One Powerful Profit Idea : Management: Electrical equipment manufacturer’s earnings are soaring as employees strive to earn bonus checks by cutting operating costs.
Rachel Benavides, the travel coordinator at Power-One Inc., knew the power supply company’s new bonus plan was catching on last year when salesmen started asking her to buy them super-discount airline tickets for business trips.
“They wanted the deals where you have to stay over on Saturday night,” she recalls. “That’s how you get the cheapest seats and hotel rooms.” For the inconvenience, Power-One’s sales people were cutting their department’s costs and helped achieve one of the incentive program’s main goals.
Most of the 200 employees at the firm’s Camarillo headquarters plant now say they were inspired by the chance for extra money but were also spurred on by the goals themselves. The bonus program, introduced companywide in January, 1993, set such goals as improving product quality, cutting costs and speeding up the introduction of new products.
Finally, on March 17 of this year, the plan’s architect, Chief Executive Steve Goldman, announced the results. Power-One’s initial incentive plan was a big success. Company sales rose 8% last year to $51 million, and more importantly, employees reduced costs so effectively that profits skyrocketed almost 50%, to $2 million. Goldman, 36, calculates that the incentive plan added $750,000 to Power-One’s profits last year.
Then Goldman passed out checks totaling $342,000 to every employee at the Camarillo plant--an average of $1,700 per person, although some employees received more than twice as much. That brought the cash rewards received this year by Power-One’s 1,000 employees at various locations worldwide to $500,000.
“A lot of people say money isn’t a motivator, but it is,” Goldman says. “We came up with a plan that had a specific formula. It showed exactly how much the bonus pool would be if certain goals were achieved. . . . People were fascinated with what achieving the goals meant to the company and their departments.”
Reliability engineering supervisor Dirk Anderson, for instance, found himself and others in his department working until midnight as the first year’s program came down to the wire. “The sooner we solved the problems, the sooner we got the units to the customers.”
Anderson and his engineers were trying to reduce the failure rate on the complicated devices that Power-One produces to convert AC, or alternating-current electricity, to DC, or direct current. By reducing the failure rate, the engineers reduced costs and got the products out on or ahead of schedule, another bonus plan goal.
So it went throughout the Camarillo plant. Maggie Nadjmi, in product marketing, found herself working extra-hard as a customer-service representative. Kevin Gero, a sales engineer who had worked for AT&T; and Compaq Computer, was amazed to find himself and everybody else in his department thrashing out their own budget. That would be unheard of at his former employers, he says.
Other companies, of course, have tried bonus plans. But when Goldman and his aides couldn’t find another firm with a plan that was adaptable to relatively small, privately held Power-One, they ad-libbed one of their own. A key element was the promise that for every dollar saved, the company would contribute 15 cents to the bonus pool.
Now, Goldman has a plan for 1994 that ties virtually all company activities to the incentive program. “We’ve developed software that allows anybody in the Camarillo plant to push a few buttons on a computer and find out, day to day, how each department is doing in relation to its goals,” he said. Goldman expects this new twist to boost enthusiasm over the bonus plan, so he’s projecting a 50% annual growth rate in profits for the next few years.
In addition to Camarillo, Power-One has plants in Mexico, Puerto Rico and the Dominican Republic. And while it’s a small company, Power-One’s average $1,700 bonus to the workers at its Camarillo plant exceeded Ford Motor Co.’s average bonus this year of $1,350.
Power-One, whose customers are mainly electronics, industrial and medical companies, might have gone on quietly earning a respectable profit and gradually carving itself a larger and larger slice of the nation’s $6-billion power supply market.
Suddenly, however, people are taking notice--not only as a result of the bonus program, but also because a consortium headed by Power-One was recently one of the first groups chosen by the Clinton Administration to develop projects aimed at generating new jobs by converting defense know-how to commercial uses.
Power-One and its consortium partners--including Rockwell International, the Lawrence Livermore National Laboratory and GenCorp Inc.--will seek new uses for the aerocapacitor, a high-density storage device that’s something like a battery. The modest, $1.9-million federal grant project could help develop an economically feasible electric car. The assignment is especially appropriate for Power-One, which since it was founded in 1973, has refused all military work because of its notorious peaks and valleys.
And Wall Street has renewed efforts to woo the firm into going public or listening to takeover offers.
Goldman joined Power-One in 1982, when he was 24. An engineering graduate of the University of Bridgeport in Connecticut, he held engineering and research-and-development posts until he earned his master’s degree in business in the late 1980s. After that, he was promoted to chief financial officer, and in 1990 he was named chief executive.
About 80% of Power-One’s stock is held by its two founders, whom Goldman declined to identify. He said the two owners are seldom involved in operations.
Industry observers say Power-One is about the 10th largest producer of power supply equipment in the nation and the largest privately held company in the field. In almost anything that’s powered by electricity--from a vending machine to an automated industrial production line--you will find a unit made by Power-One or one of its rivals.
Power-One has about 500 power supply models in production, for such customers as AT&T;, Bell Industries, Du Pont, GE Medical, Kodak and Texas Instruments. The company shies away from the costly practice of creating new products for individual customers--but its engineers still design 50 new configurations a year.
For some customers, however, Power-One gets involved in every stage of designing electrical equipment. Power-One is working with the ventilator division of Puritan Bennett Corp., based in Carlsbad, to develop a new life-support system for heart surgery patients.
At Power-One, no single customer currently accounts for more than 4% of revenues. Indeed, to avoid dependence on just one source, the absolute limit for a single customer is 10%.
For a conservative company, however, Power-One has become expansive in its outlook. Sales grew modestly from $45.9 million in 1991 to $51 million in 1993. But for the next three years, Goldman projects a jump in sales to $90 million or $100 million by 1996.
