1. Offer Security
Lincoln Electric, an arc welding and electric motor manufacturer, began years ago to offer guaranteed employment to workers after two (and now three) years on the job -- and has not had a layoff since 1948. This is not because the company has never faced hard times. During the recession of the early 1980s, Lincoln's domestic sales fell about 40 percent in 18 months. To avoid layoffs, the company decided to redeploy its workforce. Factory workers who had made Lincoln's products were put in the field to sell them. The move saved jobs -- and ended up increasing market share and penetration. Lincoln's managers believe their success is due largely to the assurance workers have that innovations won't cost them their jobs.
2. Be Picky
In 1993, Southwest Airlines received about 98,000 job applications, interviewed 16,000 people, and hired 2,700. In 1994, applications increased to more than 125,000 for 4,000 hires. Southwest considers a large applicant pool critical to finding the best people. Choosy hiring requires rigorous and creative interviewing and screening. At Peoplesoft, a producer of human resource management software, interviewers ask little about applicants' academic backgrounds. Instead, they focus mostly on such questions as whether an interviewee sees herself as team-oriented, and how she'd describe her philosophy of life. Peoplesoft believes this selection process is more likely to produce a cultural "fit." At Subaru-Isuzu's U.S. manufacturing plant, getting hired involves going through multiple screenings, including written tests and other exercises, and can take as long as six months. The company believes a lengthy selection process ensures that those who are hired have been carefully scrutinized, develop commitment to the company and feel that they are part of an elite group.
3. Build Teams
The AES Corporation, an immensely successful global developer and operator of electric power and steam plants, doesn't have corporate departments or senior managers in charge of such standard areas as environmental compliance, safety, human resources or strategic planning. All these functions are handled at the plant level: plant managers assign them to volunteer teams comprised of hands-on people who develop expertise in their area. This structure saves management costs (the company has only five levels), economizes on specialized staff and offers increased speed and flexibility -- all important sources of competitive advantage. AES developed a $400 million plant in Cumberland, Md. -- a project that would normally require hundreds of workers -- with a team of just 10 people. The Ritz-Carlton Hotel chain, winner of the Malcom Baldridge National Quality Award in 1992, provides each of its employees with discretion to spend up to $2,500, without any approval, to respond to guest complaints. This policy may seem wasteful, but Ritz-Carlton managers know that spending money to keep clients satisfied encourages guests to return.
4. Pay for Success
When John Whitney took the helm at Pathmark, a large grocery store chain in the Eastern United States, the company had about 90 days to live. Whitney decided that many of the store managers were underpaid. Since he saw them as vital to the chain's ability to turn around, he gave them a substantial raise: about 40 to 50 percent. The company's subsequent success was made possible, according to Whitney, because the store managers turned all their attention to improving performance, instead of worrying and complaining about their pay. It also ensured that talented managers wouldn't leave for better jobs elsewhere. Contingent compensation also plays an important role in the larger job of managing people -- whether that compensation comes in the form of gain sharing, profit sharing, stock ownership or pay for skill. Wal-Mart, AES Corp., Southwest Airlines, Microsoft and many other successful organizations share ownership in the belief that when employees are owners, they think and act like owners.
5. Train, Train, Train
The Men's Wearhouse, an off-price specialty retailer of men's business attire, attributes its success to employee-sensitive practices and particularly its emphasis on training. The company boasts a 35,000-square-foot training center in Fremont, Calif., its headquarters. In 1994, some 600 "wardrobe consultants" went through Suits University, and that year the company added "Suits High" and "Selling Accessories U" to complement its core program. New hires at the Men's Wearhouse spend about four days in one of some 30 training sessions held every year, at a cost to the company of approximately $1 million. Experienced store personnel also return to headquarters for regular retraining programs. The company has invested far more in training than most of its competitors, and it has prospered by doing so.
6. Level the Playing Field
At New United Motor Manufacturing Inc. in Fremont, Calif., everyone wears the same colored workclothes; executive dining rooms and reserved parking lots don't exist. At Kingston Technology, a company that manufactures add-on memory modules for personal computers, the company's two co-founders sit in open cubicles and do not have private secretaries. Limiting the difference in compensation and perks between senior management and other employees also helps to reduce status differences and foster a sense of "common fate." Whole Foods Market, a national natural-foods grocery store chain, has enjoyed substantial growth and stock price appreciation -- but has a policy limiting executive compensation. Herb Kelleher, CEO of Southwest Airlines, froze his own base salary for four years when a five-year wage freeze was negotiated with the company's pilots in 1995.
7. Tell All
Whole Foods Market shares so much detailed financial and performance information with every team member that the SEC has designated all 6,500 employees "insiders" for stock-trading purposes. Whole Foods even shares individual salary information with every employee who is interested. John Mackey, Whole Foods' CEO, opened up salary information to signal that the company had nothing to hide. As unorthodox as it might sound, sharing such information helps build trust and openness between employer and employee and makes it possible for people at all levels to contribute to building the business.
Jeffrey Pfeffer, PhD '72, is the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business. This excerpt was adapted from his book The Human Equation: Building Profits by Putting People First by permission of Harvard Business School Press. Copyright 1998 by the President and Fellows of Harvard College.
