Why Zappos Offers New Hires $2,000 to Quit

I met Tony Hsieh, CEO of billion-dollar e-tailer Zappos, on a shuttle bus at a CEO conference a couple of years ago. So I was interested when Bill Taylor posted a piece on Harvard Business Online about a startling hiring practice at Zappos a few months back.

Yes, the company's breathless pursuit of the ultimate customer experience is the stuff of legend. Zappos offers extremely fast shipping at no cost and will cover the return shipping if you are dissatisfied for any reason at any time. Customer service reps are given a lot of leeway to make sure every customer is an enthusiastic customer. The company folklore includes an anecdote about reps delivering flowers to a customer whose mother had recently died.
But even in light of Zappos' customer service obsession, the practice Taylor highlights caught my attention. Apparently, when Zappos hires new employees, it puts them through an intensive four-week training program, immersing them in the company's culture, strategy, and processes. Then, about one week in, Zappos makes what it calls "The Offer," telling newbies, "If you quit today, we will pay you for the amount of time you have worked, plus a $2,000 bonus." A BusinessWeek reporter interviewed Hsieh recently. He says only 2% to 3% of people take the offer. The other 97% say no deal—they choose the job over the instant cash. [Note: The bonus amount increased by $1,000 since the Bill Taylor piece.]

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On first reading about this, my inner cynic wanted to meet the HR folks who do the initial screening. Then I wondered if hordes of people are going to start queueing up outside Zappos headquarters in Henderson, Nev. I mean, what's to keep every young hopeful with gas money to roll in, attend part of the training, and head down the highway to the casinos with $2,000 in his pocket? It will be interesting to see what the impact of word-of-mouth will have on this odd HR process.

That said, the practice clearly says something about Zappos' confidence. How many of us run companies where, if we offered new hires a week's salary plus $2,000 to leave, we would enjoy a 97% stick rate? Zappos is betting real money that the enthusiasm and esprit de corps of its enterprise presents a compelling value proposition to employees. I'm impressed by what the practice says about the intensity of Zappos' commitment to protecting and advancing its workplace environment. It is one thing to tell employees: "Our corporate culture is our brand"— it's another thing to cash out recent hires who do not reflect that culture.
Zappos is acting on the understanding that the character of a company can be the most powerful yet most difficult competitive advantage to develop and maintain.

"The Offer" suggests a rare company that believes if you really want to amaze your customers, a great way to start is to amaze your employees and inspire them to amaze everyone who comes in contact with your enterprise.

And even from a financial standpoint, the idea makes increasing sense the more you think about it. Most CEOs agree turnover costs tens of thousands of dollars in recruitment, training, and lost productivity. So identifying the misfits early—at a cost of just one-week's salary and $2,000—could just be the best deal a company can make. What would you pay to get a full-time, weeklong look at your recruits' character, work habits, and social skills prior to making a commitment to them?

It seems to me that this practice does one other thing for Zappos that might be the most important: Zappos is forcing itself to do a good job filtering people on the front end, and creating a place where people want to work. The day that Zappos loses its edge, it will find itself writing a lot of checks.