If I Were President
Plenty of employees say things would be different if they ran the show. When former machinist John Strazzanti built his own company, he got the chance to show how
Ask a group of workers what they would do if they were company presidents, and no doubt you'd get an earful. Give everyone Fridays off! Fire the managers! Pay the people who really do the work well enough so they don't have to struggle! A few do make it to the exalted rank of company owner -- and change their tunes as they begin to experience the real-world pressures of ownership. But John Strazzanti didn't.
Strazzanti is the president of Com-Corp Industries, a $13-million, 100-employee metal-stamping shop he incorporated in Cleveland in 1980. He'd started out as a machine operator with a tool-and-die manufacturer, rapidly climbing the ladder to become general manager of another stamping company. Along the way, he didn't just dream about what he'd change if he were a company president. He figured out ways to make his dreams a reality. Recalls Strazzanti, "I knew I wanted my company to be different from anywhere else I had worked. I had some ideas."
Did he ever. Com-Corp, which specializes in making headlight parts for the auto industry, is an open-book company. Compensation-rate decisions are in the hands of employees. Employees can get tenure. They earn above-market wages as well as a fair share of the profits. Com-Corp has results to show for Strazzanti's grass-roots management system: turnover is less than 5% a year, and the company has been able to earn better-than-industry-average profits over most of the past 10 years while maintaining a sales-growth rate of 20% in a capital-intensive industry. It has also become one of a very few shops to get onto Ford Motor Co.'s supplier list in recent years.
The glue that holds the programs together is an elegant management system designed by Strazzanti to give workers a real say, and intended to hold up during money-losing years. It's all written down in Com-Corp's Policy and Procedure Manual, an exhaustive set of guidelines that functions as a corporate constitution. (See "The Big Book of Checks and Balances," page 4.) Mimicking the framework of the federal government, the system controls the three centers of power in a company -- owner, managers, and employees -- with a pioneering arrangement of checks and balances that makes the government of the company more democratic.
A for-instance: At many companies where financials are shared with employees, workers must take the management's word that the numbers are true. But Strazzanti has a standing bet with his workers. If they doubt the veracity of the numbers, they can hire their own certified public accountant to audit the books. If there's a discrepancy, they get a 50¢-an-hour raise.
Most of Strazzanti's formative experiences occurred during the 1970s, as the Steelbelt rusted before his eyes. Some incidents were memorable -- so much so that Strazzanti credits them with originating many of Com-Corp's current practices. He can pinpoint those moments as if they happened only yesterday.* * *
On Showing Workers That Money Doesn't Grow on Trees
Cleveland, 1977. Jackie Presser was vice-president of the notoriously demanding local chapter of the teamsters' union. The chapter controlled a metal-stamping plant where Strazzanti had just been promoted from floor supervisor to general manager. Strazzanti recalls:
"Two coworkers marched into my office. It was a hot summer day; they had had a few beers at lunch and were fired up. They worked hard in the warehouse and saw the engineers working in the air-conditioning and getting paid a lot more. They didn't think it was fair and wanted more money. I knew I was in a no-win situation. If I told them I thought they were being paid fairly, that's what they expected; they were going to argue, and they weren't going to be happy with the results. If I gave them more money, I was being unfair to everybody else.
"So I took out a legal pad and I told them to write down whatever they wanted to be paid. Thirty days from that date, they would get that pay -- with one caveat. During the 30 days, I would shop for replacements for them. If I could get highly qualified people to work for anything less than that number, they would have to take a hike. They asked for time to think about it and never came back with a number.
"A lot of these guys think that if a company fills an order for a million dollars, it earns a million dollars in profit. I realized that if workers understood how a company earned a profit and how it had to be competitive, a lot of the resentment between managers and employees could be eliminated. And they needed to understand that if they improved their job skills, they could receive a higher wage."
A few years later, after launching Com-Corp, Strazzanti had his chance to put theory into action. He designed a 90-day orientation program that aims to break down some of the prejudices that workers and managers hold toward each other, so they can participate harmoniously in running the company. For instance, Strazzanti figures that much of the rancor directed at higher-paid managers can be eliminated if employees simply learn to live within their means. So Com-Corp's recruits are given personal-money-management lessons on subjects such as structuring a household budget, buying a car with cash instead of borrowing for one, and gauging the advantages of buying a house compared with renting an apartment.
