Best Compensation: Cashing In
Paying a lot is nice. But it's paying wisely that matters most
Big bucks don't generally come to mind when you think of a bank teller. Indeed, after seven years at Phelps County Bank, in Rolla, Mo., Connie Beddoe's salary is only now nearing $20,000 a year. Yet she's managed to save almost three times that amount. Her contribution to Phelps's employee stock ownership plan has quietly grown while she works at a job she loves.
The Phelps philosophy of empowering employees to take ownership of their work is aptly symbolized by the money compounding in Beddoe's account. Divining Phelps's values from its pay plan is not difficult, for nothing so nakedly displays what a company stands for in terms of hierarchy and fairness as its pay system. And nothing demoralizes employees faster than compensation schemes that fail to be fair.
Pay alone does not qualify a company as a great place to work. If it were that easy, every company could just buy motivated employees. Nor are all good pay plans alike. Today they are as varied as the ways in which companies are reorganizing their work. The small companies cited in this story offer no exceptions, but they share something else: workers who believe they're paid fairly. Fairness shines through, whether the plan mixes a traditional structure with some surprising twists, like that of Calvert Group, a financial-management company in Bethesda, Md., or whether the company takes a bolder approach, as does telecommunications-equipment maker Aspect Telecommunications, in San Jose, Calif., where the happier the customers are, the more employees are paid.
The companies we have selected don't pay the nation's highest salaries. Some don't even pay consistently: when Rogan Corp., in Northbrook, Ill., does poorly, employees share the pain. But there's a loftier objective for some. Listen to Emma Lou Brent, CEO of Phelps, talk about her company's ESOP: "We look at it not as a motivator but as a reward," she says. "The motivation is in people's having control over their work areas."
That sense of ownership can go hand in hand with constant improvement. At Rogan, workers are eager to find more efficient procedures because they share the resulting gains. Recently, the manufacturer of plastic knobs has been forced to scramble because customers that once used knobs for calibrating instruments have shed them in favor of electronic solutions. Consequently, says owner Ed Rogan, "we could not give out annual inflationary raises in a declining marketplace and survive."
Seven years ago Rogan set up a gain-sharing program to lower its labor costs (among other goals); there's a 19.3% goal for labor costs as a percentage of the value of goods sold in a given week. The employee payoff: when fixed labor costs drop below the 19.3% goal, the difference goes to employees as a fifth monthly check. Last year the bonus yielded an extra 17% of annual salaries.
Of course, the mere promise of payouts doesn't ensure incremental improvements by workers unless those workers have some guidelines for helping to cut costs. "The gain sharing didn't really come into focus until we had a quality-control effort," says toolmaker Robert Kamm.
Initially, Kamm was one of the program's harshest skeptics. Today he says he no longer doubts the plan, which has motivated employees to take responsibility for the work process. "It's like having stock in the company without actually owning shares," he says. "Everybody is very much aware of what a quality part is."
Rogan employees have turned in more than 300 gain-sharing ideas since the program's inception, as reported in the company's newsletter (renamed "Gainsharing News" in July 1990). The solutions include adding texture to an assembly glue to obviate a later wipe-down stage and running several work orders on one molding tool.
Knowing that improvements will be shared fosters an allegiance to the company and closer attention to the entire work process. Molder Lynette Bostic now keeps close tabs on the posted financial numbers. "I look at the walls every morning to see what shipped the day before," she says. "At the end of the week I can look at the board and see if we're ahead."
Pay needn't be determined entirely by top management, though. At photo-image printer Ashton Photo, in Salem, Oreg., employees have a big say in how much their jobs are worth and what they'll be paid.
Again, fairness is a feature; the company trusts that employees will grade themselves equitably. Ashton bases pay on the skills workers use, learn, and teach; employees define and rank the skills vital to the company's manufacturing process. To determine pay, they grade themselves on how proficient they consider themselves in those skills. Because the company seeks continual improvement through cross-training, the highest rating values mastery of a skill as the ability to teach it.
The chief benefit: "People know that if they learn more, they can make more," says Karen Welch, who was promoted from photo assembler to line leader in one year. "In that year I learned editing, data entry, and printing -- something from each area and how to bring it all together." Owner Steve Ashton says the plan has had a real payoff: in the past six years the company has doubled sales without taking on any new employees.
