Archives for posts with tag: Incentives

The Wall Street Journal recently had an article titled, “Do CEOs of Family Owned Businesses Work Less?”

The article referenced a study by several major universities of 356 chief executives around the world. They concluded that family owned business leaders work about 8% fewer hours than those in public firms. The study was solely about hours worked, not how effective a given CEO was in their job.

Having worked half my career for a family-owned firm and half for public ones, I will offer some thoughts on this topic. In my forthcoming book, The Business Zoo, I often compare and contrast smaller, private firms and larger, public firms on a variety of topics. For example, I compare their approach to many people issues including rewards and incentives, as well as their approach to mergers and deals. But this topic of work hours is new to me.

Private or family CEOs:  I have found that Founders of firms often work and live their business full-time. It is their passion and they have trouble distinguishing between their work and personal lives. A friend gave me a retirement gift of an ancient Chinese saying called “Master in the Art of Living”. It basically says that those who are happiest and luckiest make no distinction between work or play, but simply pursue their vision of excellence in all they do. That is how I would characterize the Founders of many businesses and their work hours know little bounds as well. Don Brown, the private owner of Donn Corp. was like this. He could call you at any time with some new idea. All of his direct reports met with him on most Saturday mornings from nine to noon. Then he fed everyone a catered steak lunch! The article did mention that Founders’ hours might be much different than the typical second or third generation in a family firm. In those situations, the money is already been made or is guaranteed versus the uncertainty and drive the founder may had shown. There is an old saying which is often true: Fortunes are made and lost in three generations!

Private equity companies CEOs: When private equity firms like KKR or Apollo buy an operating firm, they usually grant the CEO and their staff the opportunity to make a lot of money through stock ownership. Sometimes there are time periods to vest the ownership or incentives if the firm performs even better than forecast. These CEOs, I have observed, work very long hours. Like Founders of private firms, they have a lot of skin in the game.

Public company CEOs:. I have found this group to work less than their private company equivalents. In my two large, public firms, by Friday afternoon, the senior executive area was very, very quiet. This was especially true in the better weather when golf was a major distraction for many. In the winter, Fridays could be quiet as well as some executives had second homes in Florida or somewhere warm. Sometimes customer calls had to be made on the way to that warmer locale. Both my old firms had, from time to time, corporate aircraft. An article a couple of years ago stated that official corporate aircraft logs often revealed that up to a third of all flights were to or from an area where the CEO or other very senior people had a second home. Hmm.

So for what it is worth, I believe that Founders of family owned private companies and CEOs of private equity firm companies, work more hours than many public firm CEOs! The Wall Street Journal article and the university survey may have had too narrow of a scope.

The more interesting factor affecting hours worked may be the amount of equity ownership the CEO has, whether its a private or public firm. Most large, public firm leaders own very little stock and often paid very little for what they do own. I would exclude Founders like Steven Jobs of Apple who often still own substantial amounts of their firms. I believe the more real investment someone has in a company, especially a financial investment, the harder and longer hours that CEO will work to protect what they have and to grow it even larger. Nothing wrong with capitalism here!

I  really enjoyed the last post about private company incentives and the infamous Donn Corporation Outings. So today we are adding another unique reward that few companies would ever use.  Again this occurred at Donn Corporation while it was private and for reasons you will soon see was quickly discontinued when Donn was acquired by a very public firm. ( Warning: Some former Donn Corporation managers may want to delete these from their spouses’ computers or create one heck of a backup story!)

The Special Payroll Account:

The Donn payroll manager, Opal, maintained what we called the regular office/management semi-monthly payroll. This payroll worked like thousands of other ones at other firms.  But Donn’s Chief Financial Officer (my old mentor George, then me and our trusted Administrative Assistant, Kathy) maintained the special payroll Account. Both of these payrolls were, of course, reported to the IRS and the applicable state taxing people, but the special payroll offered people some unique benefits. The regular payroll only covered annual salaries to a fixed amount of say $75,000. Any base salary or bonus over that amount was paid quarterly from the special payroll Account. This insured that no one in payroll or accounting or anyone in a small department would ever know any top managers’ total compensation. Likewise, no one would ever know Don Brown’s or his family members’ total compensation. The accounting was handled by charging the special payroll in a large lump with no detail.

