Profile of the best small companies to work for and their secrets to building a great workplace.
Suddenly, for reasons to do with competitiveness if not survival, even the hardest-nosed CEOs are worried about how their companies look to employees. Are there secrets to building a great workplace? Yes
These days, you'd expect America's corporate chieftains not only to be slashing their payrolls -- as they are -- but to be putting the squeeze on the employees that remain. What's to stop them? Workers themselves, leery of further layoffs, won't squawk. Unions have seldom been feebler. A great time, you would think, for flexing the managerial muscle.
In fact, however, a lot of giant corporations seem to be moving in the exact opposite direction, courting their employees' goodwill and providing them with unprecedented benefits. Consider the following:
* General Electric Co. under chairman John F. "Neutron Jack" Welch Jr. was always known for its tough-as-nails attitude toward the lower ranks. Now Welch has told the world he wants managers who can "empower others." Worker involvement and trust would be just platitudes, he exclaims -- except that "our whole organization is, in fact, living them . . . every day!"
* IBM Corp. has been dutifully cutting costs by cutting its head count. But it has also instituted new flexible-hours and work-at-home programs, including a leave-of-absence arrangement allowing employees to work part-time while getting full company-paid benefits. NationsBank Corp., the country's fourth-largest bank, gives parents two hours of paid time off every week to take part in their children's school activities.
* PepsiCo Inc. chief executive D. Wayne Calloway has begun a program dubbed SharePower; it grants stock options (equivalent to 10% of pay) to all 300,000 of the company's employees. Wendy's International, the restaurant chain, created a similar program called WeShare. Wendy's also "improved base compensation and offered a package of topflight benefits and a cash bonus paid out each quarter," according to CEO James W. Near.
What's happening here? Not to worry -- it isn't a matter of hardheaded moguls suddenly going soft. On the contrary, they are merely borrowing from a script the best small companies have been following for years. The stage directions: learn what makes employees feel good about their jobs and the company they work for. Take steps to help those employees feel even better.
In today's marketplace, it turns out, companies of all sizes have compelling reasons for following such instructions.* * *
At some point during the 1980s -- don't push me on when -- some of those reasons began to dawn on us here at Inc.
We've made our editorial living for the past 13 years by finding exemplary companies and teasing out their secrets. We've reported on the clever innovators, on the marketing geniuses, on the financial wizards. We've written about the imaginative ways entrepreneurs solve common problems on all those fronts. Through our annual lists, we've honored companies that registered rocketlike growth.
But once you got past the innovation and the marketing and the financial wizardry, once you looked beyond the rapid growth, the single most striking fact about the companies we singled out was that, as a group, they had the damnedest array of people-management programs you'd ever want to see. We're talking dozens of novel compensation schemes, each one different from the others. An incredible variety of perks and benefits. Hierarchies turned upside down, job descriptions expanded beyond recognition. Some of the companies ran their businesses using -- choose your buzzword -- cross-functional or self-directed or problem-solving teams. Others had training programs that would shame a business college. A few practiced what we came to call open-book management, in which employees see (and are taught to understand) the company's financials. Many shared equity -- through employee stock ownership plans, stock options, whatever. (Last year every one of our Entrepreneur of the Year finalists headed companies owned partly by employees.)
Not that there was any prescribed checklist. On the contrary: the companies Inc. profiled each seemed to have assembled or invented unique combinations of policies. W. L. Gore & Associates Inc., the Gore-Tex-fabric producer based in Newark, Del., developed a system known as the lattice; it abolished titles and hierarchies, and gave employees unprecedented leeway in defining their own jobs. ("People here manage themselves," the late Bill Gore told our reporter.) Quad/Graphics Inc., the fast-growing printing company headquartered in Pewaukee, Wis., boasted a long list of training courses, an on-site sports center, and a stock-ownership program; Quad also set up every press crew as an autonomous profit center, responsible for its own operations.
