When Connie Swartz began hiring employees in 1989, her fledgling consulting firm in Kansas City, Mo., couldn't afford hefty salaries and fancy benefits packages. But Swartz, whose company provides training development and software documentation, had something that a growing number of employees value even more ? flexibility. She gave her employees flexible hours and the ability to work from home, plus a strong say in their budgets and how they're compensated.

"If my kids are sick," says instructional designer Mary Lee, "I'm able to be with them during the day and do my work after they go to bed."

Swartz's company, Creative Courseware, has four employees and annual revenues of nearly $1 million. The company still doesn't have a formal benefits package, but that's because employees have voted consistently for increases in wages (everyone is paid by the hour) as opposed to, say, health insurance.

And since good communication is vital to her company's success, Swartz works hard to keep everyone informed and encourages employees to do likewise. Employees use e-mail, fax, and phone to communicate with one another. Every month, Swartz distributes notes on clients and the status of proposals. She holds formal staff meetings as needed and hosts an annual three-day, off-site retreat at which the group discusses long term strategy compensation, the company's financial position, and so on.

Swartz also schedules an annual "review day" with each employee, where the two of them talk about the employee's performance and spend some time together. All this communication seems to pay off: In the past seven years, Swartz has lost only two employees.