Opening the Books and Motivating Workers

How companies such as Pool Covers and Ginger Bay Salon & Spa use open-book management to get the best out of their employees.

CEOs of top workplaces cherish transparency. These companies aren't just practitioners of open-book management. They are true believers.

Open-book management, of course, is the practice of supplying employees with financial data and critical information, teaching them what it means, and turning them loose to influence and share in the company's success. Although a tiny fraction of U.S. companies open their books to employees, 83 percent of the 2010 Top Small Company Workplaces do. Many base their practices on the open-book management bible, The Great Game of Business, by Jack Stack, though some introduce their own twists.

Several homegrown elements are detectable at Pool Covers, a $6.3 million company in Fairfield, California. Employees must complete a training program to qualify for the company's employee stock ownership program—or ESOP—committee, which runs company meetings and participates in decision making. After learning how the ESOP works, new hires spend four or five days digging into the company's financials.

The new employees then collaborate on an idea for improving the company's bottom line. Pool Covers has implemented many of the suggestions, including the use of GPS devices in company trucks. CEO Claire King marvels at her new hires' ingenuity. "We do a lot of driving, so one team had a plan for installing a gas station behind our building," she says. "They demonstrated quite clearly how it would save us money. How wonderful and out of the box is that?"

Laura Ortmann encounters eye rolling when she preaches open-book management to her industry peers, but that hasn't stopped her crusade. In 2008, Ortmann and her husband, Jeffrey Evenson, bought Ginger Bay Salon & Spa in Kirkwood, Missouri. They trained hairstylists, massage therapists, and even the folks who change the towels to understand various aspects of the company's performance and their own roles in it. Then they challenged staff to make those numbers soar.

At Ginger Bay, financials are reported prominently on a scoreboard in the break room. The board announces each employee's daily sales results and whether she met her goals. "Behavior changed overnight," says Ortmann. "No one wants their name next to a low number."

Last year, Ortmann introduced an economic readiness plan, which is a kind of Homeland Security Advisory System for the hair-and-nail set. As financial results drop below certain levels, the alert level ratchets up from 1 (normal business activity) to 5 (we are closing our doors), and expense cuts and other measures kick in. "It was scary for them, but right away they went into what-can-I-do mode," says Ortmann. "They came up with amazing ideas for generating revenue and cutting costs." Not only has Ginger Bay avoided a flirtation with Level 5, but it has continued to grow and been profitable enough to offer medical insurance and a 401(k) plan with company matches—not typical in the industry.

"I love numbers, and I love knowing how I'm doing," says nail technician Terri Kavanaugh. "Laura uses the term financial fitness, and she's right: It's just like working out. Once you get your muscles toned, you can perform at a higher level."

Leigh Buchanan is an editor at large for Inc. Magazine. A former editor at Harvard Business Review and founding editor of WebMaster magazine, she writes regular columns on leadership and workplace culture. @LeighEBuchanan