Some low-tech, no-glitz businesses were among the most creative. Mississippi Management Inc., a Jackson-based operator of 14 hotels, motels, and resorts in the Southeast, sent chambermaids, desk clerks, and cooks to overnight training seminars; provided veteran employees with cash awards, free trips, and a profit-sharing plan; and sponsored an annual "Olympic Games" for employees. And many of the innovators were still small. Prime Technology Inc., a machine-tool distributor in Grand Rapids, Mich., had fewer than 30 on the payroll when I visited the company. Yet CEO Phil Pachulski talked avidly of his company's team-based management, generous bonus programs, and open-book policies.
It wasn't hard to grasp part of the rationale behind this people-oriented approach. CEOs such as Pachulski sought to attract top-quality employees. Mississippi Management's turnover rate was maybe half that of its competitors. Still, such immediate payoffs amounted at best to half an explanation. Even in good times, most businesses can get and keep competent people just by paying high wages and providing great benefits. These companies, by contrast, threw in a host of apparently unnecessary goodies. (One company's managers regularly cooked breakfast for the employees; another's CEO sent every worker a gift on every major holiday.) They even seemed to turn conventional business thinking on its ear. Harry Quadracci, founder of Quad/Graphics, said at the outset that he wanted a company "built by employees for employees." Hal Rosenbluth, CEO of a Philadelphia travel agency that grew explosively during the 1980s, wrote a book with the heretical title The Customer Comes Second. By now you'll have guessed who came first.
For all the seeming human-resources-revolution overkill, though, there was one undeniable fact: these were companies doing a whole lot better than their competitors. They were the gazelles, the fast growers, the industry leaders. And there was, we came to see, a direct connection between their extraordinary performance and their extraordinary approach to managing people.
For me, that connection was never so clear as when I visited Steve Braccini.
Braccini is founder and CEO of Pro Fasteners Inc., an industrial-parts distributor based in San Jose, Calif. (The story of Pro's recent quality drive is told in "Quality with Tears," June 1992, [Article link]) He is what you might call a salt-of-the-earth entrepreneur, age 39, without a gilt-edged M.B.A. or a fancy résumé. He and his wife started Pro on a shoestring in 1981, with no grand ambitions. "I'd like to say I wrote a business plan and did this and did that," he admits. "Hell, I didn't do any of that stuff. I just knew I was pretty good on the telephone, and I had something to sell." For several years Pro stayed on a typical small-company track, growing to a few dozen employees and a few million in sales.
By 1990, however, Braccini could see tremendous market opportunities opening up. Big customers such as Applied Materials Inc., the semiconductor-equipment manufacturer, were turning to suppliers such as Pro not just for parts but for inventory management. The suppliers could get lucrative long-term contracts, providing parts on a just-in-time basis or (in some cases) actually maintaining depots at the customers' facilities. There was one difficulty, and it was major. World-class producers such as Applied, operating on tight just-in-time schedules, expected world-class quality levels. Translation: Pro would be allowed no more than a few wrong or faulty or late parts out of every million shipped.
Pro was a small company, as companies go; even so, the endless rows of shelving in its warehouse held thousands upon thousands of individual parts bins, many of the parts confusingly similar. So there was plenty of room for errors, and Pro's employees had made their share over the years. Before, the mistakes hadn't mattered much. Customers who got wrong parts didn't get too upset; they just returned them for replacement. Now, however, the margin for error was near zero. Achieving the new standards would require a quantum leap in Pro's capabilities.
In the past Braccini the traditional entrepreneur would have felt the leap was all up to him. "I suppose I followed a lot of my peers in thinking that my job was to control anything and everything about this company," he says of his earlier years. That was how he had met previous challenges -- working longer hours, supervising employees more closely, doing things himself when that was the only way to get them done right. Now, though, even Braccini couldn't see how he could single-handedly force workers into near-perfect performance. When he took a step in that direction -- hiring more quality-control inspectors, for example -- it only seemed to make things worse: "The first guy would make two errors, and the second guy would catch one of them. And the third guy wouldn't catch any." Gradually, Braccini realized he had to think a little differently.
