Author: Andy Meisler

You aren’t imagining things. A 1997 Hay Group report showed that behavioral-health-care benefits have become much more limited since the advent of antidepressants and managed care. In 1988, 38 percent of behavioral plans imposed a limit on the number of days that depressed and/or suicidal patients could spend in the hospital. By 1997, deadlines were imposed by 57 percent of plans. The number of plans imposing any mandatory checkout date for inpatient psychiatric care rose from 63 percent in 1990 to 68 percent in 1997.

    Limits on traditional “talk therapy” also have changed. Twenty-six percent of these plans imposed a limit on annual visits in 1988. In 1997, restrictions on Woody Allen-type treatments were imposed by 48 percent of plans. In addition to an increase in the number of plans imposing a limit, the limit has decreased. In 1988, 46 percent of plans restricting trips to the couch allowed a maximum of 50 visits. In 1997, the most prevalent cutoff was 20 visits.

    In addition to annual-visit limits, many plans imposed monetary ceilings. In 1988, 45 percent of plans did so. By 1997, the percentage of plans imposing these had decreased to 40 percent. However, the dollar amounts allowed by plans didn’t keep pace with inflation. Most plans imposed a limit of $2,500 or less in 1988 and in 1997. To keep pace with inflation, that $2,500 in 1988 would have had to be increased to $4,993 in 1997.

    Since then, with the advent of disease management, hospitalization and outpatient benefits have dropped even further. And, in sync with the current economic slowdown, about 10 percent of health plans don’t include behavioral-health coverage at all.

Workforce Management, September 2003, p. 58 — Subscribe Now!

Many of the people who spend their time thinking about business ethics for a living devote a large chunk to thinking about forced ranking. They have to. What businesspeople call forced ranking is known as “grading on the curve” in academia—and professors and students grapple with that slippery statistical slope every day.

“Grading on a strict bell curve means that if you give someone an A, you have to give someone else an F,” says W. Michael Hoffman, executive director of the Center for Business Ethics at Bentley College in Waltham, Massachusetts. “But perhaps—and maybe a lot more than perhaps—the people at the low end of the bell curve don’t deserve to flunk or be kicked out of school. Or in the case of a corporation, fired.”

Hoffman personally finds grading on the curve (and its corporate sibling, forced ranking) distasteful, but not unethical. It’s distasteful, he says, because it doesn’t recognize students who aren’t good test-takers (or employees who lack champions upstairs at evaluation time) but who demonstrate unquantifiable qualities like loyalty, dependability, determination and persistence. It’s not quite unethical, he says, because it’s often unavoidable. In the classroom, as in the workplace, a laissez-faire attitude toward grading may lead to grade inflation, the Lake Wobegon Effect, where just about everybody is judged to be above average. And that makes the grades meaningless to students, teachers and prospective employers alike.

Hoffman adds that forced ranking remains ethical “as long as there are certain transparent and clearly communicated criteria that employees are aware of when they take and while they’re working on the job. If employees take the job knowing there are going to be bell-curve criteria based on pre-announced testing and evaluation, then they could say at the get-go, ‘I don’t want this job.’ ” But if an employer—as employers are wont to do—announces that it’s going to rev up the workplace by suddenly ringing in the bell curve, “then I would have some concerns.”

So would John Wilcox, director of the Center for Professional Ethics at Manhattan College in New York City. His main worry is how the individual employee is evaluated. “A lot depends on how fairly the system is developed. And how fair the people are who carry it out,” he says. “Who has input into the evaluation? Is it used for political purposes? Does the person at the bottom have a chance to appeal his evaluation? Do people in the organization see it as a positive dimension of the culture? Or as a way to get rid of people that the CEO doesn’t like?”

Thomas White, director of the Center for Ethics and Business at Loyola Marymount University in Los Angeles, takes this a wobbly step further. Regardless of any evaluation system, he says, most non-unionized private-sector employees can be fired “at will” anyway. “When you come down to it, most people wouldn’t agree to at-risk employment unless they had to. Would many people sign a contract that said, ‘We reserve the right to let you go for a good reason or a bad reason. We don’t have to give you an explanation.’ I don’t think so. But what if the contract said: ‘If I’m not doing my job properly, I can be fired.’ They’d sign that.” On another sticky point, White considers the guarantees of “freedom” to an employee to leave his employer and look for a more ethical workplace a bit hollow and hypocritical in these hard times.

Then there are the absolutists. On one hand, “I personally think it’s horrible,” says Robert Shoemake, director of programs and membership at the Center for Ethical Business Cultures in Minneapolis, of forced ranking. “If you don’t give people what they need to perform well and expect them to succeed, if you set a measure to which people should perform and don’t give them the tools to do it, then it’s abusive and unethical.”

On the other hand, James W. Fowler, director of the Center for Ethics at Emory University in Atlanta, says, “If the evaluations are carried out in fair ways, and if people know the grounds or expectations on which they are being evaluated, it could be a reasonable way to reward growth and ability and to cull unpromising or underperforming employees.”

Michael Josephson, founder and president of the nonprofit Joseph & Edna Josephson Institute of Ethics in Los Angeles, won’t declare forced ranking either ethical or unethical. “My instinct is that it’s probably more bad than good,” he says. “My instinct is that it hurts morale, pits employees against each other when you’re trying to create teamwork. The justifications are theoretical. What we really ought to have is pressure on managers to make honest performance evaluations.”

Workforce, July 2003, p. 49 — Subscribe Now!

High-visibility lawsuits and Jack Welch’s celebrity have brought recent-mostly unwanted–attention to forced ranking. But there’s nothing new about the process itself. Law firms, college faculties and the military have operated under an “up or out” ethos for eons, and a number of companies, including PepsiCo, have used it for several decades.

    Its modern history begins in 1999 with the publication of Topgrading (Prentice Hall), by a consultant and industrial psychologist named Bradford D. Smart. In 2001, The War for Talent (Harvard Business School Press) came out. However, forced ranking did not pierce the public consciousness until Jack Welch’s autobiography, Jack: Straight from the Gut (Warner Books), arrived in bookstores on September 11 of that year.

    Welch devoted almost an entire chapter to what he calls The Vitality Curve, but what many readers remembered most vividly was his philosophical/emotional argument for forced ranking. “Some think it’s cruel or brutal to remove the bottom 10 percent of our people. It isn’t. It’s just the opposite. What I think is brutal and ‘false kindness’ is keeping people around who aren’t going to grow and prosper. There’s no cruelty like waiting and telling people late in their careers that they don’t belong-just when their job options are limited and they’re putting their children through college or paying off big mortgages.”

    Although it is unknown how many CEOs agree with him, what’s more certain is that the post-9/11 recession fanned the flames of both forced ranking and corporate reticence on the subject.

    These days, a new question is whether the expected economic turnaround will decrease the popularity of forced ranking. Byron Woollen, for one, thinks so. When times are good and the money is rolling in, he says, people who might be perceived as weak performers are a less endangered species.

    Helen Handfield-Jones, not surprisingly, has a different view. She believes that five years from now, the need for differentiation will be even greater. “As we look down the road, we won’t have the senior leadership that we have today. There’s a declining population in that age group.”

    She adds that 75 percent of all current senior vice presidents will either retire or be on the brink by then, and because of the recent “delayering” of companies, there’s a whole tier of managers missing. “So how else,” she asks, “are we going to find the people ready to make the leap from plant manager to leading a business unit? Because the skill that’s needed in the top 50 jobs at a company is going up all the time.”

Workforce Online, July 2003 — Register Now!

