Cutting staff without killing morale: Zappos gets it done

Yesterday, online shoe (and clothing) retailer Zappos announced that it would be laying off 8% of its workforce. The move is not unlike what many retailers are doing: cutting costs in light of tough market conditions. But did you ever notice that there seems to be a right and a wrong way to reduce your headcount? It may be largely intangible, but you just know when it feels like a company is doing it the right way. And Zappos seems to have done it right.

CEO Tony Tony Hsieh sent a letter to all employees and posted a statement on his company blog. Basically, the powers that be wanted costs reduced. Zappos is doing well this year, especially in light of how other retailers are suffering. But their cost structure for this year was based upon projections they just won't meet, and so they need to scale back the costs. The company is profitable, but needs to get costs in line with sales.
Management is calling their strategy proactive - - basically trimming the costs while they're still doing well and aren't "forced" to make changes. Here's where the company is scoring points: Instead of doing a typical two weeks severance pay for employees losing their jobs, Zappos is paying all employees through the end of the year. Employees who have been with the company for 3 or more years will get a little extra. Zappos is also paying the cost of COBRA (health insurance coverage after employment ends) for six months for each employee.

How cool is it for a company to take care of their employees that way? Losing a job is never fun, but when a company is this generous, it helps to ease the pain. Sure, this stuff is going to be costly for the company, but their commitment to treat their employees well says a lot. In addition, being transparent to the world about the situation at the company can only generate more goodwill toward the brand.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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