Company Profile: 'Tis Better to Give and Receive
Lorry Lokey has no doubt that his company's success is inextricably tied to the happiness of his employees. So he competes for their talent and loyalty with state-of-the-art benefits
Who says that entrepreneurs who want their companies to keep growing can't afford generous benefits packages? Lorry Lokey, the 68-year-old founder and president of San Francisco-based Business Wire, is convinced that the top-notch package his employees enjoy is his competitive edge: the key to fast growth, profitability, and market command in the public-relations wire-service industry.
Thirty-three years ago Lokey, a veteran of General Electric's western news bureau and a onetime correspondent for the U.S. Army's Stars and Stripes Tokyo bureau, founded his company to transmit corporate press releases to the news media -- faster than the U.S. Postal Service could.
The start-up was a snap. "I invested no more than $1,500 in a teletype machine, a phone, and office space," the chief executive recalls. Within a year Lokey had earned a profit of $11,000 on sales of $36,000 for wire transmissions of some 1,200 releases. Its competition concentrated on the East Coast, the unchallenged Business Wire realized slow but steady growth along the Seattle-to-Los Angeles business corridor.
After more than two decades, logging profitable but far-from-startling sales growth, Business Wire suddenly transformed itself into an entrepreneurial powerhouse. By 1994 the company had quadrupled its 1986 sales of $7 million, growing to $28 million, and had secured the number two slot in its industry. That same period saw Lokey's staff grow from 32 to nearly 200 workers in 17 offices across the United States. And Lokey owes it all, he says, to employee benefits.
Well, that's a little misleading, but he is certain that his company's leap onto the fast track is attributable to the coming of age of a core group of committed managers and workers. And their loyalty to Business Wire stems from an appreciation of the benefits they receive -- benefits bound to the company's successful performance.
"If you use benefits to build a cadre of talented people who stay with you for years, you'll hold on to your power," he notes. "Your company's future will just get stronger and stronger."
Lokey's chief financial officer, Constance Cummings, takes a long-term view: "We're creating a paradigm for companies of the 21st century. There's no fear here because we believe in doing everything we can to hold on to good employees and to improve the quality of their lives." She pauses. "I may be a number cruncher, but I don't think it's a coincidence that a company that really found its heart is this successful."
Lorry Lokey stumbled into the world of employee benefits when, "back in 1969, our lawyer told me that Business Wire would get tax benefits by setting up a retirement plan -- and that because I earned the biggest salary, I would be the biggest beneficiary, with the largest retirement-savings account," Lokey recalls.
He introduced two benefits for the staff of seven: a pension trust, which was a defined-contribution plan that required yearly contributions based on a formula relating to the fund's investment performance, employee salary and years of service, and other factors; and a savings trust, a profit-sharing plan that allowed the company to distribute additional retirement funds as bonuses when yearly performance was strong. Both funds were tax-deferred.
"Neither plan by itself seemed quite enough," Lokey explains. "I didn't want to promise more than we could afford, but I did want our employees to share more of our profits during good years."
Seventeen years later, "back in 1986, we had gross earnings of $1.3 million, and my accountant told me, 'If you don't get that number below $1 million, you'll pay so much in taxes that you'll wind up with less than if you'd spent $301,000.' " He laughs as he recalls, "That year we wound up bonusing out about three to four months' worth of salaries to our employees."
"I did love the bonuses once they got started, but to tell you the truth, when I came to this company I was young and a proverbial job-hopper," says Terry Vitorelo, a 16-year Business Wire veteran. She was in her midtwenties when she joined, she adds, and "didn't care about retirement benefits." Later, when her husband lost his job, just after their daughter was born, she recalls, "I realized how lucky I was to have a job with so much economic security built into it." Vitorelo, who has worked her way from an entry-level editing job to become the company's vice-president of operations and a member of its executive board, is a classic example, to Lokey, of how benefits help build a company.
"My people spend a fourth of their lives -- or more -- working for this company, so they deserve to have their needs taken care of," the CEO explains. "Without financial worries, people have so much more energy and enthusiasm to bring to their jobs."
As Lokey has grown more committed to the business advantages of a comprehensive benefits package, he has become more experimental in his approach. His one rule: "You can't stand still."
Back in the mid-1980s a valued employee requested permission to bring her baby to the office. Lokey says, "I came up with the idea of converting a spare conference room into a nursery. Everyone helped everyone else, and we ran it like a parents' cooperative, with parents bringing in toys and supplies and staffing it round-robin style. We've had close to a dozen babies pass through over the years, and older children used to come after school or on vacation days." Philanthropy? Altruism? "Not at all. I didn't want to lose valued employees who wanted to be near their children. And it cost only $5,000 a year for the space." A small price indeed.
