Loyal sovereign Featured

8:00pm EDT May 26, 2007

When it comes to a business like The Hillman Cos. Inc., it would be ridiculously easy to make a lot of bad puns related to its business. Even Mick Hillman, the company’s president and CEO, can’t resist a chuckle at a corny nuts and bolts gag.

The Hillman Cos. supplies retailers with the most fundamental types of hardware products: nuts, bolts, screws and all manner of fasteners, key blanks and about 45,000 other low-priced, but nonetheless critical items for their customers.

When the company was sold in 1982 to an investor group and some company executives, it was doing about $8 million a year in sales. In 2006, The Hillman Cos. net sales were $424 million, and Hillman expects to hit the $450 million mark this year

“This company has never had a year where sales and earnings have not been better than the year before,” says Hillman of the company his parents founded in 1964 with $2,000 of borrowed money and no experience in the business.

As revenue continues to grow as it acquires other firms and its customers add hundreds of stores to their retail networks each year, it has required careful management of its work force to keep up.

“I think the challenge is to both mold the people who have been loyal and dedicated and committed to the company to be able to grow with the organization, and at the same time recognizing that some people cannot grow at the rate the company is growing, and so you have to infuse some talent when necessary,” Hillman says. “So it’s a combination of balancing loyalty with the need to step up as the business grows.”

Hillman’s approach has been to emphasize the basics and be consistent, all while making sure to reward loyalty to keep the core of a strong culture.

Creating loyalty

Hillman says he’s used a variety of strategies to ensure that his employees remain loyal and stick with the company for the long haul.

“We’re very good at attracting talent, polishing talent and retaining talent,” says Hillman. “I don’t lose people to competitors or to people leaving to go to other opportunities. We do not lose good people around here.”

Hillman has some compelling facts to back that up. “I’ve got 400 people who work in my retail stores that do routine service work and the industry standard there says you’ll lose 40 percent of those people every year,” Hillman says. “My turn rate is less than 10 percent.”

The company holds onto employees by rewarding their performance and loyalty, and by providing a rewarding work environment and flexibility to move within the company.

“First of all, at the senior level, they have equity in the company,” says Hillman. “The other thing is we allow people a fair amount of autonomy and authority, so they are able to make important decisions. Again, I think being able to give them a change in terms of their responsibilities, so they can work on different areas of their skill set, I think that helps.

“One of the things that we’ve used is we’ve allowed people to change spots in the organization, so we’ve had IT guys going to operations, sales guys moving to other positions, so it’s really been rounding out everybody’s exposure to the company.”

Because the business is complex and difficult for newcomers, Hillman prefers to develop his existing employees to advance to higher levels.

“It’s very difficult for someone to come in here at a director level or executive level and make a meaningful contribution inside a couple of years,” says Hillman.

To help with employee development, the company added a training department staffed with training professionals a few years ago to develop and evaluate its talent using testing and techniques like 360-degree reviews. When weaknesses are detected, employees go through additional training and coaching to help them develop their skills.

“We’ve got a professional trainer and we get feedback based on his interaction with the folks as to whether they’re capable of going to the next level or not,” says Hillman.

For those who aren’t capable of moving up, Hillman has a philosophy of moving people to other slots in the company where their talent and skill levels are better suited, even if it’s at a lower level. He won’t reduce salaries, but he might cut back on raises or freeze their pay levels.

“I think one of the things that we’ve done to maintain the culture here — and some people might look at this as a bad thing — if somebody couldn’t jump up, we would always find a spot for them within the organization, so we didn’t have to eliminate people,” says Hillman. “If we didn’t feel like they could move to the next level, we would find a position for them that was meaningful, that fit their skill set. So I think what came out of that was a fair amount of loyalty and there’s a fair amount of seniority in the company.”

Hillman rewards that kind of loyalty, even for those employees who might not be performing up to par in their jobs.

“If you’re committed to the company, if you’re loyal, if you’re hardworking, I will find a spot for you,” Hillman says. “And people know that, they recognize that.”

But that’s not to say that working at Hillman provides a guarantee of a lifetime job. Laggards simply don’t last, even those with long service records.

“Now, just because you’re tenured, if you’re not loyal, if you’re not a hard worker, you won’t last,” says Hillman. “I’ve gotten rid of people who were here 20 years when they’ve decided not to work anymore.”

When the company needs to go outside for talent to meet its growth needs, Hillman hires people who he deems are overqualified. His rationale is that hiring to meet the needs of the current level of the business will nearly ensure that the business won’t move past that level. Similarly, he adds people in anticipation of additional business rather than waiting until the existing work force can’t handle the increased volume.

Some of the incentives that the company uses to reward its workers across the board are events that involve employees on every level. Companywide picnics or free lunch days are offered a half a dozen times of the year, and there are also gifts for longevity and hitting certain goals.

It’s important to have rewards that everyone within the company can enjoy. Hillman points to their annual all-expenses-paid trip for top sales and service people and for long-term employees as an example.

This year, the company is taking about 70 couples to Puerto Rico for five days. The group is made up of top sales and service people, as well as every employee that’s been there for 25 years or more.

“So, the interaction between senior managers who have equity, salespeople who are making $50,000, $60,000 or $70,000 a year, service people who are making $30,000 a year and the guy who’s out there putting screws in a box for $13 an hour, all going on a pretty high-end trip with all expenses paid, that’s just an example of how we’ve done a very, very good job of keeping good people in the organization.”

The combination of rewards and recognitions provides some of the glue that keeps its employees connected to the company.

“All of that, I think, tends to tie you in with the company,” says Hillman. “I think these are the kinds of things that make people want to stay at the company for their entire career.”

Share the financials

Hillman also makes employees feel like a part of the company by sharing financial information about how the company is doing.

“We openly communicate the results of the company,” Hillman says. “People know whether the company’s doing good, bad or indifferent. So I think if you know what the situation is, if you give people the facts, you don’t have to draw out the conclusion for them. They can draw their own conclusions. If you don’t give them the facts, if you don’t communicate, then you have a whole set of other issues.”

Hillman shares that kind of information at quarterly meetings with all the employees, on bulletin boards and through e-mails and a company portal accessible by employees, where they can view statistics like daily sales results and earnings versus projections.

“People at almost every level know whether the company’s doing well or not.” Hillman says.

He says that while it can be a double-edged sword to be that open with the financials, on balance it’s better to share it than to keep it hidden.

“I think it’s critical to share that information,” says Hillman. “The danger in it is when things are very good, people will expect more. The positive in that is when things aren’t good, people know not to ask for more. You’ll pay more on the upside, and you’ll pay less if things are not good. It’s a double-edged sword.”

Hillman offers that while companies need to change to remain viable, there are some things that should remain the same to ensure continuity over time.

“The advantage that we’ve had is we’ve had the same consistent leadership philosophy over the whole life of the company,” says Hillman, a pattern he says started with his father at the helm. “When you act the same way over a long period of time, people know what to expect. I think what happens with some companies is that they change leadership and people wonder where it’s going with the new leadership. I think that’s been the advantage here because people — employees and customers — know what to expect.”

HOW TO REACH: The Hillman Cos. Inc., www.hillmangroup.com