Power Shift: When Employees Control Everything From Bagels to Bonuses

More companies are empowering employees to make decisions that affect each other. Will that result in lord of the flies, or a better workplace?
July 12, 2013

Every year, Dorian Drake International, an export management company based in White Plains, New York, has a “High Involvement Planning” session. Members from each of the company’s four divisions present their forecasts for sales and net income for the coming year and plans for reaching those goals.

While that may sound like standard operating procedure for most companies, what comes next isn’t: Every employee is then surveyed about the presentation and asked to vote on how confident they feel about it. Whenever there isn’t consensus, a discussion takes place about how to change the plan for the better. That’s significant because at Dorian Drake, everyone’s bonus is pegged to the success of the company as a whole rather than on any individual performance.

“In most companies, a plan is set by a few people and everyone else is just expected to execute on it,” says CEO Ed Dorian Jr., who notes that the bonus pool topped $675,000 last year. “But we need to get everyone’s feedback and buy-in before we forge ahead, because everyone has a stake in the outcome of that plan. It creates an accountability that is very powerful.”

A Trend Emerges

Dorian Drake represents a trend in the business world where employees—not just bosses—are increasingly involved in the decision-making process. It’s a shift away from the command-and-control model that’s been a part of the modern corporation since the 1930s toward a flatter, decentralized structure embodied not just by smaller companies like Dorian Drake, but also by larger corporations like WD-40 and Zappos, which have been recognized for their democratic workplaces.

John Miles, CEO and founder of Integritive, an interactive marketing agency based in Asheville, North Carolina, says this trend may be taking hold because companies that operate democratically outperform their peers.

“Companies like WD-40 are turning heads because they are posting metrics that are unrivaled by their peers,” says Miles, whose company has been recognized alongside WD-40 and Zappos by the global organization WorldBlu, which releases an annual list of the world’s most democratic organizations that exhibit principles such as fairness, accountability and decentralization. “Positive things happen when you empower employees to make decisions. The bottom line for developing that kind of empowered organization is making a habit of listening to what everyone is saying at every level of the company.”

Breaking Down Hierarchies

Technology is clearly playing a role in helping to flatten organizations and push decision-making down to its lowest level.

Case in point: Bonus.ly, a startup company launched in early 2013, enables peers to award bonuses to each other. The way its system works is that a company creates a pool of money, and employees then have the power to reward each other for their good work. “A peer-to-peer system is much more effective and incentivizing than a top-down system,” says co-founder Raphael Crawford-Marks. “We also think this is part of a trend where managers are seizing the chance to adopt technology that will allow them to decentralize tasks, which frees them up to think more strategically rather than dwell on day-to-day tasks like assigning bonuses.”

Peer-to-peer management isn’t just a boon for bosses, though, says Phillip Wilson of the Labor Relations Institute, a human resource consulting firm in Broken Arrow, Oklahoma. It’s motivational for employees as well. “When you trust your employees with management responsibility, they take it very seriously, sometimes more seriously than managers, and will typically do a great job with it,” he says. “These responsibilities—which are normally quite different from their day jobs—can often connect employees more strongly to the company.”

Peer-to-Peer Accountability

But it’s often not enough to simply give employees the power to make decisions. A new TV show on Fox called “Does Someone Have to Go?” for example, has found a way to make a spectacle out of employees turning on each other when they are given control of their company.

“You can’t just wake up one day after years of not trusting your employees and then tell them you have a democracy,” says Jim Whitehurst, president and CEO of Red Hat, a publicly held open source software company headquartered in Raleigh, North Carolina. “If you haven’t spent the time to build a culture of empowerment, that type of freedom could lead to disaster.”

Whitehurst, a former COO at Delta Airlines, believes that Red Hat thrives because it has built a meritocracy versus a democracy, where employees have the opportunity to earn influence over the decisions and direction the company takes. “Employees don’t necessarily get a vote in all decisions, but they do have the opportunity to be listened to,” he says. “That often matters more.”

Just as importantly, Whitehurst says the flatter an organization is, the greater the importance on self-policing. He points to how open source software communities operate where there is no leader or group of leaders who are officially in charge. When someone goes astray, it’s left to the community itself to resolve the issue.

Things work similarly within Red Hat itself, which numbers about 5,700 employees around the world. Rather than rely on political chains of command to resolve issues, Red Hat relies on peer-to-peer management to tackle tasks managers might get bogged down with in other organizations.

As an example of this dynamic in action, Whitehurst recalls one infamous story known as the “Bagel Touching Incident,” which featured a Red Hat employee taking a bagel from a plate in the kitchen of the Raleigh office, eating only half of it, then returning the rest to the plate. When other associates noticed what had happened, they took to the company’s internal email lists to discuss the person’s behavior while someone also taped up a sign in the kitchen that said, “No bagel touching.”

Building a Culture of Ownership

Transparency is another key factor in creating the kind of company culture that encourages employees to participate. Dorian Drake, for example, practices what is known as open-book management, where employees are not only shown the company’s financial statements and metrics, they are also given ownership over them. 

Dorian Jr. was spurred to open his business to his employees even more after he read The Great Game of Business by Jack Stack. The book, which was originally published in 1992 and updated and rereleased in July 2013, recounts how Stack and his associates at Springfield Remanufacturing Corp. turned around their formerly failed International Harvester plant by challenging every employee to begin thinking and acting like an owner. The lesson they learned was that simply handing out stock options doesn’t make someone capable of making decisions like an owner.

“Empowerment without education is going to lead to disaster,” says Rich Armstrong, president of The Great Game of Business, a division of SRC that teaches companies like Dorian Drake how to use the power of open-book management to empower their employees to make better decisions. “You need an ongoing system in place where you have checks and balances and everyone has to face up and be accountable to their peers for the decisions they make.”  

To Armstrong’s point, Stack and his associates had to come up with a way to teach themselves the rules of successfully running a business—something they accomplished by equating it with playing a game like Monopoly. They came up with these three key principles to successfully play the "The Great Game of Business":

1. Know and teach the rules. Every employee should be given the measures of business success and taught to understand them.

2. Follow the action and keep score. Every employee should be expected and enabled to use their knowledge to improve performance.

3. Provide a stake in the outcome. Every employee should have a direct stake in the company's success—and in the risk of failure.

To help reinforce these principles, SRC continues to hold its own weekly huddles and High-Involvement Planning sessions twice a year. “It’s all about understanding what our next moves are and what we are going to do differently tomorrow to change the numbers for the better,” Armstrong says.

The results have been impressive: SRC today is a collection of more than 30 businesses and with a combined 1,200 employees who make, among other things, race-car engines and home furnishings. SRC’s combined revenues have grown to more than $450 million. Interestingly, since Stack’s book was originally published in 1992, thousands of companies like Dorian Drake have followed SRC’s example in opening up their books and empowering their employees to make the best possible decisions in driving their company forward.

“It’s very powerful when everyone knows what’s going on inside the company,” says Dorian Jr. “That’s how you can reach the best outcomes without having to sell people on the wisdom of the decision.”

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