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Whole Foods Includes Whole Self
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NFC: At Whole Foods all salaries are published in an annual review. Has their been any negative reaction or a downside to doing that?
Hatch: Oh, sure. We believe it's a good thing because then there are no secrets. You know what I make, you know what the CEO makes, you know what a brand new employee makes. We have three or four regional presidents who started out in front-line positions in the company, as bakery team leader or on the deli team. Now they're at the top of the corporate ladder, so to speak. So it can be a positive from the point of motivating individuals to reach higher levels of leadership.
There's a risk of envy and resentment. You compare yourself to others on your team. You feel like perhaps you should have made as much as them. You may feel that you were unfairly compensated when you start comparing yourself to others.

NFC: Do those questions come up?
Hatch: Yes. I know within my own team, the people in the benefits department wanted to know how come they weren't making as much in the payroll department and they were trying to argue that their skill level, and knowledge level, and level of responsibility was equivalent to theirs. But we work through it. Some team members can accept it and some cannot.

NFC: Your CEO, John Mackey, says that Whole Foods has a responsibility to make money. That all progress comes from profit. But if you look at your financials, you have not made money. You've had net losses since 1992, with the exception of 1995.
Hatch: When we merged with the Fresh Fields location last year, we had to take on all of their losses. If you take out their losses, we have been very profitable. In fact this year we've had a bumper year, we've had a billion dollars; we're experiencing a great year for our shareholders. We've grown at over 50 percent each year and our earnings have grown each year as well, but because we've got a lot of complex accounting transactions it appears as a net loss.

NFC: Why would you operate Whole Foods with this type of culture if it wasn't going to help you make more money?
Hatch: Well there are inefficiencies with this management style. This is the most challenging management style there is because it's not easy to use the inclusionary and team model. It takes more time. It takes a lot more energy and patience. It's more costly to manage this way. You make more mistakes and sometimes recreate the wheel! But we feel in the long run, the rewards offset that. You get a better team; you get a better sense of ownership and commitment that is certainly better for business. You get a better, more innovative product in the long run, but in the short run, it certainly can be more challenging and more time consuming.

NFC: One of Whole Foods' goals includes a commitment to grow at a pace that allows for quality of the work environment and team member happiness. I'm intrigued by the implied contract that if I work for Whole Foods then you're going to make sure that I'm happy.
Hatch: Here's what we mean. We try to set up an environment that is conducive to an individual being happy. However, an individual has to choose to be happy. We can't make an individual be happy. What we try to do is set up an environment that's fun, challenging and rewarding. Individuals that find those types of values important to them will thrive. When team members are unhappy, we do listen and want to know why. If there's something we're doing as a company to create an atmosphere that fosters unhappiness and anger, we certainly want to address it. We can't always change things, but we certainly will be there to listen.

NFC: Part of that is also the whole concept of shared fate that you employ there.
Hatch: Almost 99 percent of Whole Foods employees are on a bonus program. Almost all bonuses are tied to financial performance. We have team bonuses based on labor productivity, where all members of the team share if labor productivity targets are achieved. We also have team member incentive programs that reward different levels of success for sales of our private label products. When a whole store does well, every team member in the store gets a bonus. Then there's a second level of bonus when they do well in their store compared to all the stores in their region. And then if they do better than all of the other regions combined, they get a third-tier bonus.

NFC: Does that ever hamper information sharing? Because in essence you set up a competition.
Hatch: We do set up a lot of internal competitions, quite frankly, we think they are fun and help keep our team members on their toes - everyone wants to be a winner! We have a cleanliness and merchandising program that's competitive. We have stores divided into different leagues and they get rewarded based on the grades they get. Team members will get paid time off, hours credited to their benefit accounts if they win, and scores of their game are published. We believe internal friendly competition is advantageous. People are very eager to share their successes. We invest tremendous resources flying our team leaders around to other regions. We have tour and networking sessions. For example, we take all of the meat and produce team leaders in the Northeast region and send them all to California. They share ideas about what works on their team, what doesn't work. This helps to spread ideas and grow new ones. It also fosters a greater sense of community and a connection to the larger company.

