NFIB

Opening the Books
05/ 03/ 2004


Here's an idea: let your employees see how much money your company makes each month. Feeling queasy yet? You could take it a step farther: let the monthly profit or loss determine bonuses.

Workshop contributor Karen Bankston takes a look at this growing style of financial management. Find out if it might help you motivate your employees and get them all involved in moving toward the company's financial goals.

Every month the 400 employees of Wisconsin Label Group's Algoma, Wis., plant gather in a warehouse to look over the company's profit and loss statement. They're more interested in that financial report than you might expect: Its bottom line determines monthly bonuses.

Long before the term was coined in the late 1980s, open-book management was the way of doing business at Wisconsin Label, where employees from the printing presses to the front office keep an eye on expenses and revenue -- and share the rewards.

"People here are more involved," says CEO Terry Fulwiler. "They feel like it's their company, so they work hard and put in the extra effort."

In company profile after profile, author John Case explores Open-Book Management: The Coming Business Revolution (1996, Harper Business). As Case defines it, this philosophy entails opening financial records to employees, educating them about what those numbers mean, inviting them to help meet financial goals and sharing the rewards of those efforts.

Open-book management doesn't require major changes in organizational structure. Nor does it mean that owners and managers turn over decision making to employees, Case notes. But when top managers invite employees to look at the big picture, they'd better be ready to listen to new ideas from workers on the front lines, he warns.

Wisconsin Label has practiced open-book management since the company began as a family-owned business run by two couples in 1966, Fulwiler says. "Algomais a small town and as they grew and hired people, everybody knew everybody so it was easy to carry on that open-book policy."

Its STP (Share The Profits) program was launched in the 1970s, tying pay incentives to financial performance. The formula for calculating bonus checks is laid out in employee handbooks. The monthly pay-out takes full advantage of "that couple week period of anticipation before the bonus and the couple weeks of after-glow," Fulwiler says.

Wisconsin Label's retirement plan is based on company stock ownership, so employees also have a long-term incentive for maintaining high standards, he adds.

Fulwiler credits open-book management for keeping turnover low and maintaining a high-quality work force of employees motivated by positive peer pressure. However, as small business counselor Jack Reiners notes, "as with everything where there are rewards, there are also risks."

A crucial concern for small business to consider before implementing an open-book policy is whether financial records divulge proprietary information, such as data on profitable product lines that might entice a competitor into your market. That hazard is more probable if you're in a tight labor market where employees have many opportunities to move on.

"On the other hand, the reward is that implementing an open-book policy may enable you to keep employees that you might not otherwise," adds Reiners, who works with the Small Business Development Center office at University of Wisconsin-Madison.

Reiners recommends that companies operate open-book style at least among managers. "You can't really operate without letting your management team in on those financial statements and operating outcomes," he contends. "How do they know if they're achieving corporate goals if they can't see the results?"

Fulwiler also suggests that companies take extraordinary care in establishing the parameters of any profit-sharing plans. "If it goes awry and you're paying out more than is good for the company, pulling back can become a disaster," he insists.
"It's always easier to give them five bucks they didn't expect than to give them 10 bucks and then try to take five back," he adds.

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