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both sides having learned that a worker does not !t into the !rm’s culture and cannot stand its pace” (p. 199). Zappos tries to accelerate the process by offering new hires a cash bonus to quit after they complete the company’s orientation program. Few take the money and run, but Zappos wants to keep only people who love the company’s idiosyncratic culture.
Keep Employees To get people they want, companies like Google, Southwest Airlines, and Wegmans offer attractive pay and bene!ts. To keep them, they protect jobs, promote from within, and give people a piece of the action. They recognize the high cost of turnover—which for some jobs and industries can run well over 100 percent a year. Beyond the cost of hiring and training replacements, turnover hurts performance because newcomers’ lack of experience, skills, and local knowledge increases errors and reduces ef!ciency (Kacmar et al., 2006). This is true even at the CEO level. CEOs who move from one organization to another perform less well on average than those who are hired from inside (Elson and Ferrere, 2012).
Reward Well In a cavernous, no-frills retail warehouse setting, where bulk sales determine stockholder pro!ts, knowledgeable, dependable service usually isn’t part of the low-cost package. Don’t try to tell that to CostcoWholesale Corp., where employee longevity and high morale are as commonplace as overloaded shopping carts. “We like to turn over our inventory faster than our people,” says Jim Sinegal, Costco founder and CEO until he retired in 2012. Costco, a membership warehouse store headquartered in Washington State, by 2016 had become the world’s second largest retailer (after Walmart) with more than 700 stores across the United States and beyond.
Costco has a counterintuitive success formula: Pay employees more and charge customers less than its biggest competitor, Sam’s Club (a Walmart subsidiary). A great way to lose money? Costco has been the industry’s most pro!table !rm in recent years. How? In Sinegal’s view, the answer is easy: “If you pay the best wages, you get the highest productivity. By our industry standards, we think we’ve got the best people and the best productivity when we do that.”Costcopaid its employees about 70percentmore than Sam’sClubbut generated twice as much pro!t per worker (Cascio, 2006). Compared with competitors, Costco achieved higher sales volumes, faster inventory turnover, lower shrinkage, and higher customer satisfaction (RetailSails 2012; American Customer Satisfaction Index, 2016). Costco illustrates a general principle: Pay should re”ect value added. Paying people more than they contribute is a losing proposition. But the reverse is also true: It makes sense to pay top dollar for exemplary contributions of skilled, motivated, and involved employees (Lawler, 1996).
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“This is the lesson Costco teaches,” says retailing guru Doug Stephens. “You don’t have to be Nordstrom selling $1,200 suits in order to pay people a living wage. That is what Walmart has lost sight of. A lot of people working at Walmart go home and live below the poverty line. You expect that person to come in and develop a rapport with customers who may be spending more than that person is making in a week? You expect them to be civil and happy about that?” (Stone, 2013).
To get and keep good people, selective organizations also offer attractive bene!ts. Firms with “high-commitment” human resource practices are more likely to offer work and family bene!ts, such as daycare and “exible hours (Osterman, 1995). Take software powerhouse SAS:
Just about every bene!t known to corporate America—on-site child care, swimming pools, medical clinics, !tness centers, car detailings, nail salons, shoe repairs—are on offer at this software company based in Research Triangle Park, North Carolina. Said one employee: “I get massages, pick up prescriptions, get my hair done, take photography classes, get physical therapy. The list is endless.” But the employee quickly added: “It’s not just about the ‘what.’ It’s about the place itself. The campus is beautiful and quite tranquil. I can take a walk during lunch and !nd myself far away. I know it sounds corny, but I enjoy just driving into campus in the morning” (Fortune: SAS Institute, 2016).
Why spend that much? In an industry where turnover rates hover around 20 percent, SAS maintains a level below 4 percent, which results in about $50 million a year in HR- related savings, according to a Harvard Business School study. “The well-being of our company is linked to the well-being of our employees,” says SAS CEO JimGoodnight (Stein, 2000, p. 133).
Protect Jobs Job security might seem anachronistic today, a relic of more leisurely, paternalistic times. In a turbulent, highly competitive world, is long-term commitment to employees possible? Yes, but it’s not easy. Companies (and even countries) historically offering long-term security have abandoned their commitment in the face of severe economic pressures. During the !rst year of the recession of 2008–2009, American businesses laid off close to 2.5 million workers (Bureau of Labor Statistics, 2012). In China, a
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government report counted more than 25 million layoffs from 1998 to 2001, many of them unskilled older workers (“China Says ‘No’ . . . ,” 2002; Lingle, 2002; Smith, 2002). Many state-owned enterprises foundered when economic reforms forced them to sink or swim in a competitive market.