All of this is perfectly legal but with one moral caveat. Many of the top managers insisted that we not mail these special payroll checks to their homes. Rather they would come by personally and get them. Some of these Donn managers maintained special bank accounts of their own where they would deposit these special payroll checks. These amounts could buildup. For example, if you had a base salary of $100,000 and a bonus of $25,000, your special payroll checks that year totaled $50,000 before tax and say $30,000 after tax. After 5 years that’s a $150,000 special bank account. These non-reported-at-home funds could be used for hobbies, to pursue other interests or perhaps even charity.

When the large, public firm USG Corporation acquired Donn, several long-time Donn managers immediately quit rather than risk their marriages with the pending disclosure of their full salary checks. Some of us actually intermingled and disclosed our regular and special checks at home and did not have this problem.

But Donn’s owner, Don Brown, understood human nature and incentive rewards more than most Human Resource professionals. Mr. Brown also understood the little bit of larceny in the hearts of mankind that the Special payroll allowed some people to pursue in private.

This is probably another example of a private company incentive that is best not continued! But a great and true story.

In my book, The Business Zoo, I often compare and contrast how large public companies handle an area versus small, private firms. Some of the most vivid and striking differences involve how they motivate and reward their employees. Large, private firms, with all their Human Resource people, are often more rigid and follow exact guidelines. Private firms, historically, have more creativity and latitude. Here is a favorite example from my days at the very private Donn Corporation.

The Men’s Outing and the Women’s Dinner:  (Warning: These activities occurred and were named before our era of political correctness.)

The Men’s Outing was just that. All the 250 plant and office men at the main Ohio plant, on a Friday, traveled by buses to a nearby state lodge.

The bus ride down started at 7am and was always a treat especially for any innocent office guy who accidentally ended up on one of the plant guy buses. Beer was consumed before the ride as the neighborhood bar, Kelly’s, opened, probably illegally, at 5:30am that one special day each year. Beer was consumed on the bus ride. Beer was, at times, discharged or eradicated on the bathroom-less bus. Beer cans, empty, occasionally were ejected from the bus window, always in a safe and thoughtful manner. I know this firsthand.

My first year at Donn as I walked to the office guy bus, one of the plant managers grabbed me. His nickname for many reasons, was the Bear, and I knew from day one, he was not fond of me. Whenever I passed him in the Donn hallways, I would say Hi and the Bear would say f__ you. It took me months to actually understand what he was mumbling. This day he uses my real name and asks if I would do him a favor. My golden opportunity to bring him into my circle. I say, of course, Bear! He hands me a roster for plant bus #2 and says I am now in charge of making sure everyone is on it and to maintain order! Before I could decline or even asked him a question, the Bear disappeared! This was hard for such a big man to do. I took my roster, got on the plant bus #2 then tried to read the roster and take attendance.

A beer can, full, just misses my head. I made myself invisible for the next few hours. I still am abnormally uncomfortable while on buses. Fortunately, no one was seriously injured or went missing that day from plant bus #2.

The next year I drove, by car, with my old boss, George, to the Outing. Once at the state lodge, you could play golf, go fishing, ride horses, and of course, drink beer. No official Donn business took place.  All the lodge activities, facilities and meals were free to the Donn employees. At night you could play cards, go on nature walks, drink beer or terrorize the other unfortunate guests or those in the nearby community. Although officially no one except a select few senior people, like the owner, Don Brown, or George, were allowed to drive there, somehow a number of our employees managed to make their way to the local towns and bars to, of course, drink beer. But to insure there were no serious problems, the Bear and the other plant managers would visit the local police and sheriff units and drop off a donation (read  alcohol) a few days before the Outing. This somehow bought them a get out of jail free card and the ability to a arrange a private midnight pickup at the local holding cells. Each year at least of couple Donn guys were so reclaimed. It would have been bad form not to have one of the employees return home.

The next morning after breakfast the buses departed for the Westlake plant. The two hour bus ride back was much more somber and quiet. The beer had all been consumed and any stray cans removed by the plant managers so the employees could return to their families with at least a modest level of sobriety.

On the ride back each Donn employee was given a very nice gift (a small handbag, a folding umbrella) to take home to their spouse or girlfriend. This was how Don Brown included the family and thanked them for letting their guy go away overnight. Mr. Brown usually thought of everything.