It might be the toughest corporate survivor of all. It has outlasted boom and bust, employee enmity, workforce managers’ opposition, media criticism, crippling lawsuits, Enron’s implosion and the de-deification of its biggest and most vocal champion, former General Electric CEO Jack Welch. For all that–partly by keeping its head down and going by a number of colorful aliases–it has remained very much at large. It is known as forced ranking and is variously called Topgrading, the Vitality Curve, Forced Distribution, Differentiation and Rank and Yank. And by some estimates, the controversial employee-rating system has taken root in as many as one in five Fortune 500 companies. It reached its peak of popularity just before Welch’s retirement in 2001, but the sour economy has kept its balloon from bursting.

    It’s a workforce-management tool based on the premise that in order to develop and thrive, a corporation must identify its best and worst performers, then nurture the former and rehabilitate and/or discard the latter. It’s an elixir that in these slow-growth times has proved irresistible to scores of desperate corporate chieftains–but indigestible to a good many employees. It’s a rough-and-tumble evaluation technique practiced at least to some extent by such corporate heavyweights as GE (which didn’t respond to our requests for an interview on the subject), 3M (“We’re going to take a pass on this subject.”), Texas Instruments (“No comment.”), EDS (“The person you need to talk to is traveling and won’t be available.”), Microsoft (“We don’t use forced ranking.”) and Hewlett-Packard (“HP’s performance rating is not designed to drive out a certain percentage of the company. HP has been evaluating and measuring performance and results for a long time. It’s motivational, and the employee, the team and the company all benefit.”).

    Forced ranking is a subject that makes many top managers cringe. “I believe that the reason for the great reluctance about talking about forced ranking,” says Dick Grote, founder and head of Grote Consulting Corporation in Addison, Texas, “is that in our culture we have a bone-deep belief in egalitarianism. That all people are essentially the same. And one of the great advantages of forced ranking is that it requires reluctant managers to actually identify the most and the least talented members of the work group.”

    That’s a necessity because “all God’s children are not the same,” Grote adds. “And that is treated as management’s dirty little secret.” Grote is one of the country’s foremost advocates of the rating system and has helped implement it at half a dozen or so large companies, which he is contractually forbidden to name. “The benefits of forced rating, intelligently and ethically conducted, are numerous,” he wrote recently in an article published by the Conference Board. “More than any other process, the system creates and sustains a high-performance, high-talent culture.”

    Byron Woollen, head of New York City-based Worklab Consulting, is one of many business consultants whose philosophy is diametrically opposed to Grote’s. Woollen has advised a number of corporations on how to avoid or extricate their organizations from the evaluation process. He says he can only speculate about why companies using forced ranking or its variants keep their heads down. “It’s really a hot-button issue these days.” Especially since attorneys specializing in employment law tend to aim for disgruntled forced-ranked employees like heat-seeking missiles.

The Ground Rules
    For those experienced with forced ranking, no explanation of its attention-getting ground rules is needed. For the rest of us, the grading system is based on the premise that rigorous evaluation and routing of employees by their immediate supervisors on agreed-upon abilities, skills and attitudes are not only possible, it’s vital. Thus, everybody from the top down can be–and sometimes is–ranked and placed on a bell-shaped company-wide curve, or in one of four quartered-square “quartiles,” or “buckets.” Other companies use a 1-to-5 ranking scale, 5 being best. Employees who finish, say, in the first 15 percent of the curve or the top-left quartile or are rated as a 5 are marked as A players–corporate stars and future leaders–and showered with raises, stock options and training. Performers in, say, the middle 70 percent of the curve or top-left and bottom-right square are B’s, given lesser raises and encouraged to become A’s. Those in the bottom right-hand square or the bottom 10 percent–or rated as 1–are given no raises or bonuses and either (a) offered remedial tutoring and mentoring in the hope of turning them into B’s; (b) offered remedial tutoring and mentoring and asked whether they might not be happier at another company; or (c) fired. Thus, Rank and Yank.

    The execution of a forced-ranking system demands intense yearly performance reviews, during which managers must place each of their underlings in their proper place. No exceptions are made. In theory at least, each round of ranking and/or yanking will ratchet up the total quality of the workforce one notch. In practice, that depends on whom you talk to.

