Known for its extensive vetting process when hiring people, Zappos is now earning praise for how it fires people. Beyond a generous severance package, the shoe e-tailer is being commended for the comprehensive way the layoffs were explained to workers.
The layoffs announced in early November covered eight percent of Zappos' staff. Affected employees are being paid through the end of the year, and longer for those working three or more years. The company is also reimbursing the cost of COBRA - the short-term health insurance for people between jobs - for six months for those affected.
In a lengthy letter to employees that was posted on his blog, CEO Tony Hsiesh called the layoffs "one of the hardest decisions we've had to make over the past 9.5 years, but we believe that it is the right decision for the long term health of the company."
He then expounded on the reasons behind the layoffs. Investor Sequoia Capital on October 7 held a meeting for all its portfolio companies and urged them to "cut expenses as much as possible and get to profitability and cash flow positive as soon as possible" in order to prepare for tough times.
He then pointed to an article by well-known internet blogger and tech exec Jason Calacanis about avoiding the "death spiral" in difficult times.
He finally noted that Zappos' revenues will reach about $1 billion this year, up from $840 million in 2007, but short of the more than $1 billion expected.
"We are proactively cutting back some of our expenses today so that we can take care of our employees properly, instead of being reactive and waiting until we are forced to cut expenses," wrote Mr. Hsiesh.
He then reassured employees that "we're in much better position than many other companies" and still growing profitably. The strong financial position enabled the generous severance packages that will "actually increase, not decrease" costs for the year.
Finally, Mr. Hsiesh reassured that although slowing, e-commerce is still growing and Zappos still expects to outpace other e-tailers in 2009.
Many customers responded positively to the blog entry. Another section of the website was full of Twitter entries from Zappos' employees expressing sorrow for co-workers who were gone and gratitude for the ones still there.
On November 12, another blog entry detailed how another downsizing in the early years forced Zappos to focus on existing customers rather than new ones. This transformed Zappos "from being just about shoes to a company focused on customer service and company culture."
"Moving forward, we have a similar opportunity," Mr. Hsiesh wrote. "We have the opportunity to make our culture stronger than ever before."
Discussion Questions: What's the best way to conduct layoffs with the least negative impact on the morale of employees who are left?