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How Zappos Decides How Much To Pay Employees Under Its New ‘Self-Management’ System

BusinessInsider: In 2013, Zappos began transitioning to “Holacracy,” an alternative management system that replaces a pyramidal hierarchy with a network of circles dedicated to specific functions like marketing or HR, and ditches traditional management.

Job titles are replaced with “roles” that employees can accumulate. This past March, CEO Tony Hsieh decided the transition was moving too slowly and offered employees a severance package to leave the company if they didn’t agree with its direction.

By May, 210 of the roughly 1,500 employees (14%) took the deal, and the Amazon-owned online retailer was all in with Holacracy.

One of the key challenges the company faces during this time of transformation is figuring out how to pay workers who don’t have traditional job titles. It’s now experimenting with a “badge-based compensation” system developed by Holacracy founder Brian Robertson.

Employees receive various badges that represent roles and skills they have. Currently the badges don’t represent pay, but they may in the near future.

“At this time, compensation is tied to roles, and the badges encompass the work or skills being done in those roles,” says Lisa Jewett, who has the role of “@Badge_Librarian” and is leading how compensation works in the Zappos Holacracy. “However, we are currently in the process of building a more robust badging system that will allow people to build their salary based on the avenues they would like to pursue.”

Essentially, that means that the pursuit of badges may eventually resemble a “leveling up” process from video games, where the acquiring of a new badge automatically equals a bigger paycheck. As of now, employees looking for a raise submit an application to Zappos’ Compensation Circle, a group of employees responsible for approving salaries.

Jewett says Zappos still hires employees for traditional job roles and determines their base salaries accordingly. Once employees have undergone necessary Holacracy training, they can begin to pursue a more customized path by taking on roles in different parts of the company.

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