Spare Him the Gurus

May 30, 2003
Founder and CEO of Paychex, Inc., B. Thomas Golisano, is worth reading about for three verygood reasons.

    Reason One: During the past 32 years--by working incredibly hard; givingopen-ended opportunities to bright but uncredentialed young employees; and usingold-fashioned training, promotion, and compensation policies--Golisano hasexploited a profitable, albeit unsexy, niche market.

    He has led his payroll and benefits outsourcing business from a one-manenterprise into a 7,400-plus-employee corporation with $954.9 million in annualrevenue. A graduate of a little-known state college and the son of a pastasalesman, he now has a net worth of more than $1.1 billion.

    Reason Two: During the past 15 years or so, he has attempted, withoutcomplete success, to do several other notable things. He has run for governorthree times and lost badly, the last go-around, in 2002, costing him $60 millionfrom his own pocket. He has jump-started many major charities, givingaway several fortunes. And, most recently, he bought the Buffalo Sabres, awoebegone nearby National Hockey League franchise that was $94.5 million indebt.

    Reason Three: He’s living proof, in these business-guru-ridden times, ofthe worth of a passionate and well-executed business plan, the value ofeffective employee training, and the futility of any one-size-fits-all theory ofworkforce management. And everyone at Paychex understands this perfectly.

    Except maybe Tom Golisano. "I’m afraid I have a reputation of alwayslooking at accountability and results. I think that applies pretty much acrossthe board," he says with a wry smile. From his assertively nondescriptheadquarters in a suburb near his hometown of Rochester, New York, he adds, "I’ma big believer that you can control a lot of things--if you put in the effortand have the creativity to get it done."

Why Paychex succeeds
    By all accounts, the husky white-haired leader plans to keep the platesspinning indefinitely. At the rate he’s going, he should run out of money--well,never. Which is good news for the political consultants, fundraising executives,sports agents, and Paychex employees who work for him.

    The newest members of the Paychex team are especially excited about theirboss. "I’d really love to spend my entire career here," says Kerry Davis,speaking recently to a reporter outside the corporate training center, locatedpointedly--to demonstrate the company’s emphasis on training--off thefirst-floor lobby. She’s on the third day of a two-week training course tobecome a payroll specialist, an entry-level number-crunching andclient-hand-holding job. A 23-year-old from Portland, Oregon, with two years ofcommunity college and no degree, she is one of 27 men and women--all dressed innew off-the-rack business attire--in her training class. This is just a smallfraction of the newcomers Paychex will hire in this opportunity-challengednear-recession year.

    Davis joins a company that has never had a layoff. Over the last six years,Paychex has exceeded a 23 percent annual profit. It has about 475,000 clientsand 101 offices in 36 states and the District of Columbia. The company ranks22nd out of 712 corporations in the Wall Street Journal’s ShareholderScorecard and is 88 on Fortune’s current list of "100 Best Companies to WorkFor." In 2002, Davis’s new boss and role model ("I know everything aboutMr. Golisano!" she says excitedly) made $744,230 in total compensation and wasnumber 3 on Chief Executive magazine’s Market Value Added ranking of CEOs.

    Most interesting, perhaps, is that to win a job at Paychex, Davis and herclassmates didn’t compete against people considered prime corporate recruitingmaterial elsewhere. According to Tom Golisano, having an MBA won’t necessarilyeliminate an applicant from consideration at the firm, but experience as aconsultant or as a manager in a large corporation is a showstopper.

    "We expect our senior management to be hands on," the CEO says. "And Ithink when you talk to a lot of people who come from larger organizations, a lotof times they come from a different culture and it’s hard for them to adapt.They expect in most cases a much healthier benefits and wage package, okay? Theyexpect larger support staffs. They expect a little more freedom in their timeand movement than we’re willing to give them."