"We could not afford to lose the generation of talented people we'd built up within our organization," says Lokey. The company was in the midst of a national expansion. "We had opened offices in Boston and New York City by 1980, but it was in the mid-1980s that we went wild. We started with Charlotte, N.C., and added offices in Nashville, Miami, Cleveland, and elsewhere, all during a two-and-a-half-year period."
lokey says business wire considers each benefit from two points of view: first, its importance to -- that is, its motivational impact on -- the employees; and second, its cost-effectiveness -- its out-of-pocket expense, its effect on taxes, and the extent to which careful management can control its cost.
If you fund retirement programs, the government gives you a lot of bang for your buck in terms of tax deductions. "But," Lokey cautions, "when staff members are young -- like many of Business Wire's -- they've got family needs for the money now. From a morale point of view, you lean toward bonuses or other current benefits, like the health-club subsidy we added just last year. We've always got to weigh the different priorities."
And priorities change. In the late 1980s Lokey became disgusted with the bonus program. "People began yakking about bonuses too much and counting on them as a right, not a reward." So for several years he discontinued them. "They had become counterproductive," he says. "We had one manager who actually quit the company after a very large bonus because he said he'd never again earn that much during a year."
Following a four-year hiatus, in 1993 -- a spectacularly successful year for Business Wire -- Lokey restored the bonus program. He announced its rebirth with an emphatic two-page memo that warned employees not to "ruin" the bonus by counting too heavily on it. "We never stop hearing about that manager who quit," says Lokey's daughter, Ann, who is Business Wire's corporate secretary and a member of the executive board.
Two components helped Business Wire's benefits package finally click: the 401(k) plan -- open to all employees -- which has a provision for corporate-matching funds that encourages saving for retirement; and for 20 key people, a deferred-compensation annuity of $500,000 or more, of which one-tenth will be paid out per year, after an employee either logs 20 years' employment or reaches age 55, whichever comes later.
Thanks to her inclusion in that group of 20, Terry Vitorelo, for one, knows she can "retire at age 55, and once all my benefits from Business Wire get factored together, for the rest of my life I'll earn more money than I do now, working. That's surreal! When Lorry Lokey told me the way the annuity would work, I just laughed and laughed."
"We designed the annuity to include the people we wanted to keep with us for their entire working careers," Lokey explains. "We wanted to make certain that they could never be bought or enticed by another job. If they leave before the payment date, they lose everything. But if they stay, they'll have a wonderful retirement."
Lokey never discounts the company's accelerating growth and its ongoing need for capital investments -- most recently a $1-million upgrade of its wire-service equipment.
"With the 401(k), there are tax benefits from our contributions to employees' accounts," he explains. "I committed us to matching only 10% each year because I didn't want to be overextended if we ever needed to invest our funds elsewhere." Initial response to the 401(k) was lukewarm. "During the first year about 20 people joined. When they heard that I ended up matching 35% that year, they all started pouring in to join."
Because the IRS does not consider the annuity a qualified pension plan, it carries no immediate tax advantage. With no tax write-off, the annuity might have created quite a cash crunch.
"We investigated many options with the help of our investment broker," notes CFO Cummings, "and figured out a way to fund the annuity that costs us far less than the $18 million we project paying employees in the future. We've bought insurance policies in the company's name that cost us only $221,000 in annual premiums."
Cummings explains, "Once the insurance policies mature, and the corporation pays the cash to the employees, Business Wire will receive a valuable tax deduction." The IRS considers such payments taxable income for the recipients.
Lokey also cut other benefits costs -- he rejiggered Business Wire's pension plan and savings trust, both of which dated back to 1969. "Government rules had changed, and we were spending more than $7,500 annually to insure the pension and $20,000 on formal outside CPA's reports," he complains. "We had to get out from under that burden, without hurting our employees."
He rolled both plans into the company's 401(k). "Last year we contributed about $1 million to the plan," Lokey notes, "and we didn't have to waste all that money to satisfy excessive government regulations."
from where lorry lokey sits today, in a corner office with a panoramic view of San Francisco's waterfront, Business Wire's benefits package looks good, but it's taken a while to build. "We needed a mix that would reward longevity and keep people tied to the company because they'd know our long-term interests and theirs were the same," he says.
"You hear all this trite stuff about building team spirit. But I really believe that's what we've been able to do here. It didn't take a year or two -- it took us a generation to grow up and find ourselves. And I can't wait to see what's going to unfold." What's next? Lokey has his sights set on achieving the number one market position by 1996. "Last year our share of the national market ranged between 34% and 36%. This year we're already running at about 44%. We're just going to keep on growing," he promises.
THE BENEFITS PACKAGE . . .
All new employees get the following in their first year, based on a $24,000 salary. In other words, Business Wire provides the equivalent of an extra 37% of that salary in benefits.
Benefit Dollar value
Medical insurance, 90% paid by BW $1,800
7 workdays, with pay, for holidays 700
2 weeks' vacation 1,000
5 days' sick/personal time off with pay 500
BW 401(k) contribution 420
BW savings-trust donation 250
FICA, disability insurance, and so forth 2,400
Bonus of one month's salary (1994) 2,000
. . . JUST KEEPS GETTING BETTER
Employees in their sixth year get the following, based on a $50,000 salary. Business Wire provides the equivalent of an extra 60% of that salary in benefits.
