IT WAS A SAD SIGHT. AROUND NOON, the president of Scherer Brothers Lumber Co. had to be coaxed into a car and driven home by an employee. He just couldn't make it through the whole day.

His sons, Roger and Gary, had a system for handling it. Out in the lumberyard, they tracked down Curt Olson, a warehouse worker who knew best how to talk to their father, Clarence Scherer. "You are leaving now," Olson would firmly tell his boss. If Clarence shook his head, Olson might march him into the men's room, where he knew Clarence hid a whiskey bottle. "Have you been drinking?" he would ask, waving the bottle around. Once, on the way home in the car, Clarence started crying. "Every problem in the business I can solve," the 70-year-old man said. "But not this."

He never did. Clarence died in 1974. "For all practical purposes, the drinking killed him," says Bob Peters, director of personnel. Munn Scherer, Clarence's younger brother and the business's co-founder, took over the reins for five years. He too had a weakness for the bottle, but not as severe as Clarence's. So in 1979 the second generation officially took control of the Minneapolis company, which supplies lumber to builders.

Clarence and Munn's sons inherited an $8-million concern shaped by their fathers' personal weaknesses. Beer kegs sat in the lumberyard. Salesmen stashed whiskey flasks in their desks, ready to inbibe with customers. Alcohol, after all, had always been part of the lumberjack's macho image. Both of the company's founders were smokers, and generous with that habit too. They bought packs at wholesale and sold them to employees at less than retail prices. The Scherer brothers managed in a haze, their plans changing from day to day.

Like an alcoholic, Scherer Brothers had to hit rock bottom before it could begin to heal. It took a series of senseless tragedies to transform the company managers into pioneers of health promotion. Eight years later, the benefits are obvious. By year's end, for instance, the $67-million company may save as much as $120,000 on worker's compensation insurance. And the payback is just beginning.

The Scherers first thought of wellness as "a small idea that sounded good," remembers Greg Scherer, vice-president of marketing. That's about as far as most small companies get. They hear that wellness programs have helped Johnson & Johnson, AT&T, and Control Data manage rising health costs. Johnson & Johnson's wellness program saved it nearly $1 million over five years. But can a company with, say, 1% of the employees and a fraction of the sales expect comparable results? "There just isn't enough information for small companies," admits Elaine Willis, director of Foundation for Wellness, a nonprofit research company. Often, small companies are insured in groups, so any individual company may not even know exactly how its premium is being spent.

Health Works Northwest, a nonprofit health-planning and research firm in Seattle, surveyed 31 small-business owners in 1983 about their reasons for starting a wellness program. The executives cited improving morale and increasing productivity as their top two concerns. Cost containment ranked a distant third.

Given the unpredictable return on investment, most small companies launch wellness programs for other reasons. Some instinctively believe that healthier workers are more productive. Others use wellness benefits to compete for the best employees. And many come around because of a personal experience. "A chief executive officer and a heart attack can work miracles at a company that's been afraid to fund a wellness program," says Earl Hipp, a wellness consultant. Many stricken executives preach the merits of a healthy lifestyle with missionary zeal. Recent studies focusing on the expense and hazard of smokers in the workplace have also converted some CEOs. "They start to rehabilitate themselves, then the old adage takes over: 'There's nothing worse than an ex-smoker," says Ed Wedman, director of corporate services for Health Fitness Consultants, part of Abbott Northwestern Hospital, in Minneapolis. "You'd be surprised at how motivating a health crisis can be."

Not one, not two, but three health crises had to occur at their company before the Scherers decided to fight back.

During his 25 years at Scherer Brothers, Pat Faber rose through the ranks of laborer, driver, and shed foreman to become company foreman. The 42 employees under him were known for their productivity. One day, a massive heart attack killed the overweight 45-year-old before his ambulance reached the hospital.

That same year, Frank Goodrich, a yard worker, was unloading Sheetrock when he turned away from the load. He wanted to block the wind so he could light a cigarette. When he turned back, more than a ton of Sheetrock was slipping off the flatcar. He died a few hours later.

John Buckley, the chief sawyer, didn't die on the job. He had three years to go until retirement when he started feeling frequent dizziness and headaches. It turned out to be arteriosclerosis of the brain, which forced him into early retirement. Immobile and financially strapped, Buckley hung himself.

Scherer Brothers reeled from the successive blows, all of which occurred between 1976 and 1978. Those years would have been difficult even without the tragic backdrop, as the company passed from one generation to the next. Roger, Clarence's son, was just settling in as president after serving a term in the Minnesota legislature. Greg, Munn's son, had decided to come aboard after working with juvenile delinquents. Greg's older brother, Mike, took over his father's job as director of operations. He quickly set about cleaning up the lumberyard and establishing a consistent roster of suppliers. "The second generation was just starting to exert its control," says Greg.