    Some also tend to be "visionaries." Unfortunately. "I don’t think aperson can have meaningful visions unless they have some good knowledge of whatto do," Golisano says. "Chances are, for new people walking into anorganization like that, they are going to come up with an idea. And that’sgreat. We encourage it. But quite frankly, if they’ve only been here forseveral months, they’ll probably find we’ve already thought of most of them.Okay?"

"What we don’t want is to find out on a new hire’s first day ofwork--after we’ve spent $13,000 on his or her training--that he or she isn’tright for the job."

The value of hiring and training
    This year Paychex estimates that it will receive more than 25,000applications for about 2,000 open positions, most of them for payrollspecialists or sales representatives. "Tom looks for people who want to besuccessful and are looking at Paychex as their vehicle for personal success,"says Walter Turek, the company’s vice president for sales and a 22-yearveteran of the firm. It means that the person doesn’t have a track record ofbeing successful in business or at another company, he explains. It also meansthat this hasn’t discouraged him.

    Turek adds that most successful candidates have experienced "moments ofsuccess"--high-school sports stardom, for instance, or being the first intheir family to attend college. These "moments" no doubt serve them wellduring an arduous selection and training process, which starts several monthsbefore they even begin their training in Rochester.

    "What we don’t want," says Will Kuchta, the company’s vice presidentfor organizational development, "is to find out on a new hire’s first day ofwork--after we’ve spent $13,000 on his or her training--that he or she isn’tright for the job." Kuchta, who worked on an assembly line and as a latheoperator before returning to college to get his Ph.D. in education, supervisedthe design of Paychex’s current hiring and training systems and works in thetop tier of management beneath the CEO.

    The organization rarely advertises for entry-level employees, Kuchta says. Inthe case of payroll specialists, it recruits via "ambassadorship"relationships between its branch managers and accounting professors at localcolleges. "To tell you the truth, we have better luck at JCs than at four-yearcolleges," he says. "Most of the people in junior college are working theirway through school. They know how to get up and go to work each day. Most peoplewith baccalaureate degrees, they’ve only worked as lifeguards."

    Applicants take a test to measure their basic math and logic skills. Kuchtasays the exam was designed at about an eighth-grade level. They also undergofour increasingly lengthy interviews with employees and managers at the branch.During the interview process, most of the square pegs "deselect" themselves,he says. New hires are assigned a mentor and spend a month at the branchobserving, learning, and dipping their toes into actual work. Only then are theyflown to Rochester for formal classroom instruction.

"We have about a 99 percent success rate among the people who make it tothe two-week course."

    "We have about a 99 percent success rate among the people who make it tothe two-week course," Kuchta says. Paychex instructors are available forremedial tutoring practically anytime after school, including weekends. Afterreturning to their respective branches, new hires start work and complete anaverage of about a year’s worth of home-study learning "modules." Theireducation doesn’t stop there. Paychex employees spend an average of 109 hoursa year in training classes--which is almost twice the average in Trainingmagazine’s Top 100 (this year Paychex ranked number 33). In this no-frills,no-nonsense regimen, little or no time is spent on team-building exercises suchas rope climbing or corporate singing. And for most employees, training neverstops. Every Friday afternoon at every branch, time is devoted to instruction innew products and techniques. Managers on the promotion track return to Rochesterevery two years for further intensive training.

    As for compensation, the pay is very good, if not awe-inspiring. A payrollspecialist can make up to about $70,000. And the best salespeople, who work oncommission, clear $200,000. In addition, every Paychex employee--except Golisano, who owns 10.5 percent of thecompany--is eligible for stock optionsand/or profit-sharing. On the evaluation side, every employee--includingGolisano, who is evaluated by the board of directors--is issued yearly goalsthat he is expected to eventually meet and is given ample coaching andmentoring.

    The goals for payroll specialists, for example, would be a certain(undisclosed for competitive reasons) number of accounts handled and a maximumpercentage of accounts lost yearly. For sales reps, they would be a certain(undisclosed) percentage of sales per minimum number of sales calls. The goalsare fairly inflexible, but employees who meet them are assured of furtheremployment. "We don’t grade on the curve," Kuchta says. "We set a numberthat’s aggressive, and not everybody makes it--but everybody can. Whether you’renumber 49 on the list or number 51 doesn’t really matter.

