I currently work for a regional IT services firm in the Midwest. Until three years ago we had five employees (all technicians). Our operations averaged a 46% bill-out which means we paid 2.17 technician hours for each hour we billed clients. Our technicians averaged 22 hours onsite with clients per week. Our technicians averaged wage was $13.40/hr and billable rate was $19.50/hr. The number of service technicians had not increased in several years. The power distance, disciplinary procedures, and compensation were in no way remarkable.
We decided to do something radical.
We shared everything with employees. Exempting information clients would want kept confidential every single employee in our company today has access to the same financial information, business plans, client data, that the owners do. Every employee is responsible for both their own performance and performance of the company as a whole.
We didn't want lip service change.
Which meant we had to make compensation variable and responsive. No more annual reviews and fixed wages. No more using reports in the personnel file as a means of motivation. Now employees are rewarded and punished in tangible ways. Anything worth noting in a personnel file gets a financial element and, more importantly, a public pronouncement. Businesses today neglect the very effective devices of prestige and shame.
To make it the change functional
We invented something we call "Stats Jacker". When you walk into our office today there's a big colorful display providing a realtime news feed of wage increases/decreases along with a brief justification of the change. Each new item includes a portrait of the employee affected and is stylized in a sarcastic form inspired by the "You Don't Know Jack" video game franchize. ie: "Jennifer Hudson was reprimanded for being late to site for the third time this month. Way to go Jennifer! Her rate is now $17.62 after the $0.25 paycut." Employees are encouraged to install the Stats Jacker app on their smart phones where they not only receive updates in the field, but can enter short Twitter like comments which get posted to Stats Jacker in realtime attached to the relevant status update.
We allocated a small fixed proportion of net income to profit-sharing which is paid to employees proportionally to their direct contribution to billable hours. And made profit sharing increases available for purchase to every employee. This made employees a source of capital without having to sacrific equity. Purchases are broadcast by Stats Jacker.
Company events, like acquiring/losing a client, financial report releases, even new work order assignments are all published by Stats Jacker. Financial reports are released to all employees.
Each month the employees elect someone from amongst their own ranks to attend all management meetings and employee reviews and advise management/owners. We call them the 'EA', Elected Advisor. But the employees have jovially nicknamed the job 'Monthly Gossip'. Basically, they give management the skinny on employee concerns and vice versa. No one may nominate themself and no one may hold the position two consecutive months. Compensation is regular wage for time for time "on duty" and the employee is expected to continue performing all their regular job duties.
Does it actually work?
Today we have twenty-eight employees, eleven of the technicians average full-time hours. Average technician wage is up 36% to $18.24/hr. We're billing clients for 81% of all technician hours at an average rate of $36.37! Our ROA is higher than we ever imagined.
How do you establish an extremely open culture in a way that supports
both management and employees?
The reason for our success with open compensation was transparency. It may sound like an oxymoron since open compensation is itself transparent, but disclosing everyones pay without disclosing why they get paid what they do is harmful. Our employees now receive wage changes an average of once every 2.7 months and congratulate each other for successes, heckle each other for failures with inhibition.
The transition wasn't without it's pitfalls. We lost two of our most skilled technicians because we changed the compensation without giving the employees ways to directly increase their pay. We learned the hard lesson that if you're going to be open, your employees have to have a sense of control.
We also learned that managers are the major obstacle to success. Managers whose authority extends by fiat not respect become obvious quickly. Employees at all levels get greater recognition of their efforts.
Stats Jacker fit our industry, but the same could be done with monthly reports and real interactive facetime with high level managers. It's amazing how much employees and their managers see eye to eye when everyone gets to make informed judgements about the value each person, event, and action adds to the organization.