There were plenty of problems competing for their attention. Their fathers had built the company "totally devoid of market orientation," says Greg. The focus on single-family houses had resulted in steady, but hardly spectacular, growth since 1930. It was boosted at the end of World War II by the flood of GIs returning to the Twin Cities armed with mortgages. But the business was painfully cyclical. So much so, in fact, that the founders gave up trying to grow the company big enough to provide jobs for their six sons.

Instead, in the late 1940s, Clarence and Munn began buying up tiny lumberyards in the Minneapolis area. As each son reached maturity, he would be given a lumberyard to run. Roger was first. In the late '50s, the brothers offered him a small yard generating about $500,000 a year in sales. But Roger had no intention of building corncribs for farmers. Thanks anyway, but he would stay around and build Scherer Brothers. The others followed his example.

Now four of them were running the company, but growth wasn't their top priority. The loss of three workers, coming on top of their fathers' alcoholism, left a deep scar on the second generation.

Greg, a dedicated marathoner and rugby player, believed all the deaths could be traced to preventable factors such as poor nutrition and lack of exercise. After attending a wellness seminar at a local hospital, the Scherers decided to solicit ideas from their employees. They set up a wellness committee, composed of both managers and employees.

The fact that any workers at all signed up for the committee was a good sign. Even better was that the group began churning out ideas in a matter of weeks. "We didn't start out with a concept," says Greg. "We started with some little ideas." After surveying the employees, they unplugged the cigarette machines and brought an expert in to talk about quitting. Then they bought a blood-pressure monitoring kit, held a weight-loss seminar, and replaced candy machines with free fruit. The company also began popping 50 pounds of popcorn a week. They were small moves, but a signal that things were changing.

Roger and Greg approach almost every aspect of wellness from different perspectives. Even the popcorn. Roger, 54, justifies the snack by talking about how it helps attract customers. "The parking lot is always full when the corn is popping," he says. Greg, 40, extols popcorn's nutritional virtues, such as its high-fiber content.

Although they are from the same family, the cousins live in different worlds. Roger closely watches the bottom line. As to new wellness benefits, Roger says he'll go along "if we find it profitable." He is hardly an idealist. "Some of this is paternalistic as hell," he admits, "but some of it is out of concern for our employees."

Greg, who cuts brush and makes trails in his spare time, hates to talk about numbers, and won't ever use them to justify the company's approach to wellness. Greg is the company's conscience; he simply sees wellness as a moral matter. One employee was fired for stealing another's paycheck to pay a drug debt. Greg insisted that Scherer Brothers pay for drug-abuse treatment anyway. "We're part of society," he says. "This is part of our social responsibility."

Neither of them knew how far that responsibility would carry them.

Some ideas, of course, were easy to dismiss. The employees asked for a full set of exercise equipment, priced at $16,000. They also recommended that workers who quit smoking get an appropriate reward; a new car sounded about right. "We'd hear these wacko things, and we'd just look at each other and say, 'We'd better study that a little more," recalls Roger. On some proposals, though, Roger and Greg disagreed. For instance, Greg suggested they build a health facility. After some discussion, they decided against it but looked for some alternatives. Why not spend $500 a year to sponsor sports clubs like running, basketball, and softball? Why not loan employees the money to buy a health-club membership?

The more small changes they made, the more problems they seemed to uncover. The company's accident rate was too high, with as many as 30 incidents a year. Its health-insurance premium, already astronomical, was expected to rise about 15% a year for the next three years. Absenteeism showed up on the books at 3.5%, average for the industry, but expensive none-theless.

Greg knew that reducing absenteeism could greatly enhance productivity, and a plan slowly emerged. Perhaps "well pay" would work: an employee who is on time and has perfect attendance for a month earns two hours of extra pay. Workers can earn up to three days a year, paid out around Christmas. Greg collected testimonials on how the plan had helped reduce absenteeism and boost productivity at other companies. Besides, as he later told Roger, the Teamsters were always pressuring them to provide sick pay. Why couldn't they, just this once, turn the tables and ask for well pay? It was impossible to say just how much it would save the company, but wasn't it worth a try? "It sounded logical to me," says Roger.

At the same time, the managers devised a less formal lure for employees to show up. They launched the 2080 Club, named for the number of working hours in a year. For the first year of perfect attendance without tardiness, an employee earns a monogrammed, stainless-steel thermos; the second, a pocketknife; and so on. After 10 consecutive years, the bonus is a free trip to Florida. "It costs us about a cent per hour," says Roger, "and we get a lot of people with perfect attendance records." About a third of all workers have joined the club.