Another Com-Corp workshop broadens employees' horizons by teaching how the value of goods is determined on the open market. The teacher (it used to be Strazzanti) grabs students' attention by holding up a bag of "moose eyelashes" in one hand and a bag of "gold" in the other. The class then deduces why gold is more valuable -- because in addition to being rare, it has a wide variety of industrial applications, is admired for its beauty, and is expensive to mine.
With those lessons under their belts, employees and managers can more easily make the leap to understanding how Com-Corp manages its finances with income statements and balance sheets, as well as how the value of one's skills determines worth in the job market. Strazzanti's decision to open up financials to employees was part of his successful turnaround of a unionized metal-stamping factory, executed from 1978 to 1980. Explains Strazzanti, "This system is designed to preserve the company so employees can enjoy the most basic job benefit of all: job security."* * *
On Letting Workers Set Compensation Rates
In 1969 Strazzanti's first job was as a press operator in the stamping department for a manufacturer that supplied parts for bicycle makers. During his first week he became uncomfortably familiar with the traditional manager-employee relationship:
"The maximum number of parts ever produced off the machine I was assigned to was 40,000 in a 10-hour shift. So, eager to make a good impression and keep this new job, I went to work trying to learn how to make the machine run faster. By the end of the week I had produced 46,000 pieces. The next day, the plant manager came over and said, 'I understand you got 46,000 pieces off this machine yesterday.' With a lot of pride I said, 'Yes.' He said, 'I always knew we could produce that many, if not more. I really think 50,000 is attainable. That's what I want you to shoot for.' No pat on the back. No congratulations. I was not going to be rewarded for what I had achieved.
"I had to run that machine for another two weeks and never did better than the average rate of 32,000 pieces. That was my first lesson in bad management."
To prevent such productivity-sapping forces from polluting Com-Corp, Strazzanti engineered a review system that gives employees a major say in how compensation rates are determined and controls managers' power in the review process.
Ten to 15 employees volunteer to serve on the Wage and Salary Committee; their stints are two years long. To determine going market rates for jobs ranging from floor sweeper to president, the workers survey and collect job-skills data from comparable companies in the region.
Similarly, managers use a standardized appraisal form that breaks an employee's performance into a variety of objective, measurable criteria, such as the number of parts the employee produces per hour; his or her record of meeting deadlines; attendance; and safety compliance. The form includes some soft measures, such as how well a worker gets along with other employees and managers. If an employee scores 80% on a review, his or her pay will amount to 80% of the highest rate of pay for that specific job, as determined by the employee-run committee.
To eliminate subjective influences such as personality conflicts and favoritism among managers and employees, peers also report on how well an employee is performing on the job. If there's a discrepancy, the human-resources director reevaluates the manager's appraisal of the employee. Workers who disagree with their appraisals can conduct their own compensation-rate surveys and air their grievances in front of the employee-run Human Resources Assistance Committee.
To put a reality check on the review system, turnover -- measurement of which includes only employees that have been on board for three months -- is tracked in two ways. Positive turnover is defined as the percentage of employees who leave for jobs that are more challenging than those Com-Corp can offer. Negative turnover covers those who leave Com-Corp for comparable jobs at higher rates of pay; it indicates that the company's pay rates are not competitive. The negative turnover rate in 1994 was 2%.* * *
On Giving Employees Tenure
Throughout his life Strazzanti witnessed many preventable firings. His first experience was the most painful. As a high school student in the mid-1960s he saw his own father fired from a job after he'd become incapacitated. His own experiences of the workplace hardened his opinions:
"One of the things that really bothered me in nonunion companies was management's lack of consideration for the years an employee had served. I saw young, new managers have the attitude that if somebody's getting to be in their fifties and they're slowing down, you get rid of 'em. Yet there was usually an unspoken rule that managers with the most seniority had the most job security -- as if their performance didn't slip over time.