Maybe, he decided, his employees should have as much responsibility as he did. Suppose they themselves were charged with getting the right part? Suppose they were asked to pay attention, hour after hour, to the hundred tiny details of their jobs, to figure out the dozens of ways their work could be made more efficient? "I began selling the employees on the idea that this was their company -- and that they needed to run this company," he says. Pro's employees would need to "take ownership" of their jobs. They would need "to make some decisions about what's going on, about the quality of work they did." If they had the responsibility, surely they would learn to do the job right.
How Pro's employees learned those lessons -- and how, painfully, they brought the company up to the quality level the marketplace demanded -- is the subject of that earlier article, and I won't belabor it here. But like most articles on quality, that one skipped over a fundamental question, namely, why any employee of any company would want to put in that extra effort or come up with ways to do a job better or, indeed, even care about how the company was doing. All for a paycheck? Dream on. For most employees in most businesses, a paycheck buys only time and routine effort. American workers historically have been taught to do as they're told and to leave the company's problems to management. As a group, they have learned that lesson well.
But people might go the extra mile if they feel they work for a truly unusual company, one that shows in a dozen ways that employees are at the center of its concerns. They might do it, in effect, for companies that offer a new kind of implicit employment agreement. You provide us with a great place to work, employees might say -- not just a pleasant environment with a few nice benefits, but a company that offers real opportunity and that we can feel is in some measure ours. In return, we'll provide you with the level of commitment and involvement you need to succeed in today's marketplace.
Here, of course, is where all those innovative people-management practices come in. The purpose of the ESOPs and the training courses and the day-care centers isn't just to make employees feel good (though they may) or even to cut down on turnover (though that may happen, too). Their purpose is to create an organization that employees at all levels care about, and for which they are willing to extend themselves. The purpose is to develop a culture of mutual trust, obligation, and respect. The top-performing companies are those that have created such a culture. Pro Fasteners, trying to join their ranks, was learning to do so.
Want to run that kind of organization? There are four key criteria. In one way or another, the best companies to work for seem to meet them all.
Here's how to define the basics of a good workplace: the wages, benefits, and working conditions that you can't get away with not offering. Underperform on any of them and employees will think you're such a piker you'll have no chance of winning trust or respect.
Some of those basics are pretty obvious. Wages and salaries that are at least average for your industry and region. Scrupulous attention to workplace health and safety. Fair treatment; no company-sanctioned discrimination or harassment. An effective method for airing problems and suggestions.
Also -- this is 1992 -- a benefits package that includes health insurance. To be sure, companies that are struggling financially may require employees to share the cost. But the alternative available to most is no coverage at all. Compare and contrast: according to a recent study, only 15% of all new jobs in America offer health benefits. Among this year's Inc. 500 -- phenomenally successful young companies that among them have created more than 64,000 jobs in the past five years -- 95% offer health insurance. There's a lesson there.
Then there are the basics that aren't so obvious, such as providing employees with clear, consistent direction and the resources they need to do their jobs well. Such nostrums sound simple; they aren't. How many companies have delivered high-minded lectures on quality, for example, only to fall into a get-it-out-the-door-at-all-costs mentality as the end of the month nears?
One key issue these days -- for a lot of employees it's a touchstone -- is how much flexibility a company allows. Besides being receptionists and accountants and machine operators, people are parents, homemakers, caretakers, patients of doctors and dentists, and citizens. Occasionally, an obligation in those spheres conflicts with an obligation at work, particularly since both partners in a couple are now likely to be employed outside the home. No company can let every employee schedule his or her job completely, nor should any company pay a full-time salary to someone who misses a day of work a week. But companies that allow no flexibility at all -- no personal calls from the office, never a few hours off to renew a driver's license, no sick time to care for a child -- will find that employees don't care much for them, either.* * *
Opportunity for Growth
Opportunity appears in a variety of forms:
Stan Gerhart makes cowls -- metal engine covers for light machinery -- at Stone Construction Equipment Inc., in Honeoye, N.Y. For 16 years his job was to crank 'em out, put 'em on the shelf, punch out, and go home. Then Stone's new managers asked Gerhart to redesign his job from the ground up -- and to run his one-man department as its own little business, dealing on his own with "vendors" and "customers" elsewhere in the shop. Today Gerhart can point to a dozen timesaving or quality-assuring ideas he has come up with. "It makes my job a whole lot easier because I control my own destiny."
