes, ma'am,” and, “Yes, sir,” because that's how she had been trained to address customers, but such old-fashioned formal manners were foreign to her lead link, who demanded a grittier personal style.

Sometimes it’s fun when things turn out as you predicted. This is very definitely not one of those times.