    "This method works for us, though we don’t assume it would work anywhereelse. A person from GE couldn’t work here, probably. Could our people work forGE? Probably not." At Paychex, he adds, teamwork and collegiality yield betterresults--for both employer and employees--than fierce intra-companycompetition.

Citizen Golisano
    Paychex’s corporate culture, of course, is in large part a reflection ofThomas Golisano himself. After growing up in Rochester, he applied forentry-level jobs at Kodak and Xerox, the two largest employers in town. Bothcompanies rejected him, for reasons that Golisano suspects had something to dowith the vowel at the end of his name.

    Gloria Austin, his first wife and the mother of his two grown children,agrees. "His parents were Italian immigrants. I’m sure that [his rejection]was part of his drive to succeed. Anytime you face rejection, you’re even moredetermined to get revenge, which is tremendously sweet. It gives you the will togo and do. Tom has got tremendous drive. He’s extremely talented."

    After missing out at Rochester’s Big Two (currently two of the mostdistressed corporations in America), Golisano enrolled at Alfred State College,75 miles south. He earned a two-year business degree in 1962. At 30, he wasworking for Electronic Accounting Systems, a company that processed payrolls forbig companies. He proposed to his boss that EAS service companies with fewerthan 100 workers. He was turned down flat. The next year, 1971, he quit, rentedoffice space from his former employer, and started Paychex. Then as now, he usedthe selling point that many small businesspeople are deathly afraid of runningafoul of the government and/or irate employees by miscalculating salaries,taxes, and other deductions while squeezing paycheck-writing duties into theirbusy workdays. Golisano took responsibility for government penalties or lawsuitsif his company made any mistakes.

    By 1974, Paychex was up on its feet--but the long hours and years offinancial uncertainty had fatally strained his marriage to Gloria, whom he’dmarried in 1961. By the end of the decade, Paychex consisted of 18 partnershipsand franchisees. One franchisee: Gloria Golisano, who insisted on gettingPaychex’s New York City franchise as part of their 1977 divorce settlement. Atthat point, Paychex had more than 6,000 clients. In 1983, Golisano bought outeverybody, turning many into millionaires, and took the company public. Over theyears, Paychex has branched into otherareas, including employee benefits, workers’ compensation, and claimssettlement.

    Golisano retains approximately 11 percent of the company’s stock (whichlast month was at $29.41, down from its 52-week high of $36.58). Although hesays he isn’t especially enthusiastic about the executives he meets in thenonprofit sector, in the past three years alone he has donated $40.6 million ofhis own money to various causes including the Rochester Institute of Technology, whichreceived $14 million for a new college of computing and information services,and Strong Children’s Hospital, which is connected to the university and wasgiven the same amount.

    Golisano also has contributed mightily to the bemusement of New Yorkpolitical pundits. He ran for governor in 1994, 1998, and 2002, on a platformthat included such politically radioactive planks as reforming Medicaid anddecriminalizing marijuana. He topped out in the most recent race, winning 8percent of the vote. This translates to approximately $100 per vote. "Hewasted a lot of money on a lot of high-priced political talent," says a personclose to the 2002 campaign, who spoke on condition of anonymity because Golisanomay run for office again in 2006.

    During the campaign, he was greeted with skepticism when he announced that hewanted to buy the Buffalo Sabres, which had been abandoned by its disgracedformer owners, the Rigas family of Adelphia Communications infamy. "It soundedlike a tired campaign trick to win votes from hockey fans--but we were wrong,"the political expert says. And at the time, several Wall Street analysts whorecommended Paychex stock were quoted as saying that they were extremely nervousabout Golisano actually winning the race, and running New York instead ofPaychex.

   The self-made billionaire says with a grin, "Maybe I was, too."

Workforce, June 2003, pp. 33-40 -- Subscribe Now!