Kingston Employees Take Bonus in Stride
Employees at Kingston Technology Corp. were thrilled, overwhelmed and appreciative after learning that they would be the beneficiaries of an unprecedented, $100-million bonus package. But they were not surprised.
“It’s another classic example of their generosity,” said Keith Kline, 33, an account manager at Kingston. “We realize that this doesn’t happen in other places, but given the relationships John and David have with employees, it’s not beyond belief.”
Kline was referring to John Tu and David Sun, the co-founders of Kingston, a Fountain Valley-based company that has risen to dominance in the computer memory business while treating employees like family.
At the company’s holiday party Saturday, Tu and Sun announced the bonus program to hundreds of cheering workers, most of whom will soon be receiving checks for amounts ranging from one to three times their annual salaries.
Although such news would probably produce audible gasps at most companies, many Kingston employees appeared to take the announcement in stride.
“For me, it’s no surprise because they are always so generous,” said Mike Chen, the director of manufacturing at Kingston. “We do not take it for granted, but that’s their philosophy.”
The bonus package, which experts say is unprecedented, stems from the $1.5 billion Tu and Sun received when they sold 80% of their 9-year-old company to Softbank Corp. of Japan in September.
Tu said that about $60 million will be set aside for future bonuses to employees, and $40 million will be distributed before the end of the year according to a formula that weighs employees’ seniority and performance. With 523 employees, the average payment will be about $75,000, although some of Kingston’s top-paid workers could collect $300,000 or more.
The bonus package is by far the largest in Kingston history, and comes out of money Sun and Tu could have kept for themselves. But the bonuses are part of a tradition of generosity at the company, where 5% of the profits are divided among employees every quarter.
The bonuses are just one piece of a broader management approach at Kingston. Employees work hard and long in difficult jobs, ranging from shipping to manufacturing to sales. But in return, they are paid above-average salaries, enjoy catered lunches every Friday, and carry a promise from Sun and Tu that they will be taken care of no matter what happens to Kingston.
Tu said Sunday that dozens of employees approached him at the holiday party to express their gratitude.
“It just confirms for me that what we do is right,” Tu said. “We’re always trying to tell people you can be successful in big business, and yet be honest and good and down-to-earth. Hopefully more companies will think this way.”
The bonuses that employees receive will be taxed just as regular paychecks would, meaning that many Kingston workers could be boosted into a higher tax bracket this year. Sun said the company plans to hold meetings with employees seeking advice on what to do with their cash. But on Saturday, many were already making plans.
“I’ll be putting it toward a home, and maybe one special toy,” Kline said.
Others said their plans would be influenced by the lessons they have learned from Sun and Tu, lessons that often apply outside the office.
“I used to be a pretty selfish kid,” said Ray Wang, 25, a product marketing manager. “But John has taught me that family is important and you should make them a part of your life. I still live with my parents, and I started thinking about what I could do for them.”
One option, he said, would be to help reduce the mortgage on their home in Torrance.
Chen, who was one of the first employees to join Kingston when the privately held company was formed in 1987, said he may give some of his bonus to charities.
“My standard of living is very low,” Chen said. “I still go to Sizzler with my wife and use coupons. I don’t want to go to Hawaii or buy a fancy car.”
Ostentation is shunned at Kingston, where Sun and Tu still sit in cubicles in the middle of the company’s sales floor. Sun still lives in the same Irvine house he’s owned since he founded Kingston, even though his personal fortune is now worth about $900 million.
“If your boss has a fancy office or drives an expensive car, all the employees will be influenced by it,” Chen said. “David still drives a Bronco.”
Kingston’s generosity is a rarity in a corporate age that has produced millions of layoff victims, and has stretched loyalties between workers and employers to tenuous lengths. But experts say treating employees well can be a critical ingredient to success.
Theresa Welbourne, a professor at Cornell University, recently tracked 136 newly public companies over five years, looking for factors that explained why some survived and others did not. One critical factor was how employees were valued, measured by such things as whether the company used full-time employees instead of contract workers, offered profit-sharing, and gave employees the ability to change the way things were done.
About 80% of the companies that got high marks survived. The survival rate was 60% for those with low marks. “Companies that value their employees are higher performers,” Welbourne said.
So why hasn’t this caught on; why are “downsizing” and “outsourcing” the buzzwords of the day?
Michael Jensen, a professor at Harvard University’s business school, says it’s because few companies can afford to be as generous as Kingston in an age when global trade and other factors have brought extreme competition.
“The important part of capitalism--just as important as sharing gains on the upside--is a system that releases resources on the downside,” he said. For years, IBM, Xerox and Eastman Kodak treated their employees exceptionally well, he said, but ultimately even those companies couldn’t avoid layoffs.
“It’s too easy to paint people with white hats and black hats,” he said. “The world isn’t like that.”
Sun and Tu acknowledge their company’s tremendous success has made it easier to be generous, but both insist that any company in any industry could adopt similar policies, even if on a lesser scale.
They also say that they have been able to manage their company the way they wanted largely because Kingston has always been privately held, and never had to face pressure from shareholders. Even in selling part of the company to Softbank, Tu and Sun insisted that they be allowed to continue to run Kingston the way they wish.
Sun and Tu acknowledge that things may change at Kingston someday, but say they have no plans to leave.
“I don’t think I can be lucky enough to start a company like this again,” Sun said. “If that is the case, I might as well stay with my friends. As long as there is a market for Kingston, we will always be here, because right now I have 500 people you cannot beat.”
