Are layoffs simply a necessary evil in today's business climate? This company's founding fathers don't think so. And they've built a culture to reflect that.
Hiring and Retention
Nobody likes the idea of layoffs, especially not anyone who's ever been laid off. But it's no pleasure for the ones doing the downsizing either. Letting hard-won, well-trained staffers go is one of the most difficult things about running a business. Yet most CEOs regard head-count reductions as a necessary evil, a by-product of a difficult business environment. And no matter how strenuous a CEO's objections to the practice are, there's really no way to guarantee that a company will never lay anyone off.
Or is there? Craig Nelson, Neal Vaoifi, and Scott Young -- the three engineers who founded Mission Controls Automation (#248) in 1997 -- made a pledge to one another that they would sooner go without pay than lay off any of their staff. That may be a surprising promise, but it's an understandable one when you consider that the three cofounders had just been "downsized" themselves and in fact had each been laid off at least twice before that. "It's pretty common in our industry," says Nelson.
Nevertheless, since the founders have seen firsthand the havoc that job loss can wreak on a family, they are especially attuned to the consequences. "People are always talking at the executive level about how hard it is to lay off staff, but from the employee's standpoint it changes so much in your life," says Nelson. "Losing a job affects everything from what college you can send your kids to, to what vacations you are able to take. It causes trauma to marriages and to families."
Since Mission Controls designs and installs automation systems for food and beverage manufacturers, it's a project-based business, so the typical company in its niche hires and fires as contracts come and go. "Most of the time they're just trying to protect salaries for top management," says Nelson.
At Mission Controls, the founders set out to do something different: if sales drop and cost-cutting measures are required, the three co- founders give up their salaries before they even consider letting any of their 35 employees go. "And we're not the ones who decide," says Nelson. "We allow the comptroller to make that decision. Then we establish certain objectives in cash flow and profitability that we have to make before we can get our salaries back." Additionally, once the partners regain their salaries, they are not paid retroactively.
There have been numerous times when the company found itself between jobs and the cofounders had to go without salary, including an eight-month stretch during the business's first year. "And during that time, there were no reductions in benefits or other people's salaries," says Nelson proudly.
77 % of the Inc 500 CEOs surveyed said that the business expenses that gave them the most headaches were wages and benefits.
Though Nelson admits that the "hire for life" notion is hardly new, it's not a common practice in the current business arena. "In my dad's day, this was the norm," he says. "You often heard about people working someplace 40 years or more. But now, in the last 15 years, no jobs are secure. It seems like companies will do whatever they need to in order to turn a profit but at the expense of people." It's not that Nelson is running a charity. "Employees have to do their part," he says. "We need to be profitable to keep this idea going."
So how does one hire for life without getting burned? Mission Controls has a three-part employee-screening process that begins when a member of the administrative staff calls a potential candidate to schedule an interview. Candidates are rated from one to five according to how well they treat the staffer on the phone and whether they ask intelligent questions. "We like to see if, when candidates have someone on the phone with inside knowledge, they try to extract that information," says Nelson. "It's a good way for us to be able to tell exactly how interested they really are in us."
After going through a technical interview with the appropriate supervisor, candidates are usually SNAGed, which stands for "Screening New Applicant Group." Mission Controls' SNAG is a one- to two-hour group interview in which five nonmanagement employees have a chance to vet the candidate. Immediately after the interview, each of the five must give a thumbs-up or a thumbs-down to the prospective staffer. "We want their gut response," says Nelson. "We don't want them to think about it over the course of the day." The employee group makes the final decision, no matter how the technical interview goes, and the response must be unanimous. "We've had almost 100% success since instituting this about two years ago," he says.
The other key to making the system work, says Nelson, is open-book management. "We get a lot of help from employees during the tough times, but that means they have to know what we know," he says. "Employees here know everything except salaries, including our profit margins and how much job bids are." Nelson says that whenever he's been laid off in the past, the reasons have been obscure, a "financial downturn" or "adverse conditions," he says. So when bad times hit, Nelson and his cofounders get specific. "We spell out what we think the problem is, and then employees pitch in," he says. Plus the staff all know the metric that Nelson uses: "Businesses should focus 90% on earning and 10% on spending," he says. "Most businesses do the opposite."
"If cost-cutting measures are required, the three cofounders give up their salaries before they even consider letting people go."
In order to keep the focus on earnings, if projects are running longer than they should be, employees start looking at what went wrong and how to prevent it next time. "We ask, 'Could we have done this in less time or with fewer resources?"says Nelson. He also knows that his employees are willing to put in whatever extra effort is necessary. "Many will do things outside their immediate job description," he says. "And all our staff have proven that they're willing to do stuff that's a job level or more below what they normally do."
When employees know that money is tight, they suggest and implement cost-saving measures. "People voluntarily hold off on purchasing that new laptop or spending on travel and entertainment. And we see our monthly Amex bills dropping $20,000 without even asking for it," Nelson says. In short, employees are given license to be entrepreneurial.
Fortunately, Nelson and his staff haven't scrimped for quite a while. Nelson credits that to the mutual commitment engendered by the company's hire-for-life culture. "Very little of our success comes from the owners' being smart," he says. "The biggest part is trusting employees to get us to do the smart thing."
Christopher Caggiano is a senior associate editor at Inc.
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