Disclosing Everything to Employees
Mark Crames, the CEO of Northern Group, a Plainview, N.Y., wholesale distributor of fragrances, responded to a financial crisis in the late 1980s by opening the company's books to employees in an effort to motivate them. And it worked. "Back in 1989 we were losing money on $17 million in sales. And now we're a very profitable company on sales of $30 million," he reports.
His disclosure method of choice? A self-designed "gross-profit-dollar report" that's circulated to every employee daily. Crames defines "gross profit" quite simply as the difference between the amount products were bought and sold for. There's also a basic rule of thumb that the company needs to ship $250,000 worth of merchandise each month to earn a gross profit. "We've made things simple enough so all employees can understand the report," says Crames.
Employees pay close attention to the bottom-line numbers because they share a bonus pool based on 10% of pretax profits during any month in which the company achieves its monthly shipping goals. To see how the system works, consider the information in the report dated July 30, 1992. It reveals that based on year-to-date profits of $395,000, the bonus pool amounted to $39,500. Employees also learned that unfortunately, there were 14,683 fewer items shipped that month than their budgeted goal had required. "It was our first loss month in 18 months," Crames acknowledges, but he expects the trend to reverse itself as employees recognize its personal cost. In this case, that means the employees' bonus pool will not increase for the month of July.
Ordinarily, the daily reports work so well, the CEO says, "that you can watch employees' productivity get higher and higher as the month goes on." Crames's goal is to circulate Northern Group's full financial statements to all employees. "But," he notes, "I haven't been able to figure out how to educate everyone to the point where they'll be able to understand their significance," largely because of language barriers with some.
Still, he remains committed to full disclosure. "I see no downside to sharing information with our workers," he says. "They're the ones we're relying on to keep our company growing and becoming more profitable."
-- Jill Andresky Fraser