The Pros and Cons
    Generally speaking, the proponents and opponents of forced ranking agree on only one thing: that they are right and everybody else is wrong. However, their theoretical disagreements–which are played out inside real companies among real people and real lives–break down into five major categories.

• Statistical Validity. The very heart of forced ranking is the belief that if, say, 100 people selected randomly from the Bronx phone book are measured for height, weight or their time in the 100-yard dash, the results will invariably display themselves on a bell-shaped curve. Similarly shaped will be measurements of a company’s, division’s or department’s personnel on matters of “core competencies.”

    Of course, the members of a typical work group are not selected randomly and seldom number 100. Not an insurmountable problem, says Helen Handfield-Jones, a former McKinsey & Co. consultant and co-author of The War for Talent, a 1999 book that was instrumental in popularizing what she and her co-writers call “differentiation.” “It doesn’t have to be an exact bell curve,” she says. “I agree entirely that this is not precise science.” But it is better than any alternative, she says. “Next time you have a promotion, are you going to make a random selection?” Handfield-Jones believes that 23 or 25 is the minimum number of employees that can be ranked. Dick Grote believes that it’s desirable to have at least 37.

    Nonsense, says Worklab’s Byron Woollen. “You have managers taking a bastardized notion of that [mathematical] principle and then just kind of monkeying with an idea that doesn’t really apply.” And this mathematical mirage, says a former employee for Metropolitan Life who never quite made it into the top bucket (and who, like all other employees interviewed, we opted to keep anonymous for obvious reasons), produced results that might seem surreal if they weren’t so frustrating.

    “There were 300 account specialists, all with the same caseload, on one floor doing the same thing, and 25 managers,” he says. “Now, my manager knew my work ethic, but what about the other 24? They didn’t have a clue.” He strongly suspects that when the managers went into a conference room to rank him and his associates, they had nowhere near the information needed to do it fairly. And, he adds, the “top 10 percent” of each 25-person group is exactly 2.5. “I believe in the science of the bell curve,” he says. “It would be great if it could be used properly. Also, ideally communism is a good idea. But in reality it doesn’t really work.”

    Says another observer from the trenches: “I worked in HR for HP several years ago and never met a manager who didn’t loathe the forced-ranking system. The point they consistently made was that all their employees could be performing at acceptable or even above-average levels, yet they had to place a certain number in the bottom two performance levels.”

    • Objectivity. Perhaps the most admirable aim of forced ranking is to liberate lagging organizations from lethargy and paternalism by forcing managers, most of whom have the all-too-human tendency to be lenient in evaluating their subordinates, to face hard facts. To do that, they have to rate their underlings honestly. And to do that, they need as objective a set of criteria as possible. Finding them is a major problem in instituting any performance-review system. Forced ranking, though, raises the stakes.

    Jack Welch of General Electric, for instance, instituted “the four E’s of GE leadership.” They were: “very high Energy levels, the ability to Energize others around common goals, the Edge to make tough yes-and-no decisions, and finally the ability to consistently Execute and deliver on their promises.”

“I never saw a CEO’s brother-in-law who was a C. Funny, isn’t it?”

    Each of these E’s and standards like them, say his critics, are “E-Z” on-ramps to varying degrees of interpretation, subjectivity and favoritism. “I was in the business world for more than 25 years,” says a former executive who recently became a private-school headmaster. “And I never saw a CEO’s brother-in-law who was a C. Funny, isn’t it?”

    Also, forced-ranking systems usually leave out “softer” qualities that some consider essential to any organization–like teamwork, honesty, dedication and cheerfulness. Well, sure, says Helen Handfield-Jones, but what’s the alternative? “Yes, these are human beings. Again, this is not science. There are no steel calipers you can use to make measurements. But you still have to put people in jobs. And people make judgments all the time anyway. So the best thing to do is be as objective as you can and never leave the decision to one person. Different people see different things. Bring multiple senior people into the decision. Give everybody high-quality objectives to aim for. And have them written down to be as objective as possible.”

