Opening Up the Books to Win Workers Trust

Yarde Metals has a lot of perks. The metal processor and distributor’s 665 employees can catch a little shut-eye in the company’s nap room, keep their dogs in the on-site kennel or work out in the 3,000-square-foot gym.

    But those are just niceties, says Craig Yarde, the company’s founder and former president and CEO. “The real issue is how we treat people,” he says. “That’s what defines us and that’s what I hope we are known for.”

    While regulators and activists are busy pressuring corporations to open their books to the public, Southington, Connecticut-based Yarde, which was privately held until last year, has been opening up its books to employees since 1996.

    Every month, employees can watch a 20-minute DVD featuring executives and employees detailing the company’s financial status.

    And since 1996, Yarde has distributed one-third of the company’s profits to associates through its “open book management” compensation program.

    On top of that, employees can also receive annual bonuses depending on how well the company does. The two plans make up 30 percent to 55 percent of employees’ base pay.

    Companies can train managers to be kinder and more open to employees, but only those organizations that are transparent and share their profits with employees will truly gain their trust, says Dan Purushotham, an assistant professor at Central Connecticut University.

    “Opening up the books is the greatest evidence of trust,” he says.

    Yarde decided to move to this open-book management style in 1996 after realizing that most employees had no clue how much the company made in annual profits. That year had been difficult financially. Yarde’s sales were up, but the company was growing too quickly and thus didn’t generate a profit. As a result, Yarde employees, who were accustomed to receiving some type of annual bonus, didn’t get anything.

    “Everyone was upset because they thought the company was holding back,” Yarde says.

    So Yarde went out on the floor and started asking associates how much they thought the company made in profits after taxes. “The range [of answers] went up to 50 percent, whereas the reality was more like 2 to 8 percent,” he says. “That’s when I said, ‘If they think we make that much money, we might as well open up the books.’ “

    Since then, the company has been profitable every year except for 2001, when the economy dipped, Yarde says. And employee performance during that difficult year is the key metric he uses to know his open-book management approach works, he says.

    During the first half of 2001, Yarde Metals laid off some workers and cut back on its medical benefits and 401(k) match.

    “We communicated with employees that if we didn’t make a gross profit of 1.85 percent, we would default on our loan with the bank,” Yarde says.

    The company ended up hitting its numbers, and by 2002 it was able to reinstate its 401(k) match and health care benefits.

    “It was the worst year the company ever had, but everyone went beyond the call of duty to show those numbers,” Yarde says.

    Today, the company is publicly owned, and Yarde’s daughter, Tracy Yarde Smith, is president and is maintaining the culture.

    “It just makes sense,” Yarde says. “If you treat people right, you will get the most out of them.”

Workforce Management, June 25, 2007, p. 45 — Subscribe Now!