Good morning!

Intentionally or not, an organization's "corporate culture" almost always develops from the top down. In implementing their management philosophies, many successful entrepreneurs develop an internal financial strategy for their employees to complement the external strategy for their investors. The net result often is a group dynamic in which the whole is much greater than the sum of the parts, and everyone contributes to rolling out the dough.

Trish is the Founder and CEO of Dancing Deer Baking Company, an inner-city success story in-the-making. Established in 1994 "in a section of Boston that has seen better days," Dancing Deer's stock in trade has been cookies — fresh, all-natural cookies sold through premiere gourmet and specialty food retailers throughout the U.S. According to their web site, "We are a company of people who are passionate about food, nature, and aesthetics. We are dedicated to excellence in all we do — sometimes we pull it off… [and, among other mission elements] …

"We strive to achieve both financial and market success, while achieving personal and professional rewards for all "deers." There's more to life than selling cookies — but it's not a bad way to make a living."

"There's lots of great sociological and best-practices management stuff in what you're doing," I (as a well-nourished customer) said to Trish in an extended conversation last week, "but what are the financial incentives and rewards that bind your people to the Company?

Her answers summarized some of the practices that I have been preaching to my small company clients for the past 25 years:

1. The stock option plan has to be real — "When we refinanced in August, 2005, we bought out our existing [employees'] options; everyone had the opportunity to monetize our valuation. There wasn't a lot of understanding of personal financial management for their own lives and for building value in the Company, but it was very real for a lot of employees to get a substantial check."
2. There can't be great disparity between the top and the bottom — "We have four classes/levels of options, each relating to the amount of responsibility that an employee has. The highest level has to be enough to attract excellent managers who are willing to take the job home with them. There's a multiple of 10 between the bottom and the top."
3. Open-book management — "The more people understand the economics of our business, the better company we'll have. This surprises some of our people—they're expected to learn the economic model. I talk about it a lot. I expect people to take it seriously, because their bonus structures are related to economic profitability and growth."
4. Keep the incentive program simple — "We have four-year vesting. At any point in time, the value of employees' options is a fixed multiple of the prior 12 months of sales at the end of the last quarter. We were at $5.8 million in 2005; we're projecting $8 million in 2006, and our plan is to hit $20 million by '09 and then exit. It's the same valuation process for each employee, coming and going, or upon a liquidation event."
5. Have meaningful rewards — "If we meet the plan, achieve our expectations, and sell the Company, everyone earns at least one times their annual salary, assuming a reasonable market valuation."
6. Keep your promises — "If you leave, you cash out based on the increase in valuation since you started, times your vested percentage. We retain the right not to pay cash out at departure, in order to avoid a big cash hit if several leave at once. But we'd need extreme circumstances not to pay someone out on time."
7. Short-term rewards provide focus — "Our quarterly bonuses are based on both job and company performance and range up to 40% of base salary, averaging 8% per year. You need both qualitative and quantitative measures—and a big challenge is getting appropriate measures down to the smaller units of operations. People see this as a scorecard, and with a number of athletes and other competitors in the Company, we're having fun being challenged and competing. No one wants to shoot the coach."
8. The culture creates the commitment — "It's not a function of the option plan; it's a function of our employees' day-to-day treatment. I listen a lot and there is a culture of inclusion, shared values, and cooperation for common objectives. Our people are above average in their commitment to each other, to the building of the Company, and to the mission."

This isn't for everyone. Neither are dress-up parades or dance competitions, regardless of background. But at a time when more and more people are seeking greater meaning from their work life than what results from simply punching a time clock, Trish Karter and Dancing Deer have employees who are involved, interested (maybe even passionate), productive, and concerned about their group.

As Trish says in her mission statement, "We believe that if people love what they're doing, it shows in the food. We developed this philosophy from the earliest days when we observed that baking 'angry' would ruin a cake."

During our 21 issues of Howe's Bayou, the "Alligator Bites" section has evolved into a compendium of "life's little ironies" as counterpoints to illuminate the ideas of the main article that have percolated up from the Swamp. This time around, however, from high up in the banyan tree, we have lifted a few paragraphs from the introduction to Dancing Deer's Employee Handbook to illustrate how CEO Trish Karter has actively developed her company's culture [emphases added]: