Back in 1977 he had convinced his father to start a profit-sharing plan. Now, with Epstein's help, he used the plan to lock employees more tightly to his goals for growth.
Under the new system, the company retained its first 3% of profits. After that 20% (recently raised to 22.5%) would be distributed among supervisors, salespeople, and clerical staff, each of whom was assigned a certain number of shares based on seniority and responsibility. They wouldn't receive their money automatically. They had to earn it four times a year, through a grading system. If they got an A, they'd receive 100% of what their shares called for; a B earned them 80%, a C, 60%, and for anything less, zero. It was a simple system, Epstein says, based on management's feeling that "the way to motivate an employee is to put a carrot there for him to grab."
* * *
What Johnny Appleseed was to apples, Riley would become to carrots. With the grading system in place, Riley looked for a way to involve drivers and dock workers more closely in his plans. He wanted to speed them up. From now on, Riley announced, dock workers would be paid for the freight they moved, the number of shipments, and the actual weight. Pay might range from $9 to $20 an hour, depending on whether you were loading a truck full of cigarette lighters, say, or heavy batteries on pallets. The incentive caught on -- too well. About two months into it Riley noticed that damages had tripled. The dockpeople were working fast, but not carefully. So he reduced salaries by 10% and added a 20% bonus based on avoiding costly errors, such as misloading or damaging freight. Since the upside potential was now greater for the dock workers, they didn't squawk too much about the pay cut. "It really did the trick," Riley says proudly. He revised drivers' pay along the same lines, with bonuses based on pickups and deliveries completed.
No group or problem at G.O.D. escaped Walter's passion for incentives. The sales staff got bonuses for achieving individual gross revenue goals and bringing in new business quickly. To curb absenteeism, Riley spent $250,000 on a house in the Poconos that employees could use for a week as long as they weren't out sick more than two days a year (five days for dock workers). "We fell in love with incentives," says Karen Crawford, vice-president of sales and marketing. "We lived and breathed them."
And the air was fine. Among drivers, Riley says, productivity rose 15%. Dock workers finished their jobs at least 90 minutes quicker than before. Between 1985 and 1986, sales skyrocketed from almost $4 million to nearly $13 million. On the surface at least, it looked as if the incentives could take Riley where he wanted to go. "We were growing, and we were profitable," Epstein says. "We didn't think we had any problems."
Or none that they could see, anyway. Riley occupied himself mostly with pricing decisions or other customer-related issues. Beyond throwing them incentives, he rarely thought about managing his employees. Once in a while he would take a halfhearted stab at developing a management technique. At one point, inspired by a few pages he had read in a management book, he set up an executive committee made up of his eight or so top managers. The group in turn was split into pairs and given specific areas to focus on, such as credit and collections. Every other week they would report on their progress. As one team delivered its report, the others felt their eyelids fluttering like mud flaps. The experiment collapsed in about nine months. "The commitment wasn't there," Riley admits.
"Hey, Walt," Epstein used to ask, "what's the management philosophy of the week?"
One time, borrowing a tactic from a neighboring trucking company, Riley decided to hire a consultant who offered a special technique for monitoring driver productivity. Riley would send him the drivers' manifests -- their lists of stops -- and he would apply his formula. His findings were not pleasing. Many of the drivers were hitting only 80% of their assigned stops. "You know what?" Riley said to Epstein, shaking his head, "we've got a bunch of damn lazy drivers around here." Epstein wasn't so sure. When he scrutinized the names Riley had flagged, he noticed a similarity among those drivers cited for their productivity. It turns out, he later reported to Riley, that the drivers' efficiency had more to do with how well the trucks were loaded than with the drivers' motivation. They weren't so lazy, after all.
Or were they? Like his father, Riley was not one to give workers the benefit of a doubt. If employees weren't getting the results he wanted, he blamed them. "You're lazy," he'd say to their faces. "What the hell takes you so long to do everything? You must be an idiot."
"Walter," a manager might say, "I've got a problem with one of my employees always being late." Without so much as looking up from his desk, Riley would offer up a solution: "Fire him."
"I've fired a lot of people in my life," Riley admits. Many managers couldn't even get his advice. Impatient, Riley would walk away in the middle of people's sentences. "He'd catch maybe two words of what you said," Marilyn Montorio, the company's internal auditor, recalls. Heaven forbid Riley should spot employees chatting or just taking a moment's rest. "Why are you standing around?" he'd bark. "Get going, get going, get going!" Many employees, Montorio says, "perceived Walter as the enemy. He could be considerate, but he didn't meet with that many people."
He was too busy rushing around, chasing a number, patching a leak. If the daily sales report revealed a 10% revenue dip, he'd get on the speakerphone to Epstein. "What the hell happened?" he'd shout. If Epstein didn't have an instant answer, Riley would punch up Crawford. "For heaven's sake," he'd yell, "did we lose a customer yesterday?" Crawford would investigate, only to find out that a customer was taking inventory and didn't ship as much as usual. With Riley placated, the managers could heave a collective sigh -- until the next morning, when he'd be on the phone shouting at Mike Irwin, vice-president of operations, "How come returns are way the hell up?"