    • Morale. For most people–especially those with outmoded concepts of loyalty and job security–the prospect of Darwinian struggle at their workplace is not a happy one. (Jack Welch noted: “This is hard stuff. No leader enjoys making the tough decisions. We constantly faced severe resistance from even the best people in the organization. I’ve struggled with this problem myself and have often been guilty of not being rigorous enough.”)

    “It’s like cardiac arrest for an organization,” says Woollen, who adds that at one old-line paternalistic company he assisted, the mere (true) rumor of an impending switch to rank and yank sowed fear, loathing and preparations for a class-action lawsuit. On the other hand, he concedes, at companies where forced ranking is well established, the effects may be different.

    “When you have people entering GE, you have people who are self-selecting out in some ways,” he says. “They say, ‘I want to go to GE because it’s cutthroat. And I’m badass enough so I can do that.’ And once in, there’s that culture of ‘We’re all badasses, and we’re all gonna take over the world, and this is the way we work.’ You sort of sign on for that.”

    • Politicization. Armed with ample evidence, critics say that during the evaluation process, managers will often ignore the facts. To protect and advance their own people, they haggle, horse-trade, call in markers and even use threats, emotional appeals and executive-suite connections. The most extreme and well-documented example is Enron. The company’s “Performance Review Committee” became a snake pit and catalyst of naked power plays and greed. Forced-ranking advocates don’t have much to say these days about Enron. But they do contend that a well-run review process can squeeze out most or all of these aberrations.

    • Cannibalization. Almost everybody agrees that the typical corporation has a certain number of under- and non-performers, and that a year or two of good, fair forced ranking can weed them out. After that, though–especially if a company is cutting its workforce–something else happens. Former A’s will become B’s and former B’s will become C’s. Upwardly mobile B’s will displace A’s; recovering C’s will merely replace shaky B’s. Not the healthiest of situations, admits Dick Grote. “I think that after about three iterations, forced ranking loses its effectiveness,” he says. “I think the best thing for companies to do is to wait three or four years, bring in some people from outside the company and start over again.”

    • Diversification. An alleged bias against women, minorities and older workers–indeed, any class of workers that upper management allegedly wants to weed out–is the most contentious argument against forced ranking. In 2000, the Ford Motor Company instituted a forced-ranking system that attracted two class-action lawsuits alleging discrimination on the basis of age, gender and race. In 2002, the suits were settled for $10.5 million and Ford dropped forced ranking. At the energy company Conoco, two forced-fired geophysicists who were replaced by citizens of the U.K. under special visas alleged that they were discriminated against because they were Americans. A confidential settlement was reached in 2001.

    Last year Goodyear was sued for age discrimination by several parties. It too dropped forced ranking. Microsoft, where employees are rated from 1 to 5, was sued by several African-American men and women for race and gender discrimination. Most of the suits were dismissed by a federal judge in Seattle, but the company reached a confidential settlement with one plaintiff.

    These lawsuits are almost inevitable, says Byron Woollen, especially if vague, ill-considered criteria such as “fits in with others” are used in performance reviews. Most forced-ranking advocates contend that lawsuit traps can be avoided by conscientious managers and consultants. Dick Grote has a slightly different take. “The reason that people sue is not because they have been discriminated against. They sue because they don’t feel like they have been treated fairly.

    “For example, if you have a person who is a member of a protected class, a black female, [with a] Spanish name and who is handicapped, it takes a lot of courage to walk up to her and say, ‘Susan, your performance isn’t very good.’ It takes a lot of courage to do that, so managers are quite likely to avoid having those tough conversations. Forced ranking is forcing them to do so.”

Workforce, July 2003, pp. 44-49 — Subscribe Now!

Founder and CEO of Paychex, Inc., B. Thomas Golisano, is worth reading about for three verygood reasons.