NFC: How would you answer the critics that say, these kinds of rewards are just another form of punishment. In other words, if I don't get the reward in someway, I have failed.
Hatch: Oh, well, that is true. Anytime there's a grade and somebody's rewarded for the highest grade, it means that somebody else doesn't make that highest grade. Individuals that feel that way have the reward as their motive as opposed to what they're doing. And it's the individuals whose motive is what they're doing, or the process, that get the real reward. We also hope it stimulates individuals because it is a means of recognition. We try to make our measurement processes very objective. They have grades and financial performance measures. The criteria are well published and well known. We hope to set up an environment that recognizes great results from anyone, even if it means a verbal appreciation from one of your co-workers or store team leaders.

NFC: Let's push on this. The ones who are going to succeed at this are doing it not for the reward but are doing it because they're committed to the work, committed to the customer and committed to the process, then why have the reward?
Hatch: I guess it's like any reward. It is a singling out process. But, the team members love it. They take a lot of pride in it. We don't sense that there's an envy and resentment factor about it from the vast majority of our team members. We sense a lot of, "Wow, good for them, they deserve it." Now, certainly there may be the case where some does feel cheated, and that's going to happen no matter what kind of work environment you set up.

NFC: Team members can do their own hiring, I'm assuming they can do their own terminations?
Hatch: Yes, with support from the store leaders.

NFC: With the legal ramifications of employee termination, what kind of training do you provide team members?
Hatch: Because of the legal environment today, you've got to be careful in how terminations are handled. We try to provide more support in that area. If you were having a problem with an employee you would discuss the problem with your store team leader who's trained in the legal issues. If there's something that's real sticky, they'll have an expert in their region or they'll call one of our experts in the central office. We have a pretty defined process in our employee handbook for dealing with disciplinary issues. For example, have you gone through the paperwork process? Have you counseled them in these intervals? There is also team leader training every year. But each case is unique so we try to provide a lot of support and guidance in that area.

NFC: Is there any training in financial literacy aspect?
Hatch: Absolutely. And we try to limit expectations in that regard to what a team member needs to know to be successful. We try to teach employees to read the numbers that are important to them. The accounting people in each region do a lot of training. In fact, when a new store comes on line, and if they're having difficulties, they know that one of the key areas they need to focus on is just training the team leaders in how to read their financial information so that they know how to deal with it. Although our formalized training programs are deemed to be weak by our team members. We do have a lot of training. We're trying to improve in this area.

NFC: And why do you think they are deeming them weak?
Hatch: Probably because we don't have well publicized or formalized programs. There's lots of informal training that takes place. We believe in mentoring. We believe in team members seeking out information. But we've realized as we've grown that we really need to make learning opportunities easier for a team member to hold onto. And so we are trying to improve in that regard. In fact we have just hired a national training coordinator who is going to formalize some of the programs that exist on a regional basis and make them more accessible to team members via our intranet.

NFC: You have a commitment to increase communication through open book, open door, and there's a term called open people practices. Can you just elaborate on what that means?
Hatch: We often hear from our team members that they love working at Whole Foods because they can be themselves. They don't have to leave part of themselves at home when they come to work. So as a result, you get individuals who are expressing themselves in ways that maybe are outside the boundaries of what you think would fit in a work environment. On the other hand, they're more comfortable, so they're probably giving better customer service. A lot of our customers like coming to our stores because our team members are very unique and individualistic. We expect team members to be professional with our customers and with each other, but that doesn't mean they have to cover up who they are.

NFC: Do you see this tying into a higher retention rate? In your industry, the turn over rate of employees would be an issue.
Hatch: At the lower levels, we get many students and other young people who are in transition. That level of turnover is high. But in the upper levels, once somebody has decided, this is a job that I could make a career of, we feel that it definitely keeps people here. We've had people leave and come back. They say, "I just liked the environment here. I liked who I worked with. I liked being able to feel like I was working at my own business, but have the benefits of a bigger business." So, yes, it does contribute a lot.