The Case for Capping Salaries
When Ken Gjemre founded Half Price Books, a Dallas retailer, 20 years ago, he aimed to motivate employees and maximize profitability through an egalitarian system of compensation. Half Price Books has 41 stores nationwide and reports recent sales of nearly $30 million. Here's Gjemre's approach:
* Cap salaries. There are only seven pay grades, plus a trainee salary that almost all employees, including managers, earn as newcomers. The top pay grade is capped at five times the lowest salary level -- a range that, Gjemre stresses, is "not large."
Meanwhile, "everybody here knows my salary and the salary of top managers," says Gjemre. "It helps motivate employees when they see that management isn't gouging the company's finances." The salary cap also scares off "the kind of manager who's interested only in a big weekly paycheck."
* Share profits. With mid- and upper-level management salaries low in relation to what other retailers pay, Gjemre compensates staffers through a generous profit-sharing plan. "We originally distributed 10% of profits. Then we found that employees worked so much harder that we could afford to raise the distribution level," he says. Now retail staffers receive a prorated share every quarter, based on their salary grade, from a pool of 15% of their own store's profits and 15% of corporate profits; corporate staffers receive a quarterly split of 19% of corporate profits.
* Involve everyone. Gjemre awards quarterly bonuses to everyone who's worked at the company for more than one month. "Why should people have to wait to be rewarded for good performance?" he asks. Personnel manager Tim Jernigan makes it a priority to educate workers about total compensation, through conferences, companywide postings, and memos.
* Publicize financial results. "Our profit-and-loss statements are available to all employees, who, as part of their job functions, are taught to understand them," Gjemre reports. Store managers, personnel staffers, and others share the responsibility for employee education on that front. "If we kept results a giant secret, how could our approach work?"
-- Jill Andresky Fraser