    Reason One: During the past 32 years–by working incredibly hard; givingopen-ended opportunities to bright but uncredentialed young employees; and usingold-fashioned training, promotion, and compensation policies–Golisano hasexploited a profitable, albeit unsexy, niche market.

    He has led his payroll and benefits outsourcing business from a one-manenterprise into a 7,400-plus-employee corporation with $954.9 million in annualrevenue. A graduate of a little-known state college and the son of a pastasalesman, he now has a net worth of more than $1.1 billion.

    Reason Two: During the past 15 years or so, he has attempted, withoutcomplete success, to do several other notable things. He has run for governorthree times and lost badly, the last go-around, in 2002, costing him $60 millionfrom his own pocket. He has jump-started many major charities, givingaway several fortunes. And, most recently, he bought the Buffalo Sabres, awoebegone nearby National Hockey League franchise that was $94.5 million indebt.

    Reason Three: He’s living proof, in these business-guru-ridden times, ofthe worth of a passionate and well-executed business plan, the value ofeffective employee training, and the futility of any one-size-fits-all theory ofworkforce management. And everyone at Paychex understands this perfectly.

    Except maybe Tom Golisano. “I’m afraid I have a reputation of alwayslooking at accountability and results. I think that applies pretty much acrossthe board,” he says with a wry smile. From his assertively nondescriptheadquarters in a suburb near his hometown of Rochester, New York, he adds, “I’ma big believer that you can control a lot of things–if you put in the effortand have the creativity to get it done.”

Why Paychex succeeds
    By all accounts, the husky white-haired leader plans to keep the platesspinning indefinitely. At the rate he’s going, he should run out of money–well,never. Which is good news for the political consultants, fundraising executives,sports agents, and Paychex employees who work for him.

    The newest members of the Paychex team are especially excited about theirboss. “I’d really love to spend my entire career here,” says Kerry Davis,speaking recently to a reporter outside the corporate training center, locatedpointedly–to demonstrate the company’s emphasis on training–off thefirst-floor lobby. She’s on the third day of a two-week training course tobecome a payroll specialist, an entry-level number-crunching andclient-hand-holding job. A 23-year-old from Portland, Oregon, with two years ofcommunity college and no degree, she is one of 27 men and women–all dressed innew off-the-rack business attire–in her training class. This is just a smallfraction of the newcomers Paychex will hire in this opportunity-challengednear-recession year.

    Davis joins a company that has never had a layoff. Over the last six years,Paychex has exceeded a 23 percent annual profit. It has about 475,000 clientsand 101 offices in 36 states and the District of Columbia. The company ranks22nd out of 712 corporations in the Wall Street Journal’s ShareholderScorecard and is 88 on Fortune’s current list of “100 Best Companies to WorkFor.” In 2002, Davis’s new boss and role model (“I know everything aboutMr. Golisano!” she says excitedly) made $744,230 in total compensation and wasnumber 3 on Chief Executive magazine’s Market Value Added ranking of CEOs.

    Most interesting, perhaps, is that to win a job at Paychex, Davis and herclassmates didn’t compete against people considered prime corporate recruitingmaterial elsewhere. According to Tom Golisano, having an MBA won’t necessarilyeliminate an applicant from consideration at the firm, but experience as aconsultant or as a manager in a large corporation is a showstopper.

    “We expect our senior management to be hands on,” the CEO says. “And Ithink when you talk to a lot of people who come from larger organizations, a lotof times they come from a different culture and it’s hard for them to adapt.They expect in most cases a much healthier benefits and wage package, okay? Theyexpect larger support staffs. They expect a little more freedom in their timeand movement than we’re willing to give them.”

    Some also tend to be “visionaries.” Unfortunately. “I don’t think aperson can have meaningful visions unless they have some good knowledge of whatto do,” Golisano says. “Chances are, for new people walking into anorganization like that, they are going to come up with an idea. And that’sgreat. We encourage it. But quite frankly, if they’ve only been here forseveral months, they’ll probably find we’ve already thought of most of them.Okay?”

