Holacracy has some issues with vocabulary and compensation

Holacracy Organization

I’m broadly a fan of the idea of holacracy — essentially, running a company without true management titles in a way that’s supposed to foster healthier approaches to conflict and allow for more fluid movement between roles — because, to be honest, we’ve had companies for over a century now and no one seems to know exactly how to manage them properly to get a good mix of “we make money” and “our people are happy being here.” (Truthfully, that intersection point may be a utopia.) Holacracy is good in the sheer sense that someone, somewhere is trying a different approach rather than saying “Well, that’s how things are!”

The most notable U.S. company to try this out is Zappos (in turn owned by Amazon), and there’s a new, long profile of how the process is going over at Quartz. Definitely read the profile when you have a few minutes — it’s interesting and brings up more points than I can make here — but before we get into some issues with holacracy, let’s start by talking about something really interesting and positive around the idea. Tony Hsieh, the CEO (more on titles in a second) of Zappos, noted this in the Quartz article: when a city doubles in population, it tends to become 15 percent more productive. When a company doubles in size, it tends to become less productive.

In the same vein, 89 percent of the first Fortune 500 companies are gone now, underscoring that idea: companies tend to die. Cities don’t. What if we looked at building a company like we build a city?

Obviously this idea, too, is somewhat of a utopia — comparing “a city” to “a company” is interesting on surface, and definitely somewhat academic in nature, but it’s also a little bit of the definition of apples and oranges. Some people could look at those two concepts and say “Well, there is some overlap we could exploit to make work better…” but most human brains aren’t capable of that.

That goes back to the core issue with holacracy, in my humble opinion. It’s too confusing for a normal person to process. Consider this paragraph:

Hsieh says that the responsibilities that used to be held by managers are now split between three roles: lead link, #mentor, and compensation appraiser. (In a tech-y conceit, the #mentor role does actually have a number sign in its name.) The #mentor circle is exactly as it sounds: matching employees with mentors. While lead links are focused on guiding the work itself, mentors are tasked with employee growth and development, and compensation appraisers work with both to determine an employee’s salary. “Manager” is now essentially barred from the Zappos vocabulary; but in casual conversation, employees still use the term.

Imagine going to work and having to call people “lead link” or “mentor” or “compensation appraiser.” It totally flips the script of how we think about managers and hierarchy; trying to turn around that type of embedded understanding of terms is like trying to reverse several oil tankers at once — in a fucking kiddie pool. It’s hard, in other words.

As for compensation:

“How do you compensate someone who’s on the phones 50% of time, works 20% in wellness, and 20% in a merchandising role with product?” says Delaney, who is now the lead link of the company’s senior HR circle, called People Ops. “There’s no market-based compensation for that person. Right now we’re trying to figure out what is that world going to look like, and how do we fairly compensate people in that system?”

Alright, so break this down:

  • Roles/titles are confusing.
  • You probably will get paid less for doing more work, generally-speaking.

Is it any wonder, then, that —

Recent departures since the rollout include David Hannigan, who was brought in as the chief information security officer after the company’s data breach in 2012; Larry Hernandez, a recruiting lead who was in the pilot group for Holacracy; and former CTO Arun Rajan who was part of the tech exodus. Rajan returned this fall as interim COO and says that he now understands the inner workings of the company better since everyone’s roles are more clearly identified. “It’s the best tool we have to move into self organization,” he tells Quartz.

In many cases, Holacracy served as the tipping point for departures. Some former Zappos employees say the system makes it hard to hold staff accountable for meeting deadlines, and get people to take responsibility for things that need to be done. But “for a lot of us who left, Holacracy wasn’t the No. 1 reason,” says a former employee who held a senior role in the company and asked not to be named. “The No. 1 reason is that people don’t understand the strategy for Zappos. What’s the strategy? Part of the strategy is self-organization.”

Here’s the thing: holacracy is an idea. It’s a concept. Even Tony Hsieh and his top people (his “lead links”) admit it might not be a long-term solution.

This is kind of a bigger execution of the idea that, as millennials take over the workforce, hierarchy will die out. It probably won’t. It’s very hard to change basic tenets of how work unfolds; it’s too jarring for people. You can’t suddenly tell a group of people, “Now you don’t have a true manager anymore.” That can work for maybe 1-2 out of every 10 people, but the other 8-9 will either slack off, not know what they’re supposed to focus on, or a handful of other problems. Humans aren’t really designed for this holacratic model, IMHO.

Even if they were, confusion over titles and fair wages would doom it.

What’s The Real Answer?

Workplaces often suck, and the typical refrain is “That’s how it always is!” There are answers, though — they requires humans to make some focused choices that they may not be capable of making once they get more responsibility and more tasks, but still. There’s an approach that can be followed.

A lot of what’s linked above is a utopia in its own right, but the cool thing is — you can do pretty much all of that while still maintaining a revenue-first focus in your organization.

Once anything seems like “extra work” or “an impediment to the true goal” (which, even if often unstated, is making money), people won’t focus on it. That’s just reality.

Ted Bauer


  1. Hey Ted, I just came across your post and wanted to clarify some things about Holacracy because there some misunderstandings out there and you mention a few of them. As a Certified Holacracy Coach with decades of previous professional experience and academic credentials to boot, I wanted to respond. It’s a long post, but I hope if others find your article they will at least be able to consider some of these points as well.

