News & Articles

Human Resource Management
Published in the Rochester Business Journal
November 22, 2002
© 2002 HR Works, Inc.

Pae Tec fosters practices for firm's lasting health
By Candace Walters

“Of all the things I’ve done, the most vital is coordinating the talents of those who work for us and pointing them towards a certain goal.”

-- Walt Disney (1954)

Nearly 50 years later, Arunas Chesonis espouses a similar corporate philosophy, one that treats the employees of PaeTec Communications Inc. as the most important components in the company’s formula for success.

“Everyone is buying the same equipment and the same fiber optics,” says Chesonis, CEO of PaeTec. Why then does one company succeed while another does not? The answer, he says, is “happy employees who deliver over-the-top customer service.

The approach seems to be working. PaeTec recently earned the top spot on an annual list of Rochester’s fastest-growing companies.

In “Built to Last: Successful Habits of Visionary Companies,” authors James C. Collins and Jerry I. Porras note that most executives would contribute far more to their organizations by returning to management fundamentals rather than flitting from one well-packaged fad to another. Collins and Porras also emphasize the wisdom of “clock building” -– building a company structure and philosophy that will endure for generations –- over “training time tellers” -– teaching people how to do a job, but risking that the performance will fall off once the strong leader is gone.

At PaeTec, a well-designed corporate philosophy built on fundamentals has allowed the company to make changes proactively, based on its stage of development, rather than react to external forces such as a difficult economy. Since its founding 1998, PaeTec has worked to ensure:

• Frequent and meaningful communications with employees,
• A compensation program that recognizes individual and team contribution, and
• A benefits program designed for the demographics of the employee population.

Make no mistake: Managing human resources during times of extreme volatility is challenging, regardless of company size or maturity. Particularly in the high-tech industry, which has seen the highest highs and the lowest lows over the last five years, a well-designed, even-keeled approach to human resource management is critical to survival.

While every company is different, PaeTec’s fundamentals -– specifically in the key areas of employee communication, compensation and benefits –- deserve a closer look:

Employee Communication

Marketing professionals stress the importance of communicating a message to one’s audience frequently and through a variety of channels. Most people need to see or hear something many times before the message registers and the receiver decides to act. The same principle applies when communicating with employees.

At PaeTec, Chesonis holds a weekly briefing for all employees. What began five years ago with 15 people sitting around a table has evolved into a weekly coast-to-coast conference call to which all 1,000 employees are invited. The agenda may include PaeTec’s financials, rising health-care costs or the latest employee to earn a recognition award. Certain sensitive topics, such as proposed changes in benefits, are addressed over several weeks. Additionally, information is frequently disseminated via company Intranet and email.

To gauge employee concerns and attitudes, PaeTec conducts employee surveys every six months. A third party gathers and compiles responses in a way that guards employees’ confidentiality. Chesonis says the response rate, now at 50 percent, is rising.

Every survey response is read by Chesonis and his senior managers, who then communicate to employees what changes are being made as a result. In one instance, where survey responses showed clear interest in additional time off, PaeTec added a week of vacation for every employee.

“Surveys work if employees see management is listening, making changes and communicating those changes back to the employees,” Chesonis says.

While PaeTec’s use of technology and surveys may be more sophisticated than some companies’, the fundamental rule is the same for all companies: Communicate with employees regularly and thoroughly.

Benefits

Amid the talent war a few years ago, some companies showered their employees with fancy cars, frequent parties and fat bonuses to win their loyalty.

PaeTec was not one of those companies. Early on, PaeTec established a traditional benefit package that was flexible enough to grow with the company’s development and to weather economic difficulties without major upheaval.

PaeTec offers all the standard benefits such as a self-insured health-care plan, tuition reimbursement and a 401(k) plan. It matches employees’ 401(k) contributions but has never allowed PaeTec stock as an investment choice for the 401(k) -– a decision that employees criticized at the time but has turned out to be prudent. To cope with the current slumping economy, PaeTec recently reduced its 401(k) match from 3 percent to 1 percent, Chesonis says.

Self-insurance for health care has allowed PaeTec to manage its health costs, sidestepping the worst of the double-digit premium increases burdening many employers, while providing consistent coverage for the two-thirds of the workforce living outside Monroe County. PaeTec has the flexibility to pick and choose coverage, paying only for the features best-suited to its employees.

PaeTec also supports employees’ contributions of time and money to not-for-profits, and hosts several social events, including holiday parties that cater to employees’ families.

Every employee receives PaeTec stock options, and additional options are awarded for merit. At present, 25 percent of PaeTec is owned by its employees.

Employee Compensation

The sales force, one-third of PaeTec’s employee base, operates under the high-risk/high-reward principle. The remaining two-thirds earn a base salary plus a bonus tied to the company’s performance. In any given year, the formula for calculating the bonus is the same for employees at all levels of the organization.Last year, employees received a bonus equal to 13 percent of their base pay.

No employee salaries nor workweeks have been reduced for economic reasons, PaeTec officials say, avoiding a major source of stress, distraction and brain drain that slow progress at many companies. In response to recessionary pressures, PaeTec has needed only to fine-tune its formula – for example, paying bonuses in two installments rather than one.

The company’s performance target changes every year and involves several elements – revenue targets, cash flow, capital purchases and so on. It’s a complex formula that Chesonis discusses with employees frequently. Like the “clock builders” in the book “Built to Last,” Chesonis believes in investing in employees by teaching them how successful companies grow both their top and bottom lines.

A few decades from now, perhaps the authors of the latest edition of “Built to Last” will find themselves analyzing PaeTec and its leaders, pointing out how the company’s commitment to core fundamentals remained constant even as markets, competitors, technology and other factors changed continuously.

Chesonis, however, has a more modest view of his philosophy: “It’s all about sharing information.”

HR Works, Inc., is an HR management outsourcing and consulting firm serving more than 600 clients out of offices in Rochester, Buffalo and Philadelphia. HR Works provides part-time and interim HR managers, HR*Stars recruitment services, legally reviewed employee handbooks and supervisor manuals, employee benefit statements, affirmative action programs, compensation programs, training and more. HR Works also provides services through its allied offices in Syracuse and near Baltimore/Washington, D.C. To offer comments on this column, write walters@hrworks-inc.com.

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