The Women’s Dinner was actually that. All the women at the Ohio office and plant were taken to a very nice local restaurant. The Dinner was to include only one alcoholic drink to insure respectability. If only we had that rule on the Men’s Outing buses! But to help make the evening more enjoyable a senior manager, George in the early days and later me, would go over early and buy a round of drinks on the Company and then leave. The Dinner was not on par cost-wise with the Men’s Outing but it was a lot more civilized. We never had to go to the local police stations at the end of the Women’s Dinner. The ladies really enjoyed the event and I miss those Dinners more than the rowdy Outings.

In my next twenty years with two large public firms, there were no events quite like Donn’s Men’s Outing or the Women’s dinner. And maybe that was for the better!

A friend who read some of my Blogs told me that they would certainly appeal to people in large, public firms. After thanking him, I realized I had not been including as many of the stories, found in my book, about private firms. In fact, a unique thing about my background, and the book, is that in many Chapters, I compare and contrast what private companies versus public firms do on subjects like this one-Incentives.

You see, smaller private firms can be more ingenious and expansive in their reward choices and eligibility to receive them then larger, public firms. Part of this is due to their smaller size, but part is due to a lack of standardization enforced by those famous Human Resource types.

Whether good or bad, Incentives and Rewards, like everything, reflect the culture of a company and its leadership style. At my private company, Donn Corporation, many of its unique rewards where invented by its founder, Don Brown, who understood human nature and what motivates people more than most. So what Donn did was, at times, brilliant and ahead of its time, and at times, … well let’s look at a couple and you decide.

$1 Bills:

Each January, Donn had an Annual Review for all its workers. A unique feature, at the time, was to list and manually add up all the employee’s costs. (Nowadays this is all computerized and done by outside firms like Benefacts.) So an office person making $40,000 with pension, benefits, social security etc. could add up as a cost to Donn of say $50,000 a year. A manager level person with a base salary of $60,000, a $15,000 bonus, expenses, pension, benefits and social security could add up to $100,000.

The Annual Review book went one step further and showed that, based on 50 working weeks a year this $100,0000 person cost Donn $400 a day. In the early years, Mr. Brown did most of these Annual Reviews himself. And to really emphasize what this really meant to his Company, Mr. Brown added some of his dramatic flair. He would have hidden, in his desk, a stack of, in this case, 400 $1 bills. Mr. Brown would Slap them down in front of his employee and say that this was the amount of money it cost the company for every day that employee came to work! The first time or two this happened was impressive to a new employee. In later years, the theory was, the employee would see the stack of $1 bills get larger and larger as he made more money and cost the company more. At the end of each Annual Review, both the employee and Mr. Brown would sign the compensation book and Mr. Brown would scoop up the $1 bills and recount them for his next employee meeting.

Then one year something happened. Apparently, Mr. Brown was in a hurry to leave and left a relatively new employee to finish reading and signing his Annual Review book. Mr. Brown forgot to collect the $1 bills. The employee thought the $1 bills were for him, so he took them! From that day on, every employee got to take the $1 bills. This created some new issues.

For one, more employees now looked forward to these Annual Reviews knowing they would leave with a stack of money. Some of the employees took the money home to share with their spouses and families. Some employees, including some of the top managers I knew, would keep this new found cash a secret, (until now if they read this), from their spouses and use the money for other hobbies or interests.  And these $1 bills, as you will learn in my book, were not the only form of “soft” currency managers were capable of receiving from Donn.

But this new practice created problems for Donn’s payroll lady, Opal. Each January she would have to order the dollar bills in advance from our local bank branch. At the peak, I recall Opal going to pick up $50,000 in $1 bills from the bank. We sent along a couple of husky accounting kids to guard her and the money. We even had to buy her a large safe.

After USG Corporation acquired Donn, the $1 bills were over. This is probably a good thing as current U.S. banking laws might have an issue with a one time cash withdrawal of $50,000 in $1 bills; it just does not look or sound good.

Donn also had specific incentives for its plant workers, one of which we will cover next week.

Meanwhile, thanks to all for reading the blog. We are still in the process of working to get The Business Zoo published  so please stay tuned!