Ken Melrose on Pay Equity at Toro

Ken Melrose describes the importance of pay equity at the Toro Company:

In 1981, when I was appointed CEO, Toro was on the verge of bankruptcy. I felt it was my calling from God to build a culture using the concept of servant leadership. It seemed obvious to me to look at the “rank & file” employees as the real strength of the organization.

We were careful not to let the salary gaps up and down the organization get too large and cause disgruntlement. We were particularly concerned about stock options getting out of hand creating a feeling of “haves and have-nots”, paying particular attention to the employees at the lower part of the pay scale. We wanted to engender the idea that we all were one big team and all had a stake in the company’s success. To initiate this we gave every employee a share of Toro stock as a symbol, and then built on it by creating a 401k that annually rewarded all employees with stock in the company. While the managers at the top had more stock than those at the bottom, the fact was that we were all “owners”. We then designed durable name badges with each employee’s name, followed by the word “Owner”!

Moreover, to “put our money where our mouth was”, we worked hard to preserve our employee force as well as their compensation when times turned tough. If we had a bad year, it was often because of weather. Reacting to this via layoffs and/or hurtful wage cuts made no sense since weather usually corrects itself within a year. If we did have to cut wages and salaries, we started with the officers, and then the management (e.g., no bonuses first, then salary reductions, and so forth). Our plan was to protect the lower paid employees as long as we could. After two El Niño years without cuts, the employees became believers.

This reflected our philosophy that every employee was important, and it was management’s responsibility to keep the work forces’ compensation intact.

This case is an illustration of the parable of the laborers in the vineyard, Matthew 20:1-16. Click here to go (or return) to the passage.