Ray Morgan started as a union laborer at Granite Rock Co., in Watsonville, Calif., 20 years ago. In the past couple of years he has gone to a training school for supervisors and to dozens of other classes and seminars, including a Dale Carnegie course, all at company expense. He is now shipping-and-production supervisor at the company's quarry. Rita Alves began her Granite Rock career as an accountant. She is now chief financial officer.
Peggy Laun, a loan processor at Phelps County Bank, in Rolla, Mo., researched, proposed, and is now helping to implement a system of upward evaluation, or employee reviews of supervisors. Dwight Joseph, a technical-support supervisor at Intuit, a software company in Palo Alto, Calif., organized a group of experts to help answer customers' questions in one highly specialized area. Both companies encourage employees to search out ways of improving operations -- meaning that no one need be limited by the boundaries of a job. Work at Intuit thus provides "an opportunity to really think," says Joseph.
Unlike, say, a raise in pay, opportunity means different things to different people. Some seek advancement to the next rung on the occupational ladder. (Does your company offer tuition reimbursement? Does it promote from within?) Others crave more autonomy and responsibility where they are now. (How closely are seasoned workers supervised and controlled? How rigidly is the work prescribed?) Still others want to learn new skills and explore new horizons, without necessarily moving up. (Do employees have access to in-house training courses and to cross-functional groups and committees? Do you permit or encourage lateral transfers?) The best companies -- like those just named -- offer a wide variety of avenues to a wide variety of people.
Make no mistake: there will always be individuals who want only to do the job they know best, without any additional responsibility. Just don't assume that everyone in the company falls into that category. Besides, there's reason these days to encourage even the most unassuming employees to broaden their purview. In the past some companies could offer employees job security: steady work and a modest pension on retirement. In today's chaotic marketplace not even the giants can offer such assurances, and small companies don't have a chance.
Today people's only security lies in the skills and abilities they have developed, both in school and on the job. The more your company allows employees to develop those skills and abilities -- and the more it encourages them to do so -- the more you are helping to secure their future.* * *
From a financial perspective, working for a small enterprise is a chancy matter. Small companies have never paid as well, on average, as large corporations. Benefits are fewer. Worst, small businesses have a nasty propensity to fail, merge, be bought out, or otherwise undergo metamorphosis. In effect, employees are always shouldering part of the business risk. Should the company disappear, their livelihoods will vanish as well.
Put so starkly, offering employees a chance to share in the business's success seems only simple justice, and plenty of people perceive it in just those terms. "It's really unfair for other companies not to share the profits," says Javier Castro, a machine-setup worker at the Los Angeles plant of Connor Formed Metal Products, whose employees own 42% of the stock. "Once you work for an employee-ownership company, you'll never go back."
There's no One Best Method for providing employees with a financial stake in corporate achievement. FourGen Software, near Seattle, offers stock options to most of its staff; once a worker is vested, the options are redeemable in cash at the employee's discretion. Jamestown Advanced Products Inc., a metal-fabricating company in Jamestown, N.Y., rewards employees with fat payments if they beat certain labor-cost targets. One pair of entrepreneurs, before they even started their company, signed an agreement to sell it to the employees 10 years later. Another CEO created some 20 different spot-bonus programs, handing out anywhere from $40 to $400 a crack in return for helping the company reach certain objectives. Broad-based profit sharing can take any number of forms, from annual checks to deposits in tax-sheltered retirement plans.
The most far-reaching method of sharing the wealth is the employee stock ownership plan. Properly executed -- which means investing the ESOP with sizable amounts of stock and taking pains to ensure that employees understand their new rights and responsibilities as owners -- the plans can be a powerful way to mold individuals into a group with a common purpose. Unlike bonuses, ESOPs distribute the rewards of long-term growth. That very fact directs people's attention toward company objectives and performance rather than toward short-term individual or departmental goals. And unlike most conventional profit-sharing plans, ESOPs don't limit an employee's share to a certain percentage of total compensation. If the company grows, the stock rises in value, and even lower-rank employees can do well.