"Also, I would see someone get into an argument with a manager and the manager would just say, 'You're fired,' and that order would stick. Or maybe a manager just doesn't like you and wants you to get out of his territory. Being concerned that your livelihood hangs by a thread because of a manager whose ass you have to kiss -- that's not a great way to wake up in the morning."
When he founded Com-Corp Strazzanti developed an innovative tenure system that borrows from academia. Its goal: to eliminate any chance of an employee's being let go unfairly by an abusive manager. "I wanted to eliminate those threats for employees here, but I wanted to do it in a way that wouldn't mean that if they obtained tenure, they would no longer have an incentive to perform to the best of their abilities," he explains.
To be eligible for tenure, full-time employees must have three years of continuous service with the company. To apply, an employee gets a manager to be his or her sponsor. Then, if one-third of the already-tenured employees sign a candidate's petition, the matter is voted upon by all those with tenure. A two-thirds majority is needed to win. (Currently 12 employees hold tenure.)
If a tenured employee's performance slacks off, so does his or her pay. For instance, if a job's maximum hourly rate is $10 and the employee gets only a 70% review rating, hourly compensation will drop to $7. Assuming the employee gets back on track before the following quarter's review, he or she might get a 90% rating and start earning $9 an hour.
To determine if tenure should be revoked, a hearing is held before a panel of tenured employees. The employee and the manager tell their stories, and the matter is put to a vote. One individ ual who had a nasty habit of getting drunk and destroying company property lost tenure and was subsequently fired.* * *
On Offering Free Education
In 1968, at age 22, Strazzanti was determined to work his way out of the working-class environment in Cleveland, where he had grown up, and "make it big" in business:
"I had to pay my own way through school. I saved money and went to the community school at night to learn everything from tool-and-die work to management. But the companies were benefiting from it, and I never thought that was fair.
"In 1972 I was in the third year of my apprenticeship. A foreman for whom I'd worked only three weeks told me he didn't think I was cut out to be a tool-and-die designer. He was an arrogant type and wanted to put me in my place. I didn't believe that was a judgment for him to make. I quit and went on to become a well-respected tool-and-die designer. If an employee's aspirations don't match up to his or her capabilities, it's got to be the employee who makes that discovery."
A respectable 10% of Com-Corp's full-timers are enrolled in an outside education class, compared with 3% for most companies that offer education benefits. To ensure that employees remain committed to their original inspiration, Com-Corp requires that they shell out for the class up front and reimburses them when the class is completed. The company pays 100% of class tuition for "A" grades, 80% for B's, 70% for C's, and zippo for D's and F's.
Former human-resources director Judi Sandbrook is a beneficiary of Strazzanti's education system; she began as Com-Corp's receptionist. Numerous hourly employees have worked their way up Com-Corp's ladder by taking advantage of the education benefits.* * *
On Sharing Profits with Employees
In 1978 Strazzanti was general manager of a $7-million-a-year metal-stamping shop in Cleveland, and he got a taste of profit sharing as he raked in 2% of the company's earnings along with his salary. That's when he realized that profit sharing could be an important incentive for any growing company:
"I was a little bit surprised at how many ways I found to increase company profit with just 2% of it coming my way. As a result I'm a firm believer that if you share some of the profitability with the people who are making the company profitable, you're going to get that little extra something.
"So when I started my company, it was put-up-or-shut-up time. I disagreed with some companies that paid people below market wages and then hoped the difference would be made up with profit-sharing money. There are certain things that workers have no control over. Why should they suffer because the economy is bad? Or because upper management made some bad strategic decisions three years ago?
"It's not a bad trade-off to give somebody else in the company 17% when I'm getting 83%. When I worked for other people, their attitude was, 'Hey, look, there will be years when I lose money; that's my money I'm losing. There will be years when I make money; that's going to be all my money, too. Employees aren't at risk. Why should they get any profitability?' I would say you do it because it motivates the hell out of people, and it helps you have no money-losing years."
A bonus pool of 17% of Com-Corp's pretax profits is distributed to employees and managers based on a prorated hourly wage. (Salaries are converted into hourly wages.) So, for every hundred dollars an employee or manager earns, he or she may receive $5, or $50 during a banner year, in profit-sharing money.
