Zappos knows how to kick it (cont.)

Like the free lunch in the cafeteria? It's not exactly Google-esque - cold cuts, mainly - but still. What about the regular happy hours, the nap room, profit sharing, or paying everyone's health insurance in full? There's also a full-time life coach. People come in to bitch, to look for confidential advice on how to move up - or out - or just to talk. The only rule is that they sit on a red velvet throne.

Other offbeat policies: Zappos managers are encouraged to spend 10% to 20% of their time with team members outside the office, and any employee can give any other employee a $50 bonus for a job well done.

Those may not directly translate to profits, but Hsieh and Lin consider them essential. Of the life coach, Lin says, "You can't provide great service if you're upset about something in your life. He easily pays for himself." Hsieh polls managers after they've taken teams to dinner or on a hike, and they invariably talk about improved communication, greater trust, and budding friendships. "Then we ask, 'How much more efficient do you think your team is now?' " Hsieh says. "The range is anywhere from 20% to 100%."

Now seems a good spot to learn how the Zapponians feel about their workplace. If that might interest you, look no further than the official Zappos Culture Book. Every year the company publishes an unedited commentary from employees about life at Zappos and distributes a copy to everyone. The 2008 version is a 480-page tome. From my reading and from many interviews, several keywords jump out: fun, family, smile, proud, weird, thank you, and "I heart Zappos."

Zappos isn't for everyone. Most employees are hourly, and you won't get rich on a call center salary. If you need a wall between work and life, you probably wouldn't make it through the interview process anyway.

The Zappos HR team uses offbeat, cartoony applications and wacky interview questions (How weird are you? What's your theme song? What two people would you most like to invite to dinner?) to screen for creativity and individuality while filtering out egomaniacs and wallflowers.

All new hires complete four weeks of training, including two weeks on the phones, beginning every day at 7 a.m. They can't be late or call in sick. Anyone too good to work the phones during a holiday rush isn't Zappos material. New recruits are even offered a $2,000 bribe to leave the company during training, one final effort to weed out the half-hearted (only three people accepted last year). The net effect is a culture of extroversion and nose rings - hold the cynicism.

"We do our best to hire positive people and put them in an environment where the positive thinking is reinforced," says Hsieh.

During an hour-long guided tour of Zappos, employees rang cowbells at me, chanted, and sang at every turn. Some of these people are making $13 an hour. The experience felt unique; it wasn't.

During one day of the recent CES trade show, 50 groups toured the building. Executives from the likes of Lego, Southwest Airlines, and others have sojourned in Vegas to witness the Zappos ethos firsthand. For those who can't make the trip, Hsieh has started an online service called Zappos Insights. For $39.95 a month, anyone can watch videos and read white papers on how the company hires, deals with vendors, evaluates workers, etc.

Now Hsieh may be able to add another topic: how to lay people off. In late October, Sequoia Capital staged a now-famous meeting imploring portfolio companies to cut costs. Unlike many venture-backed companies, Zappos is already profitable - a 5% margin on 2007 net sales, per Hsieh - and also cash-flow positive. Still, the executives knew they wouldn't be immune to the downturn. They settled on 124 employees out of 1,500.

Hsieh wanted to get the news out fast to mitigate stress. He announced the move in an e-mail, on his blog, and with Twitter. Almost 30,000 people follow Hsieh's Twitter feed. Hundreds of Zappos employees have their own accounts.

The Internet can be a hostile place, but the blogosphere and the Twitterati had a surprisingly positive reaction to the way the downsizing was handled. Many wrote to Hsieh directly. Said one departing staffer: "I felt like a young Michelangelo, learning under the best artists the Medici family had."

Laid-off employees with less than two years of service would be paid through the end of the year. Longer-tenured staffers would get four weeks for every year of service. Everyone would receive six months of paid COBRA health coverage. At the request of departing employees, Zappos also allowed them to maintain the 40% employee discount through Christmas. Says Hsieh: "The motivation was, let's take care of our employees who got us this far."

Nineteen companies on our list cut jobs this year. But a few set themselves apart for the way they handled the situation. Communication was key: At Camden Property Trust (No. 41), a real-estate trust specializing in apartment communities, the CEO regularly communicated the effects of the downturn as the subprime crisis took hold.

In October, having exhausted all other resources, it cut 46 positions. Everyone received at least three months of severance. When eBay (EBAY, Fortune 500) (No. 83) cut almost 1,000 people as part of a global reorganization, most U.S. employees were allowed to stay on for four weeks to take care of personal needs and say goodbye to colleagues, and received at least five months of severance and four months of paid COBRA, and one to three months of outplacement services. "How you treat the leavers has a strong impact on how the stayers feel about the company," says Beth Axelrod, eBay's SVP of human resources.

As hard as the layoffs were for Zappos, Hsieh acknowledges an uncomfortable truth about downsizing: It's an opportunity to make the kinds of tough decisions that are impossible during headier times, such as cutting employees who are underperforming, don't quite fit, or have grown in a different direction. And the experience hasn't dimmed Hsieh's ambitions.

He considers customer service highly portable and sees Zappos becoming a company that spans industries, like Virgin. To do that he's going to need a lot of good people. And in this bleak economy, his story has a happy ending, at least for now. Zappos is hiring again - mainly in engineering and marketing, piercings optional. Check the Web site for details. Or just look for Hsieh on Twitter.  

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