In some cases very well indeed. The average five-year ESOP participant at RLI Insurance Co., in Peoria, Ill., owns 8,000 shares of the company, worth some $160,000. At Stone Construction Equipment, the ESOP is still new. But CEO Bob Fien says factory workers should be able to salt away at least $100,000 over the course of a career.
A logical corollary of stock ownership is open-book management. Teaching employees to understand and track the company's financials not only allows them to "keep score" of their collective progress but makes them feel like the owners they are.* * *
A Sense of Community
Ultimately, of course, what matters is how people feel -- about the company and about themselves in their capacity as employees. And the feelings of most human beings are affected by more than how much they make or even how much they are learning. The best companies to work for seem to have an intuitive understanding of the less tangible factors, and to operate accordingly. A corporate sense of community has at least three dimensions:
Pride. Walk into a company that's a recognized leader in product quality or that's known throughout its industry as a great organization. The offices and shops hum; employees are quick to greet a visitor. On the job, people offer suggestions and volunteer to solve problems because they believe the company cares and will therefore pay attention. Last year I spent several days at Connor Formed Metal Products, researching an article on information systems ("The Knowledge Factory," October 1991, [Article link]). But I scarcely had time to learn about the company's use of computers; too many people buttonholed me to show off their own part of the company and to explain the ways they had found to improve operations. Pride in a company has diverse sources. Some companies sell products or services that are critical to life or health, and make a point of playing up that mission. Others exhibit a companywide commitment to preserving the environment or get involved with community agencies and charities. Granite Rock produces an annual concert and fireworks display for the community; it sponsors more than 30 youth sports teams and has "adopted" a local elementary school; and it has undertaken several initiatives to recycle water at its facilities. (One branch recently won a water-conservation award for a system that captures and reuses the water used to wash trucks.) Mostly, pride boils down to a feeling among employees that the company stands for certain values -- and puts its money where its mouth is.
Belonging. At most companies, critical information and plans are the province of a few top managers: they're the ones who know the hot prospects the salespeople are courting, how the computer system will be revamped, and what last month's numbers showed about the spring marketing campaign. Knowing all that may make the managers feel great; not knowing it makes everybody else feel out of it. Compare that all-too-typical situation with a company such as Manco Inc., a Westlake, Ohio, distributor of duct tape and other materials. Charts on Manco's cafeteria walls track numbers such as revenue growth, productivity changes, and up-to-the-minute sales figures. Weekly gatherings -- open to everyone -- air salespeople's reports on their territories and allow people to toss around ideas. Monthly meetings for all employees review the company's profit and loss statements.
Such extensive communication -- invariably regarded as a bothersome chore by managers of traditional companies -- may help people do their jobs better. It is guaranteed to help them feel a part of the company. So, incidentally, will any other gesture that communicates a we're-all-in-this-together message. Abolition of executive parking spaces, as Tom Peters suggests. Top managers' taking a turn doing frontline jobs. Celebrations, awards, hoopla.
Privilege. Pro Fasteners, the parts distributor, buys a set of top-quality San Francisco 49er tickets every year, along with a set of tickets to concerts and performances in Shoreline Amphitheatre, in Mountain View, Calif. Employees put in preferences for dates; everyone's assured of attending at least one event. The cost to the company: a few thousand dollars a year. The value to employees in terms of bragging rights: high.
Such perks come in any number of forms. An apartment in the nearest big city that employees can sign up to stay in. Special trips or unusual events. Holiday gifts. Company gyms. Free lunches. Discounts on computers. Awards -- such as to the top-performing salesperson -- don't count. Neither do perks reserved for managers. How much an item costs isn't important. The key criterion: is the perk something everyday employees can boast about -- and that will make them feel correspondingly privileged because they work for your company?* * *
We'd better admit it: we recognize a problem here. All of this, the extra pay and the training and so on, can sound like a grab bag of goodies, a truckload of treats you are supposed to lay on your employees while you, the harried boss, desperately try to make payroll. But don't be misled. A great workplace is not just a gravy train. It is both simpler and much more complex than that.
