Happiness Pays

PaeTec Communications is fiercely dedicated to two things: worker contentment and inexorable growth. The company's relentlessly focused CEO takes personal responsibility for both.

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The muted cry of frustration was on page five--the self-appraisal section--of Mike Trippani's performance evaluation. In most corporations, such a sound might have been considered the white noise of success--a gratifying indicator that Trippani, a low-level manager, was working hard outside his comfort zone. Not at PaeTec Communications.

Reviewing the appraisal, Arunas Chesonis, the 41-year-old CEO of this five-year-old telecom, recognized that Trippani was nervous. Someone else had become director of the Network Operations Center (NOC), where Trippani worked. He worried that he had no way to move up. Chesonis walked downstairs and took him aside.

"What is this crap?" Chesonis asked him. "You're one of the keys to future growth. You have a future here."

It wasn't a long meeting, but it was all Trippani needed. It mattered that the CEO read his appraisal and cared enough about him to find him and talk things over.

"I thought Mike was genuinely nervous. 'Where am I going to go as a manager? Can I go to different departments?' We worked it out," Chesonis says, sitting in his office. He's tall, fit but not lean, a little baby-faced, and deceptively soft-spoken. He wears a navy sweater vest with a PaeTec logo, a pair of Dockers, an old striped shirt with rolled-up sleeves, and loafers. "It's perfectly normal for me to show up and talk with anyone in the company. Mike and I are in the same fantasy football league here. My twelve-year-old son, Erik, is in it too. Erik will call people who work here and say, 'Mr. Trippani, Dad says you should trade Jamal Lewis or else he will send you to Alaska.'"

PaeTec, a privately held company based just outside Rochester, N.Y., offers voice and data services to midsize companies, as well as vertical markets such as hotels and universities. Last year PaeTec was second in the Deloitte Technology Fast 500, a ranking of the fastest-growing technology companies in North America. (Previous winners include eBay and Yahoo.) These rankings are based on average percentage revenue growth over five years; from 1998 through 2002, PaeTec grew 192,701%--from $150,000 in revenue in 1998 to $289 million in 2002. Take out the first couple of years (during which PaeTec's emphasis was on building infrastructure) and the average growth rate for the past three years is still 250%. Revenue is projected to exceed $360 million for fiscal 2003, and PaeTec will post its first profit.

In 1998, when it was founded, PaeTec comprised five founders and fewer than a dozen additional people. Now it employs more than 1,000. Its dramatic growth is the product, in part, of a corporate culture that has remained the same from day one. Everything at PaeTec revolves around respect for the employee. The word customer may be a little more prominent in the mission statement, but PaeTec puts employees first--and then watches them voluntarily put customers before themselves.

As a result, the company has flourished during what Chesonis refers to as the nuclear winter of telecommunications. The worst downturn in the history of the industry, going on three years now, has left more than half a million telecommunications workers out of work. Through it all, PaeTec has kept growing. The notion of putting the employee first may not be entirely new, but in such times, it's not exactly intuitive, either. PaeTec is becoming a model for how to succeed by doing it.

Mike Trippani is a case in point. His attitude matters, because he and his team have more direct contact with customers than anyone else at PaeTec. He works as a supervisor in the Network Operations Center: the NOC, pronounced "knock." It's where PaeTec answers the phone with a human voice--not a computerized call management system--after one ring when customers call to scream, query, or otherwise plea for help. That's when PaeTec begins to sell its real product: service. "We want outrageous levels of quality at Wal-Mart prices," says Jack Baron, executive vice president and chief marketing officer. "Most M.B.A.'s will tell you it can't be done. They'll say you can't do both. We do."

PaeTec gets 4,000 problem calls per month. That's a lot of problems for a company dedicated to high-quality service. In the NOC, where the company solves those problems, people like Mike Trippani have helped give PaeTec a monthly customer retention rate of 99.5%, or better, since it was founded in 1998. And no matter who you talk to, they all say that record can be traced back to this philosophy of Employees First. Here's how it works.

1. No Royalty

The company's directors have created an organization at which people relate to one another as equals. There are no perks at PaeTec for anyone, from the CEO on down. If you join a country club, you pay for it yourself. If you need a washroom, walk down the hall. If you show up late, you park down the hill. If you're expecting a huge bonus because you're higher up, forget it: Until recently everyone got 10%, period. Now that PaeTec is profitable, directors get 20%.

Chesonis writes notes, sends e-mails, sticks his head through the door to say thanks. He is constantly aware of everyone.

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