Yet many !rms continue to honor job security as a cornerstone of their human resource philosophy. Publix, an employee-owned, Fortune 500 supermarket chain in the southeastern United States, has never had a layoff since its founding in 1930. Similarly, Lincoln Electric, the world’s largest manufacturer of arc welding equipment, has honored since 1914 a policy that no employeewithmore than three years of servicewill be laid off. This commitmentwas tested when the company experienced a 40-percent year-to-year drop in demand for its products. To avoid layoffs, production workers became salespeople. They canvassed businesses rarely reached by the company’s regular distribution channels. “Not only did these people sell arc welding equipment in new places to new users, but sincemuch of the pro!t of this equipment comes from the sale of replacement parts, Lincoln subsequently enjoyed greater market penetration and greater sales as a consequence” (Pfeffer, 1994, p. 47).
Japan’s Mazda, facing similar circumstances, had a parallel experience: “At the end of the year, when awards were presented to the best salespeople, the company discovered that the top 10 were all former factory workers. They could explain the product effectively, and when business picked up, the fact that factory workers had experience talking to customers yielded useful ideas about product characteristics” (Pfeffer, 1994, p. 47).
Promote from Within Costco promotes more than 80 percent of its managers from inside the company, and 90 percent of managers at FedEx started in a nonmanagerial job. Promoting from within offers several advantages (Pfeffer, 1998):
• It encourages both management and employees to invest time and resources in upgrading skills.
• It is a powerful performance incentive.
• It fosters trust and loyalty.
• It capitalizes on knowledge and skills of veteran employees.
• It avoids errors by newcomers unfamiliar with the company’s history and proven ways.
• It increases the likelihood that employeeswill think for the longer termand avoid impetuous, shortsighted decisions. Highly successful corporations rarely hire a chief executive from the outside; less effective companies do so regularly (Collins and Porras, 1994).
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Share the Wealth Employees often feel little responsibility for an organization’s performance because they expect gains in ef!ciency and pro!tability to bene!t only executives and shareholders. People- oriented organizations have devised a variety of ways to align employee rewardsmore directly with business success. These include gain-sharing, pro!t-sharing, and employee stock ownership plans (ESOPs). Scanlon plans, !rst introduced in the 1930s, give workers an incentive to reduce costs and improve ef!ciency by offering them a share of gains. Pro!t- sharing plans at companies likeNucor give employees a bonus tied to overall pro!tability or to the performance of their local unit.
Both gain-sharing and pro!t-sharing plans usually have a positive impact on performance and pro!tability, although somehaveworked better than others. Success depends onhowwell these plans are integrated into a coherent human resource philosophy. Kanter (1989a) suggests that gain-sharing plans have spread slowly because they require broader changes in managing people: cross-unit teams, suggestion systems, and more open communication of !nancial information (Kanter, 1989a). Similar barriers have slowed the progress of ESOPs:
To be effective, ownership has to be combinedwith ground-“oor efforts to involve employees in decisions through schemes such as work teams and quality- improvement groups.Many companies have been doing this, of course, including plenty without ESOPs. But employee-owners often begin to expect rights that other groups of shareholders have: a voice in broad corporate decisions, board seats, and voting rights. And that’swhere the trouble can start, since few executives are comfortable with this level of power-sharing (Bernstein, 1996, p. 101).
Nevertheless, there have been many successful ESOPs. Thousands of !rms participate (Rosen, Case, and Staubus, 2005), and most of the plans have been successful (Blasi, Kruse, and Bernstein, 2003; Blair, Kruse, and Blasi, 2000; Kruse, Blasi, and Park, 2010). Employee ownership tends to be a durable arrangement and to make the company more stable—less likely to fail, be sold, or to lay off employees (Blair, Kruse, and Blasi, 2000). When !rst introduced, employee ownership tends to produce productivity gains that persist over time (Kruse, 1993). A plan’s success depends on effective implementation of three elements of the “equity model” (Rosen et al., 2005, p. 19):
• Employees must have a signi!cant ownership share in the company.
• The organization needs to build an “ownership culture” (p. 34).
• It is important that “employees both learn and drive the business disciplines that help their company do well” (p. 38).
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