Simple side first. What we're describing in these pages is not company-as-Santa Claus, it's a system of mutual obligation, a two-way street. If you provide the kind of workplace the best employers do, you have a right to expect employees to work smart, to commit themselves to the company's goals, to involve themselves in their jobs. That doesn't mean everyone automatically puts in 60 hours a week. It does mean no one in your organization -- no one -- should be content with doing as little as possible. Live up to your side of the bargain, and you can reasonably ask your employees to help in producing the innovations, the cost-cutting ideas, the levels of quality and service that today's marketplace demands. From a business perspective, that's the rationale for trying to create a great workplace at all.
The complexity has to do with the nature of work itself, and with elusive notions like community and meaning.
Most of us find work most rewarding when it ties in with some larger objective. The larger objective may be individual: a chance to practice a skill or to meet new people or to earn enough extra money for a down payment on a house. The larger objective can also be collective. People who feel that their company is growing, making money, and accomplishing great things -- and that they are an essential part of the process -- get the same kind of satisfaction as athletes on a winning team or partisans with a winning candidate or volunteers at a soup kitchen. They experience a sense of purpose and the exhilarating sense of community that comes from pursuing that purpose together.
The policies and programs that characterize great workplaces do not, by themselves, create either purpose or community. A few organizations (big insurance companies come to mind) would score high on the policies-and-programs scale just because they're so rich; yet their employees can be as apathetic and alienated as any department-of-motor-vehicles bureaucrat. And many organizations, from enthusiastic start-ups to the U.S. Marine Corps, generate an enormous sense of common purpose without providing much in the way of goodies. Creating a great place to work is thus not a matter of following a laundry list; it's a matter of building an organization that is itself challenging and involving, and that people enjoy working for because, together, they are accomplishing more than they could on their own.
Building that kind of company, as the giant corporations now starting down the path will discover, is a slippery and difficult objective. Even so, those who pursue it seriously don't seem to settle for anything less.
A guerilla guide to uncovering the true nature of your next workplace
Here's how to check out a potential employer (or, how your prospective recruits may be checking up on you):
Hit the phones. Though local business journals and trade publications are worth checking, small private companies don't often show up in print -- so the best way to gather specific intelligence is by doing interviews yourself. The best sources of information are local trade associations or chambers of commerce, local business reporters, and people in the company (but not someone who's involved in hiring you). Other ideas: editors at trade journals, consultants in the field, local business-school faculty, and your prospective employer's suppliers and competitors. Most of those sources can be tracked down with the help of your local library.
Phone the external sources first, and ask about whatever matters to you: Is the company stable, growing? What's its reputation as an employer? And, above all (in order to get someone inside the company to return your call), Do you know someone who works there? Try to set up informational interviews with the insiders to whom you're referred.
Run a credit check. Want to know if your prospective employer is financially sound? Request the annual report if the company is public. If it isn't, ask TRW's Business-to-Business Credit Report System to fax or express-mail a profile, which will include bill-payment history. It costs $28.
Compare benefits and compensation. Trade associations and publications print benefits-and-compensation surveys, broken down by region and job level. If you can't find such a survey, speak to the association's personnel expert and ask about industry norms. Another approach: find out how to join the industry group, then attend the next meeting and network.
Inspect the corporate culture. Here, you don't have to trust secondary sources; when you visit for an interview, reconnoiter. One outplacement consultant advises her clients to ride the elevator, eat in the cafeteria, and listen. Hang around the parking lot in the mornings and after work to see how people dress and at what times they come and go.
Even if you can't blend into the woodwork at a five-employee company, you can get a feel for its culture by asking the right questions of your interviewer. Get specifics. (Being told "We're a family" isn't good enough.) For instance, if the company works in teams, ask for an exam