The system is not geared for instant gratification. Employees must work at Com-Corp for a year before they become eligible for bonuses, and checks are distributed at the end of the quarter following the performance period, so a new employee must wait at least 18 months before seeing a profit-sharing check -- if there's one at all.
Com-Corp has never lost money, although in 1994 profits were so paltry that no profit-sharing checks were issued. However, during boom times in the mid-1980s, Com-Corp's line workers were rolling in bonuses of $10,000 and more. Says Roberto Cotto, a line supervisor who five years ago was receiving annual bonuses of $15,000, "We understood when we were getting those big checks that we couldn't count on them every year. Even without the bonus checks, I still get paid better-than-average wages."
A companywide meeting is held once a quarter to review the company's financial performance and to talk about what's ahead.* * *
Over the past few years Strazzanti has made the management of Com-Corp even more democratic. Strategic planning, a duty even the most uninvolved company owners usually reserve for themselves, is shared among 14 full-timers. Strazzanti paid a consulting company $100,000 to teach Com-Corp managers how to conduct long-term strategic planning. The company is sailing along without him. During 1994, when sales dipped from $13 million to $10 million and profits nearly evaporated as a major contract wound down, Strazzanti rarely showed his face at the office. His contribution to the annual plan amounted to this directive: "Diversify the customer base and improve the company's return on investment."
Strazzanti's dedication to designing a workplace that treats workers and managers fairly has rewarded him in a way that would make most company owners green with envy, allowing him to live the life of an absentee owner. He volunteers in his community and spends plenty of time with his family. And on an unusually balmy Tuesday late last year, he wasn't to be found in the corner office, sweating the numbers. Instead, John Strazzanti, very much at home on his 80-acre horse farm, was checking over his newest acquisition -- a prize broodmare.
THE BIG BOOK OF CHECKS AND BALANCES
For five years John Strazzanti carried Com-Corp's complex employee-centered operating plan around in his head. But in 1985, when a growth spurt brought on a raft of new employees, the plan had to be written down. So Strazzanti summed it all up in The Policy and Procedure Manual, or, as they call it at Com-Corp, The P&P.
The two-inch-thick tome functions as a corporate constitution, detailing everyone's rights and responsibilities. It has helped the company avoid the demoralizing, costly struggles that often derail open-book-management efforts.
Unlike the more despotic manuals that often govern major corporations, The P&P contains guidelines that are voted upon by employees, who are free also to nominate new rules for inclusion. It also prevents Strazzanti from stepping on managers' toes, since it details the management's responsibilities. By the same token, managers don't enjoy a high level of autonomy, because their duties are so strictly prescribed by The P&P. Says David Wright, the company's chief financial officer, who has worked at Com-Corp since the beginning, "Traditional managers find it difficult to work within the guidelines because it prevents them from playing the blame games and using the empire-building tactics they rely on in conventionally managed companies."
To prevent managers from paying lip service to The P&P, the paper trail created by their work -- performance appraisals, say, or purchasing records -- is policed by an internal corporate auditor. And to contain spending, managers are charged with maximizing the company's return on investment in exchange for a chance to share in the profits.
Similarly, employees are prevented from plundering Strazzanti's investment because their decisions on compensation rates must be driven by the economic law "Marketplace determines worth." Although employees wield a lot of power at Com-Corp, the open-book arrangement has its costs. About 15% of workers find the demands for employee participation onerous and leave within the first three months.
The final check on the Com-Corp system is an exhaustive grievance procedure. If an employee feels that a grievance has not been adequately addressed by a supervisor, another manager, the human-resources director, or the Human Resources Assistance Committee, he or she can file an anonymous complaint with Strazzanti in the "Screw-up Box." Strazzanti receives about half a dozen complaints a year and believes the procedure helps keep the system from becoming corrupt.
Predictably, Strazzanti's lawyers begged him not to publish The P&P for fear that employees would construe it as legally binding. Instead, Strazzanti, a self-confessed "Trekkie," prefaced The P&P with a disclaimer borrowed from his favorite TV series. It states, "Rules agreed to by all parties are the guidelines we use to achieve justice. However, we must remember that as long as rules are absolute, there can be no justice." n