“What we don’t want is to find out on a new hire’s first day ofwork–after we’ve spent $13,000 on his or her training–that he or she isn’tright for the job.”

The value of hiring and training
    This year Paychex estimates that it will receive more than 25,000applications for about 2,000 open positions, most of them for payrollspecialists or sales representatives. “Tom looks for people who want to besuccessful and are looking at Paychex as their vehicle for personal success,”says Walter Turek, the company’s vice president for sales and a 22-yearveteran of the firm. It means that the person doesn’t have a track record ofbeing successful in business or at another company, he explains. It also meansthat this hasn’t discouraged him.

    Turek adds that most successful candidates have experienced “moments ofsuccess”–high-school sports stardom, for instance, or being the first intheir family to attend college. These “moments” no doubt serve them wellduring an arduous selection and training process, which starts several monthsbefore they even begin their training in Rochester.

    “What we don’t want,” says Will Kuchta, the company’s vice presidentfor organizational development, “is to find out on a new hire’s first day ofwork–after we’ve spent $13,000 on his or her training–that he or she isn’tright for the job.” Kuchta, who worked on an assembly line and as a latheoperator before returning to college to get his Ph.D. in education, supervisedthe design of Paychex’s current hiring and training systems and works in thetop tier of management beneath the CEO.

    The organization rarely advertises for entry-level employees, Kuchta says. Inthe case of payroll specialists, it recruits via “ambassadorship”relationships between its branch managers and accounting professors at localcolleges. “To tell you the truth, we have better luck at JCs than at four-yearcolleges,” he says. “Most of the people in junior college are working theirway through school. They know how to get up and go to work each day. Most peoplewith baccalaureate degrees, they’ve only worked as lifeguards.”

    Applicants take a test to measure their basic math and logic skills. Kuchtasays the exam was designed at about an eighth-grade level. They also undergofour increasingly lengthy interviews with employees and managers at the branch.During the interview process, most of the square pegs “deselect” themselves,he says. New hires are assigned a mentor and spend a month at the branchobserving, learning, and dipping their toes into actual work. Only then are theyflown to Rochester for formal classroom instruction.

“We have about a 99 percent success rate among the people who make it tothe two-week course.”

    “We have about a 99 percent success rate among the people who make it tothe two-week course,” Kuchta says. Paychex instructors are available forremedial tutoring practically anytime after school, including weekends. Afterreturning to their respective branches, new hires start work and complete anaverage of about a year’s worth of home-study learning “modules.” Theireducation doesn’t stop there. Paychex employees spend an average of 109 hoursa year in training classes–which is almost twice the average in Trainingmagazine’s Top 100 (this year Paychex ranked number 33). In this no-frills,no-nonsense regimen, little or no time is spent on team-building exercises suchas rope climbing or corporate singing. And for most employees, training neverstops. Every Friday afternoon at every branch, time is devoted to instruction innew products and techniques. Managers on the promotion track return to Rochesterevery two years for further intensive training.

    As for compensation, the pay is very good, if not awe-inspiring. A payrollspecialist can make up to about $70,000. And the best salespeople, who work oncommission, clear $200,000. In addition, every Paychex employee–except Golisano, who owns 10.5 percent of thecompany–is eligible for stock optionsand/or profit-sharing. On the evaluation side, every employee–includingGolisano, who is evaluated by the board of directors–is issued yearly goalsthat he is expected to eventually meet and is given ample coaching andmentoring.

    The goals for payroll specialists, for example, would be a certain(undisclosed for competitive reasons) number of accounts handled and a maximumpercentage of accounts lost yearly. For sales reps, they would be a certain(undisclosed) percentage of sales per minimum number of sales calls. The goalsare fairly inflexible, but employees who meet them are assured of furtheremployment. “We don’t grade on the curve,” Kuchta says. “We set a numberthat’s aggressive, and not everybody makes it–but everybody can. Whether you’renumber 49 on the list or number 51 doesn’t really matter.

