How to make your employees happy and keep them
"Palmer's People, Time, May 28, 2001
As the size of a modern corporation becomes large, the status of an individual employee becomes more obscure. Even in small businesses, employee loyalty to a company becomes very thin, with high turnover rates of employees. In the restaurant business, for example, the employee turnover rate is 80 to 100%. Even among very respectable restaurants, the rate is almost 50%. Yet, vested interests and loyalty of employees in their workplace is essential for the long-term success of any business venture, especially in the very volatile restaurant business.
What can be done to promote employees' loyalty? The answer is simple and fundamental: give employees a share of business and provide them with material incentives to strive for the success of their shared company. This is what Charlie Palmer did to make his famous Aureole restaurant in New York City a model of business success. First, he offered cash bonuses to his employees for outstanding performance. For example, when the ratio between costs and sales of food falls below the standard 32%, a chef gets a cash bonus of up to 30% of his/her basic salary. Second, Palmer gave his employees the option to invest in his $36 million a year business empire on the same terms as his. The employees have an option not to invest, yet those who participate in the joint ventures have a strong vested interest in the success of the companies that they partially own. Although employees may keep their shares of ownership even if they leave, so far, Palmer has not lost any employees.
The lesson of this example is simple and direct. In business, if everybody tries to maximize his/her selfish interests within a legal and ethical boundary, then the economy becomes healthy and prosperous, as the famous economist Adam Smith predicated a century ago. If the economy moves against the basic human nature of self-preservation, then the economy withers to eventual collapse. This is the main cause for the total breakdown of world socialism in recent periods. Instead of material incentives, socialism attempted to promote individual economic incentives through political slogans or meaningless badges or titles, such as People's Hero or Model Worker, etc. The system eventually ran out of available titles and had to resort to sub-classification, such as People's Hero, Class 1 to 5. Such a ruse was totally ineffective, and people in former socialist states were glad to replace socialism with a market economy.