Where workers make their own rules

When construction jobs dried up, South Mountain put staff to work on community projects.

South Mountain Headquarters: Martha's Vineyard Employees: 32 2008 Revenue: $9 million Key Benefit: Workers can become owners after five years.

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(Fortune Small Business) -- In a matter of months, South Mountain Co., a design and construction firm based on the Massachusetts island of Martha's Vineyard, saw its two-year backlog of projects shrink to a mere six months' worth of work.

"For the first time we had to consider what happens if there isn't enough work," says John Abrams, founder of the $9 million firm, which builds energy-efficient housing.

Rather than hand out pink slips, South Mountain tried to keep its 32 employees busy, taking on small jobs it wouldn't have accepted in the past and keeping previously subcontracted work in-house. It even put staff to work on community projects that produce little or no immediate revenue.

"We all sink or swim together," Abrams says.

Founded in 1975, South Mountain became a three-owner cooperative in the late 1980s. Today 17 of its employees are owners (any employee can buy a stake in the company after five years of service). Each worker-owner has equal voting power in bimonthly meetings. Maybe that's why a third of annual profits are distributed to everyone at the company based on the number of hours worked.

The worker-owners are generous with health benefits too: Health-care needs are covered 100%. If medical insurance won't pay for a particular treatment -- homeopathic remedies, for example -- the company will help out. When designer Derrill Bazzy adopted a son, South Mountain wrote a check that covered half the cost.

"The company is committed to making sure no employee gets in a position that could bury them," Bazzy says.

None of this comes cheap. Health and disability benefits cost the company about $500,000 annually, nearly 6% of revenue (higher than the national average of 2% to 4%). But all decisions are reached by consensus, which keeps morale high.

"People are happier in co-ops, not because there's more money but because they have a say in how resources are spent," says Newell Lessell, president of the ICA Group, a nonprofit that works with employee-owned firms.

Just as the company's contingency plan to avoid layoffs was going into effect, South Mountain caught a break: A $1 million building renovation deal came through, along with other contracts. Even so, the company's efforts to keep everyone employed - regardless of cost - didn't go unappreciated. Says Bazzy, "A little inefficiency can get you a much more dedicated employee."

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