Before well pay, 31 out of 100 employees were out in any given month. A year later, that figure was down to 6. "If you keep all of your driving forces as positive incentives," says Roger, "people will not rebel at producing more and working harder." If that was true, they figured, why not do the same in other problem areas such as worker's compensation?

The company lost 424 days in 1982, or roughly $85,000, because of injuries. The next year, the Scherers introduced an incentive program to chop that number down. A worker would get $100 for having no injury requiring medical attention; another $100 for not losing any time because of an injury; and another $100 if the company had a better accident record than the year before. For those bonuses, employees were willing to endure splinters. In 1983, the company lost only 110 days. "Any idiot can figure out that this is saving money," says Roger, shrugging. "It's a no-brainer."

Roger puts lots of the company's less expensive programs in that vague category. Annual physical exams, for instance. He didn't need to see numbers to justify starting a checkup program to catch symptoms before they progressed. For employees over 55, the company pays for free annual physicals. Those over 40 receive the $130 checkup at half price. "Can I prove that my checkup will pay for itself? No," says Roger. "But I think it will." Roger also saw the sense in spending $2,500 a year for the services of Human Resources Associates Inc., a confidential referral agency. After all, it saves the company from having a human-resources department.

After a couple of years, the wellness committee was disbanded, but it was really bigger than ever. Knowing the Scherers' pattern of response, employees felt free to suggest ideas. While Greg was walking through the company one day, a truck driver complained that his truck was so noisy it was giving him headaches. The Scherers quickly started using sound-level monitors in the trucks. Over the past three years, the company replaced all of its eye-straining light bulbs with sodium halide and fluorescent lighting. It equipped all of its trucks with new shock-absorbent seats, at a cost of more than $6,000. "I'll bet we now do 500 different things a year for employee wellness," says Greg.

Just how far are the Scherers willing to go with this? "You have to draw the line day by day, policy by policy," says Roger. How much are they willing to spend? "We have conceptualized wellness to the point where it is a way of life," replies Greg. "We do not have a wellness budget because it's hard to budget an attitude."

If there were a budget, though, some of the numbers would be enigmatic enough to cause a chief financial officer to weep onto his spreadsheet. Like the company's free-lunch policy. The Scherers will spend more than $30,000 this year feeding employees. All 60 office and supervisory staff members get a free hot lunch, and each menu comes with the American Heart Association's approval. "We absorb that cost," says Greg. "But I think employees would be willing to pay for it." Why do the Scherers pay for it, then? Even Roger, who draws sustenance from the bottom line, gropes for an answer. Employees take only a half hour to eat, he says, "and while they are at lunch, they are interacting about the business." But on any given day, many of them are actually playing cribbage and talking about local sports.

The lunchtime expense, though, fits neatly in a crowded column headed "family." In building a company philosophy, the second-generation Scherers are holding up a mirror to their fathers. They rebel against their bad habits, such as alcoholism. And they take their fathers' good habits to extremes. When it comes to these types of wellness expenses, even Roger tosses away his calculator.

To understand the lunches, you have to go back again to Munn and Clarence. Way back, maybe 30 years, when it was not a company, "just a bunch of guys sawing wood," as Greg says. They sold slab for firewood and lumber for building garages. There were five of them. At lunchtime, they couldn't afford to take time out, so one of them went for sandwiches. Then, over the years, the owners began providing bologna, bread, and mustard. When the second generation took over, Greg got to thinking, Why not provide a healthful lunch instead? He even proposed hiring a cook and spending $30,000 to revamp the kitchen. Certainly Roger would never go for it, though. What payback will we get from this? he was sure to ask Greg. "It would have to be justification by rationalization," Greg admits. But he never had to do it. Roger approved it, without the hard questions. The Scherers serve 60 lunches a day because Clarence and Munn bought bologna for their small crew.

For the Scherers, familiarity breeds expense. Nowhere more so than in their approach to employees with drinking problems. For the past few years, Scherer Brothers has spent nearly $20,000 a year -- more than $100,000 total -- putting nearly 30 workers through alcoholism programs. Some employees have gone through more than once. The Scherers pay the fee, which ranges from $4,200 to $8,000 for about a month, and the employee receives two-thirds of his salary (they'll also pay for smoking-cessation programs). "We'll put you through until it works," says Roger. "I don't care how many times it takes. If we pay $25,000 for a drunk to go through treatment three times, there's still a big return on it." How can that be true? Because of the union, he says, "We can't fire them, so we might as well rehabilitate them."

Hardly. The Scherers are capable of firing workers, as long as the procedure is well documented. Roger makes a more convincing case by telling a story -- again -- about father Clarence. Once, he and his brother drove Clarence out to a rehabilitation center in Mandan, N.D. They left him there and started to drive back to Minneapolis. The trip took longer than they had expected because of a snowstorm. Both were late for work the next day. When they got in, Clarence was there to chew them out. He had flown back after they dropped him off. "They have lived with that disease," says Vickey Bunnell. "The Scherers can't forget where they came from."

Vickey is the wife of Bob Bunnell, a forklift driver who has worked at the company for 10 years. In 1984, she went in desperation to talk to Curt Olson, Bob's boss, and Greg. She told them her husband was drinking again. Alcohol had nearly killed him before. Bob had fallen asleep at the wheel, hit a parked car, and driven into a creek. Another time, he drove into a cornfield and broke his jaw when the car careened off a 15-foot slope.

The next day, the Bunnells sat down with Olson in Greg's office. Bob denied that there was any problem. Olson, a recovering alcoholic, came up with a compromise. None of us will make the decision, he said, not me, not you, not Vickey. I'll take you to the hospital and let them evaluate you. Fine, Bunnell said, I'll show all of you. Later that day, Bunnell called from the hospital and said he'd stay. "I was mad that it wasn't my decision," says Bunnell, 36. "But once you go through it, and make it, you really appreciate them for it."

Olson, who first met Clarence at Alcoholics Anonymous some 17 years ago, is often the one who gently nudges workers toward treatment. "This gives me a lot of self-satisfaction," says Olson, a 52-year-old who used to drink two quarts of whiskey a day. "And I've never had a run-in with the Scherers about paying for it."

He probably never will. Despite the high cost of alcoholism treatment, wellness has become a profit center at the company after seven years of start-up costs (see box, "By the Numbers," page 84). Consider health-insurance premiums. In 1982, with a couple of incentives in place, the company became self-insured. "We were in a pool with other companies, so our premium didn't depend on our performance," says Greg. They got out of the pool and froze their per-person premium at a 1983 level. Even so, they have overbudgeted by more than $50,000 in each of the past two years. They expect to roll their contribution -- now about $375,000 -- back even further next year. Avoiding 15% increases for each of the past three years has saved the company at least $100,000.

Scherer Brothers carries a catastrophe policy, which covers any individual claims above $30,000 and annual aggregate claims of more than $340,000. That policy is just starting to reflect the company's efforts; underwriters use the most recent five years as a yardstick for setting rates. Last year, the company paid $53,000 for that coverage. This year, after "taking into account the number of things we've been programming," Peters says, Blue Cross/Blue Shield of Minnesota axed 60% off that bill. By charging the Scherers only about $21,000, Blue Cross was, in effect, recognizing that the company is catching small claims before they turn into big ones.

Worker's compensation premiums are also declining. The Scherers paid $334,000 for coverage last year. This year, their carrier has already sanded 10% off that premium, bringing it down to $300,000. Others in the industry are seeing hikes of up to 20%, but this is still only the beginning for the Scherers. Their premium will be refigured in a couple of months, and Peters is betting that the carrier will slice off another 25% -- a savings of roughly $120,000. The premium may shrink even more in 1989, when Scherer Brothers has five years of solid improvement behind it.

Besides the insurance savings, Roger claims that productivity is way up. When he took over in 1979, each dollar of sales was costing the company around 12? in labor. Now that's down to 9?. Absenteeism has shriveled to less than 1% from a high of about 3.5%. That alone, Roger estimates, has saved him at least $75,000 in hiring costs. The company's unemployment tax has shrunk because fewer employees are being fired or laid off. In 1984, unemployment tax was 1.6% of payroll; now it's down to 1.2%, a savings of more than $7,000.

Then there are the payoffs that simply can't be measured. "There's less psychological wear and tear on the supervisors," says Mike Scherer. "Employees have a lot fewer personal problems, so supervisors can focus on their work." Has a more vibrant and productive work force had anything to do with the company's moves to expand its market? Attempting to shield itself from the cyclical nature of house building, the company has diversified into building a shopping mall and a motel. It started a separate truss plant, and a mortgage company for construction financing. "We want to pass on a vital corporation," notes Greg, who counts 16 offspring in the next generation.

If Roger and Greg succeed, the third generation won't have alcoholism to rebel against. At Scherer Brothers, it always seems to come back to that, a searing memory of the fathers. It benefits such employees as Phillip Jackson. Last year, the 31-year-old spent a weekend in jail before entering a treatment program. "I was ashamed of myself. It was degrading and inhuman," he says. "The Scherers extended their hand. That caught me off guard.

"There's a tendency to be embarrassed because now the Scherers know personal things about you," he adds. "But look at the rewards. You aren't the town drunk."