    Point #1: “That goes back to the core issue with holacracy, in my humble opinion. It’s too confusing for a normal person to process.”

    Haha! I agree with this point completely. Although, I would counter that learning Holacracy isn’t any more difficult than learning the conventional way to influence and navigate office politics that most professionals spend a lifetime developing. In fact, most organizations get the basics pretty quick, but learning any new game or language takes a little time. Sure it feels awkward and painful at times when you’re just getting started because you’ll make a lot of mistakes, but there is elegance on the other side of that.

    In general though, I agree. Holacracy is hard to understand conceptually. This is why we recommend anyone who is even vaguely interested in learning more to attend a training where they can actually experience playing the game. Conversely, until someone has a real experience doing work the Holacracy way, it’s a bit like a tourist (humble or not) criticizing a foreign country for speaking “gibberish.”

    Point #2: “You probably will get paid less for doing more work, generally-speaking.”

    I don’t know how you jump to that conclusion based only on the fact that compensation isn’t “pre-calculated” for you in Holacracy, but I’ll stick with your basic premise (if I got it right), that “compensation is now totally different!” Again, totally agree. It is. It’s worse than that actually, all talent management functions (hiring, firing, comp, training, performance management) need to be refactored. This is why Holacracy is often referred to metaphorically as an “operating system” rather than a piece of software. Holacracy is a platform that allows any organization to design itself given its specific needs (the need for customization is precisely why Holacracy’s rules, as defined in the constitution, are just the minimally sufficient needed).

    With that said, there is a strong argument to be made, if I stick with that metaphor, that most people don’t buy computers that only have operating systems. They want them to have software, or more specifically, they just want them to DO certain things and they don’t really care about HOW it all happens. So, Holacracy doesn’t work great “out-of-the-box” and usually requires expert installation. This is true for now, but it isn’t the goal. I am working on several projects to lower this bar.

    Point #3: “Now you don’t have a true manager anymore.” That can work for maybe 1-2 out of every 10 people, but the other 8-9 will either slack off, not know what they’re supposed to focus on, or a handful of other problems.”

    Two points here. First, this is purely a theoretical argument obviously and therefore I could counter with loads of research that support the claim that giving workers more agency improves productivity and engagement (see great summaries in the books Your Brain at Work and Drive). Again, I can understand why you might think this, but the academic research and evidence from clients who’ve implemented is actually the opposite of that.

    Second, though Holacracy doesn’t rely on the traditional manager, it still has lots of hierarchy. That is, it still has the things we all like about hierarchy (even though strictly speaking, “holarchy” is a more accurate word that “hierarchy”). Holacracy is a hierarchy of those functions following the “holonic” principles that each role and circle is BOTH a whole entity and a part of a larger entity SIMULTANEOUSLY. In other words, a role or a team isn’t just a whole, nor is it just a part. It is always a whole/part. And while this isn’t a new idea, Holacracy has applied that basic insight to the domain of work, which is quite new.

    In addition, with any social holarchy (i.e. hierarchy of whole/parts), pathologies can develop when you have unhealthy agency (that is, too much “wholeness,” or “I am just a whole and leave me alone!”) or unhealthy communion (that is, too much “partness,” or “I am just a part so tell me what to do!”). So, Holacracy isn’t just claiming to filter out fascists types of dominator hierarchy it also filters our totalitarian types of dominator hierarchy (that disguise itself as being “flat” or “communal”).

    In other words, just as all holons are whole/parts, Holacracy acknowledges the obvious solution that organizations shouldn’t be just “flat” or just “vertical,” but instead they should be flat/vertical simultaneously. So, depending on which perspective you take on Holacracy, you can find all sorts of evidence that it is flat. You can equally find evidence that it is still vertical. What most don’t seem to grasp, is that the reason you see what you see says more about YOUR perspective than it does about Holacracy.

    Sorry to harp on this point, but I think it’s critical. Holacracy simply balances hierarchy (vertical) with collaboration (flat), or more technically, it balances agency and communion so as to avoid pathologies of either.

    Point #4: “Here’s the thing: holacracy is an idea. It’s a concept. ”

    In a way, yes, Holacracy is just an idea. A concept. But I’ll clarify that the rules documented in the Holacracy constitution are in no way just someone’s idea about how an organization should work. Every single rule and sub-rule was developed through experimentation and testing. This evolution of course continues today with every client pushing against what is there and providing feedback. So, while it is an idea, there is nothing special about its approach. It is simply the evolutionary process. Test things out and keep what works.

    In closing, I actually have no idea why I wrote so much. I guess I thought this was a good occasion to clarify some things even in my own thinking. I hope it’s helpful. 🙂

    • Really appreciate you taking the time to list all this out. I hope it will be helpful for others that might arrive here.

      Just to clarify real quickly, I actually love the idea of holacracy. I just think it’s a hard system for the general rank-and-file to understand/embrace. Does that make sense?

      • Yes, and I’m in agreement. It’s important to remind people that this isn’t a panacea. I post comments trying to dispel those illusions as well. “This is all bullshit!!!” and “this is second-coming of Christ!!” are equally ungrounded. In particular your point about comp and being hard to intuitively grasp is right on point. 🙂

      • Yea, and it’s a concern because people often get the most riled-up (or put themselves on the cross) about the idea of “I do the work of 7 people and get paid for 1!” (Even if they come in at 11 and leave at 5.)

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