    “This method works for us, though we don’t assume it would work anywhereelse. A person from GE couldn’t work here, probably. Could our people work forGE? Probably not.” At Paychex, he adds, teamwork and collegiality yield betterresults–for both employer and employees–than fierce intra-companycompetition.

Citizen Golisano
    Paychex’s corporate culture, of course, is in large part a reflection ofThomas Golisano himself. After growing up in Rochester, he applied forentry-level jobs at Kodak and Xerox, the two largest employers in town. Bothcompanies rejected him, for reasons that Golisano suspects had something to dowith the vowel at the end of his name.

    Gloria Austin, his first wife and the mother of his two grown children,agrees. “His parents were Italian immigrants. I’m sure that [his rejection]was part of his drive to succeed. Anytime you face rejection, you’re even moredetermined to get revenge, which is tremendously sweet. It gives you the will togo and do. Tom has got tremendous drive. He’s extremely talented.”

    After missing out at Rochester’s Big Two (currently two of the mostdistressed corporations in America), Golisano enrolled at Alfred State College,75 miles south. He earned a two-year business degree in 1962. At 30, he wasworking for Electronic Accounting Systems, a company that processed payrolls forbig companies. He proposed to his boss that EAS service companies with fewerthan 100 workers. He was turned down flat. The next year, 1971, he quit, rentedoffice space from his former employer, and started Paychex. Then as now, he usedthe selling point that many small businesspeople are deathly afraid of runningafoul of the government and/or irate employees by miscalculating salaries,taxes, and other deductions while squeezing paycheck-writing duties into theirbusy workdays. Golisano took responsibility for government penalties or lawsuitsif his company made any mistakes.

    By 1974, Paychex was up on its feet–but the long hours and years offinancial uncertainty had fatally strained his marriage to Gloria, whom he’dmarried in 1961. By the end of the decade, Paychex consisted of 18 partnershipsand franchisees. One franchisee: Gloria Golisano, who insisted on gettingPaychex’s New York City franchise as part of their 1977 divorce settlement. Atthat point, Paychex had more than 6,000 clients. In 1983, Golisano bought outeverybody, turning many into millionaires, and took the company public. Over theyears, Paychex has branched into otherareas, including employee benefits, workers’ compensation, and claimssettlement.

    Golisano retains approximately 11 percent of the company’s stock (whichlast month was at $29.41, down from its 52-week high of $36.58). Although hesays he isn’t especially enthusiastic about the executives he meets in thenonprofit sector, in the past three years alone he has donated $40.6 million ofhis own money to various causes including the Rochester Institute of Technology, whichreceived $14 million for a new college of computing and information services,and Strong Children’s Hospital, which is connected to the university and wasgiven the same amount.

    Golisano also has contributed mightily to the bemusement of New Yorkpolitical pundits. He ran for governor in 1994, 1998, and 2002, on a platformthat included such politically radioactive planks as reforming Medicaid anddecriminalizing marijuana. He topped out in the most recent race, winning 8percent of the vote. This translates to approximately $100 per vote. “Hewasted a lot of money on a lot of high-priced political talent,” says a personclose to the 2002 campaign, who spoke on condition of anonymity because Golisanomay run for office again in 2006.

    During the campaign, he was greeted with skepticism when he announced that hewanted to buy the Buffalo Sabres, which had been abandoned by its disgracedformer owners, the Rigas family of Adelphia Communications infamy. “It soundedlike a tired campaign trick to win votes from hockey fans–but we were wrong,”the political expert says. And at the time, several Wall Street analysts whorecommended Paychex stock were quoted as saying that they were extremely nervousabout Golisano actually winning the race, and running New York instead ofPaychex.

   The self-made billionaire says with a grin, “Maybe I was, too.”

Workforce, June 2003, pp. 33-40 — Subscribe Now!