Twenty-six years after publication of The One Minute Manager, Ken Blanchard has written The One Minute Entrepreneur. Blanchard, co-founder of an eponymous, 300-employee consulting firm in Escondido, California, spoke with editor Mike Hofman about leadership and fair pay.

Your new book says that a leader's job is to make sure that the people in a company are taken care of. Does that mean that entrepreneurs who set strategy and demand results, no questions asked, are ineffective?

If your employees are disengaged, and they don't take care of your customers, it doesn't matter how good your strategy is -- your customers will still go somewhere else. There's so much competition today that no customer has to put up with abuse. As a leader, you absolutely must expend your energy engaging your frontline employees so that they will take care of customers, who will tell stories about how great your company is to other people, who will become new customers. It's interesting to me that the distribution of salaries at most companies gives top managers a huge premium for their supposedly great strategic thinking, while people who deal with customers and operations are paid much less, on average. This is not to say that strategy isn't important. Leadership is about taking your organization somewhere. But the how is as important as the where.

Do you practice what you preach at your own company?

We take steps to ensure that pay is fair. We try to make sure that nobody earns more than 10 times the lowest-paid full-time employee. And we have something we call a gain-sharing program, which means that when we hit a profit target, everyone in the company gets a check for an equal amount. Let's say in a given year it's $2,000 per person. For the people who make $30,000 a year, an extra hit of $2,000, besides their annual raise -- well, I think that's a powerful way to engage them.

How do you handle questions of fairness and pay equity when the company isn't hitting its targets?

That happened to us in 2001. Much of our business is conducted at conferences and corporate events. After 9/11, we had a slew of cancellations. Nobody wanted to travel. We lost a million and a half dollars in revenue. I responded by opening the books to people so they could understand our financial situation. Then the question was, Should we have layoffs? I have three criteria for making decisions like that: What is legal, what is fair, and what will the effect of the decision be on my self-esteem? Layoffs would have been legal. I'm not sure they would have been fair. And I know they would have destroyed my self-esteem. So we decided instead to institute a hiring freeze and salary cuts across the board for six months. The cuts were higher for people who made more, and people who made below $50,000 a year were exempt. We felt that a salary cut at that level would have been too harsh. Everyone in my family who is on staff -- five of us, including me -- took a 25 percent salary cut. We also suspended matching 401(k) contributions for a year. And we told people that when we pulled out of the slump, we would take all 300 employees on a four-day, all-expenses-paid trip to Hawaii.

What happened?

The business did rally, eventually, and we made good on our promise in 2005. The trip cost us $625,000, and in my view it was worth every penny. Can you imagine a public company worried about its quarterly numbers investing that kind of money in its people? We wouldn't take our company public if our last breath depended on it, precisely because you can't do things for the long-term benefit of your people when you're public. The problem with American business today is that Wall Street demands short-term thinking, which means that businesspeople focus on results and forget about the important people part of their jobs.