Not every successful pay plan needs to be so elaborate. At Calvert Group, employees receive few surprises in their pay packets, which are based on straight salary by defined position. On the other hand, quiet perks such as reimbursement for all commuting costs speak to the company's thorough approach to retaining motivated employees.
Calvert's employees receive bonuses through an annual distribution of the company profits, and in a "recognition" bonus funded by 2% of payroll and meted out to outstanding performers. Last year the managers' distribution bonus totaled 15% of salary; the staff's bonus, 10%. That percentage gap is closing, and employees applaud the system for its fairness and clarity. "We all know the things we have to do to make more money," says Butler Perkins, a microcomputer-support analyst.
Perkins defines Calvert's approach as a "proactive emphasis on taking care of people," and adds that the company tries to make up for employees' hidden costs by providing free running shoes to employees who walk to work or by dropping the dress code so employees can come to work in more casual clothes (and save a bundle on dry cleaning).
Others take a more customized approach. At ESP Software Services, a consultancy in Minneapolis, the company's knowledge workers can choose from a menu of three pay plans: a base salary with no hourly pay; hourly pay, with compensation only for the hours spent on assignment; or a "blend plan," with base salary plus an hourly rate. "Right now my wife isn't working, so I need some security with the base salary," says consultant and manager Scott Tonjes, who's chosen the blend plan. "Once my wife has a job and has benefits, I may reevaluate going hourly."
The plan depends on and fosters a mutual risk and reliance that Tonjes endorses. He says he would never choose straight salary because "ESP shouldn't have to pay me when I'm not generating income. It's important that ESP grows, and I'm willing to bear some of the risks."
Of course, a good pay plan can be pegged purely to performance measures. At Aspect Telecommunications, for instance, customer satisfaction is that peg. CEO Jim Carreker decided to tie every employee's bonus to qualitative rather than quantitative results because he didn't want to damage his customer base to maximize short-term profits. "Focus on customer service, and the profits will follow," he says.
Aspect's plan uses two measures: Aggregate System Availability Factor (ASAF), which gauges how much of the time the company's product is operational; and an annual customer survey addressing all aspects of customer satisfaction. Employees have evidently bought into the plan. "The big talk at lunch is, 'What's the ASAF this quarter?' or 'Did you see the new survey?' " says software engineer Tim Bean. He credits the plan with his increased emphasis on customer service.
When it comes to substantial wealth sharing, Phelps County Bank's ESOP is one of the most striking examples. Eighty-seven percent of the employees are now vested in the 13-year-old plan, with a typical balance of more than $70,000. Ten employees have balances in the six figures. And yet this advanced ownership program speaks to employee ownership in the broader sense of the term.
Like other small companies that are great to work for, Phelps walks the talk by encouraging and rewarding employee participation and autonomy. Employees are rewarded for their ideas (the year's best idea merits $1,500) and for the ways they "add value" to their job. "The ESOP is a way of getting people to think about this as a career -- not a job," says CEO Brent.
Teller Connie Beddoe would agree. Though pay raises and the money growing in her ESOP are good incentives, she loves working at Phelps for a more important reason: she calls most of the shots on what she does. Would she work elsewhere? "Not even for a higher salary," she says.* * *
Additional reporting by Christopher Caggiano.
110 employees, $5 million in sales
Lets employees decide the skills needed for jobs and grade themselves on their proficiency. Rewards not just mastery but also the ability to teach others.
San Jose, Calif.
400 employees, $71 million in sales
Pegs every employee's pay to customer satisfaction. Uses two measures: annual customer survey, and Aggregate System Availability Factor -- a gauge of how often the company's product is operational.
190 employees, $44 million in sales
Acknowledges employees' hidden costs by providing, for example, free running shoes for walking commuters. Offers profit-sharing bonuses with a special "recognition" bonus for outstanding performers.
ESP Software Services
72 employees, $4.9 million in sales
Offers customized approach in which employees select from a menu of three pay plans: annual salary, hourly salary, or a blend. Plan fosters mutual risk and reliance between employer and employee.
Phelps County Bank
55 employees, $100 million in assets
Features advanced employee stock ownership plan that rapidly enriches employees and symbolizes the deeper "ownership" expected of them.
Manufacturer of plastic knobs
107 employees, $9.6 million in sales
Uses gain-sharing program to reward employees for producing a premium-quality product and for labor-cost reductions. Encourages employees' ideas in "Gainsharing News" newsletter. n