Benefit Dollar value
Medical insurance $1,800
9 workdays, with pay, for holidays 1,925
3 weeks' vacation 3,225
5 days' sick/personal time off with pay 1,085
Medical/dental/ optical allotments 1,500
BW 401(k) contribution (35% of employee contribution) 900
BW savings-trust donation 2,000
BW $250,000 term insurance policy 900
BW health-club allotment 480
BW educational allotment (tuition, books) 480
BW annuity of $500,000 500
FICA, disability and travel insurance, and so forth 5,000
Bonus of 2 months' salary (1994) 8,300
Business Wire founded (October). One employee. One office. 150 news releases transmitted. $3,200 in revenues.
Business Wire achieves profitability. 2 employees. One office. 1,200 news releases transmitted. $36,000 in revenues.
Business Wire begins paying employee bonuses. (Payments suspended from 1989 to 1992, and reinstituted in 1993.) 3 employees. One office. 3,000 news releases transmitted. $210,000 in revenues.
Pension-trust and profit-sharing retirement plans created. 7 employees. 2 offices. 3,800 news releases transmitted. $460,000 in revenues.
"Medical/dental/optical allotment" benefit created to supplement health-insurance coverage. 11 employees. 2 offices. 8,400 news releases transmitted. $1.4 million in revenues.
Spare office turned into a nursery to be staffed by working parents. 32 employees. 10 offices. 29,700 news releases transmitted. $7.2 million in revenues.
401(k) plan created, with guaranteed corporate match of at least 10% of employee contribution. In first year, plan matched 35%. 162 employees. 16 offices. 55,400 news releases transmitted. $18.4 million in revenues.
Deferred-compensation annuity introduced; subsidies created for health-club and education costs. 200 employees. 17 offices. 74,800 news releases transmitted. $28 million in revenues.
INTERVIEW WITH THE EMPLOYER: LORRY LOKEY
When Lorry Lokey analyzes Business Wire's 33-year history, he makes a clear distinction between its early, slow-growth years and its more recent period of rapid expansion and increasing profitability.
By 1987 he had a core group of people who had worked with him for nearly a decade and who shared his corporate goals, values, and experiences.
Inc.: You're zealous about employee benefits.
Lokey: Absolutely. For a private-company owner, there's a relationship between sharing and greed. I live fine, and I couldn't care less about the country-club set. When I see a choice between giving money, through our various benefits plans, to the people who actually earned it for our company or giving it to the government in taxes, there's no question.
Inc.: What's the ideal package?
Lokey: You can't put together a perfect package in a year or two. You've got to keep adjusting it as your employees' needs and the tax rules change. The goal has to be to remove your employees' financial worries. Once you've figured out how, and they recognize the rewards of working for you, you'll build a nucleus of experienced, qualified people who will stay with you forever.
Inc.: Why not just pay higher salaries and eliminate complications?
Lokey: There are many reasons why I don't believe in paying more than the industry norm. For one thing, if you overpay a person and it doesn't work out, you've probably ruined his or her chances of finding the right job at the right salary someplace else. I've used benefits to create a system of financial incentives that reward people for staying with Business Wire as they become more valuable and experienced. We have five or six people who have worked at this company for so long and so well that any one of them could step in and replace me tomorrow. And there are five or six wonderful people behind them. If you just pay someone a high salary, another company can always outbid you tomorrow.
Inc.: Wouldn't that marketplace dynamic help keep costs under control?
Lokey: Well, from an employer's standpoint, it might look great if someone with a 15-year salary left and was replaced by someone earning $20,000. But I guarantee you, it ain't going to be the same. And when you have to do that with 15 or 20 employees all during the same year or so -- as we've seen our competitors have to do -- your company suffers. And that hasn't happened at Business Wire.
Inc.: OK, so your employees like you. But don't they also think of you as a financial pushover?
Lokey: Are you kidding? I nailed someone at one of our regional offices the other day for spending $21 on a first-aid kit. When I see an envelope with two 29¢ stamps on it, people hear from me. When people know that you expect them to live up to financial controls, they do. And when they get a bonus check for $6,000 -- the average size of our most recent bonus -- they see the logic. They understand that this company is run along the principle of investing its money wisely. Cost controls are part of that. So are comprehensive benefits.
Inc.: But aren't you siphoning away growth capital?
Lokey: At Business Wire, we've managed to remain debt-free while funding our growth and our benefits packages. We focus every capital-allocation decision on determining what area would most immediately benefit.
I guess we've proved that a small company can do both.
IN IT FOR THE LONG HAUL
Length of employment employees % of total
Six or more years 66* 33.2%
Two through five years 55 27.6
Less than two years 78 39.2
Total as of 11/13/94 199
*12 of this group have been with Business Wire for at least 10 years.