(FORTUNE Small Business) – Before you meet this year's exceptional bosses, let us introduce you to one of the fellows who have taught them much of what they know about management. His name is James Schubring, and he's a 27-year-old native of Montana. He has studied at Harvard and Oxford and worked as an Internet analyst at Disney and as a marketing manager at a hot Internet-software company that was later acquired by Google. He has never been a boss, but he knows exactly what kind he wants. He isn't about to stick with a leader who thinks employee satisfaction stems from such fossilized fringes as profit sharing and health-club memberships. "I want to be at a place with a lighter, airier culture than many companies have, where people are excited to be working there," he says.

But Schubring is more demanding than that: He asked his boss for five weeks off last summer to finish writing his second mystery novel. Inflexible? He insisted on an employer located within 300 miles of where his parents live. Self-indulgent? One of his key criteria for a job was that he have enough time to cook, fish, swim, and socialize. If all that makes Schubring sound like an applicant you'd gladly refer to a competitor, consider that increasingly he is the kind of package that talent comes wrapped in. An ability to attract, accommodate, and motivate the Schubrings of the world is one of the key traits that characterize today's Best Bosses. Such skills will be increasingly important to hiring employees in a job market that is tighter than it has been since 2002, according to recently released Labor Department statistics.

Schubring "must have been the brightest kid in Havre, Montana," says Andrew Field, founder of PrintingForLess.com, based in Livingston, Mont., where the whiz kid works. "He could have been running Disney in 20 years." In his two years there, Schubring has proved his worth. Having assumed responsibility for one of Field's largest customers, he boosted that account's revenues by 50% in one year, among other feats. He has also spearheaded the company's efforts to come up with formal procedures for its custom publishing jobs.

One of this year's Best Bosses, Field, 46, is adept at pleasing members of the Nintendo generation, who have grown up bombarded with 24/7 entertainment, been treated as peers by adults, and showered daily with positive reinforcement. "They think it is their right to have lifestyle choices and to have a say in the company's direction," Field explains. "Now the best employees want to do something interesting, meaningful, and worth their engagement.

And they want to do it--just as the commercial they've grown up with says--their way. "It's common for a new employee to make demands: Here's what I want my cubicle to look like; I don't want to work on Thursdays; I want to bring my dog to work," reports Bruce Tulgan, 38, founder of Rainmaker Thinking, a consulting firm in New Haven that helps CEOs manage generational differences.

Catering to the sometimes grandiose expectations of the country's least experienced workers might seem a dangerous distraction to some employers. After all, pampering young hotshots helped produce a spectacular string of business bombs during the dot-com days. Besides, youngsters born in 1980 and after, labeled Generation Y, millennials, or echo boomers by demographic experts--represent only 10% of the national workforce. Throw in the youngest of the Gen-Xers--say, those born between 1965 and 1979, who share some of the characteristics of their younger co-workers--and the figure grows to about 20%, still just a sliver of the American pie. Last year the median age of employees at all U.S. companies was 40.

But young, fast-growing companies in quickly changing industries, such as those guided by most of our Best Bosses, hire more young workers than the average firm and place a premium on grabbing the most creative ones. The average age of the 21 employees at Sitewire Marketspace Solutions, an Internet marketing company in Tempe, Ariz., is 27. At Pro Motion, an event-marketing business with 76 workers in St. Louis, it's 28. Those firms are anomalies today.

But the tidal wave of Gen-Yers that is coming--some 70 million, nearly as big as the baby-boom generation--makes such companies bellwethers for other CEOs, who in a few years will be shaking their graying heads over the gnarly, self-important dudes chillin' at their companies. "Managers who don't effectively address the needs of this generation will struggle," predicts Cam Marston, 36, president of Marston Communications, a workplace consultancy in Charlotte. Nowadays the young hires aren't expecting to join small companies whose IPOs will let them get rich quick. But they "come to the work environment with a show-me-what you-can-do-for-me attitude," says Pamela Davis, 53, CEO of Non-Profits Insurance Alliance Group, an insurer of charitable organizations that is based in Santa Cruz, Calif.

Judging from our 15 Best Bosses, a company friendly to Gen-Xers and Gen-Yers looks as if a Jim Carrey character designed it. The word "fun," often with an exclamation point, is featured in more than half their mission statements, mottos, or self-descriptions. Owners indulge their employees in scavenger hunts, dodgeball tournaments, free beer on Fridays, go-cart racing, pumpkin-carving contests, and trips. Their offices overflow with waterfalls, koi ponds, and climbing walls, as well as the standard day-care centers and gyms. "People want to come to work. It's so much fun, it's almost immature at times," says Dave Kelly, 33, a vice president at Aquascape Designs, apond-materials distributor in Batavia, Ill.

The Best Bosses have crafted business practices to satisfy the specific demands of twenty-somethings, treating them more like consumers than employees. In return, workers put in high-energy performances and rarely entertain other job offers--all of which translates into lower turnover and faster growth. The median jump in revenues for companies run by our bosses was 32% from 2003 to 2004. By comparison, a 9.8% growth rate was logged by about 4,000 small, publicly traded companies tracked by Compustat, the research arm of Standard & Poor's.

"We do a really good job of finding smart, creative people," says Steve Randazzo, 42, founder of Pro Motion. "If I am going to keep those people, I need a culture that breeds and rewards creativity." True, it's expensive. Besides spending more than $300,000 on mundane benefits such as health insurance and retirement plans, he budgeted $90,000 last year, or $5,000 for every employee, on entertainment, including an annual trip for all employees--yup, geezers can come too--and spouses. His spending amounted to nearly 5% of the company's $8 million in revenues last year.

Reshaping your company for Gen-Yers invites risks, however. Employees could mistake a casual atmosphere for one that tolerates poor performance, or a friendly CEO for a pushover. But the Best Bosses hold tight to a firm set of values. Such as:

Instant Karma

Keith Smith, the CEO of 180solutions, an online-search marketing company in Bellevue, Wash., designed his venture around one of Gen Y's defining traits: the desire for instant reinforcement and reward. The 34-year-old Smith, whose company almost went bankrupt in 2003, cannot afford to pay his 250-member staff as much as his rivals do. But he hands them a joystick of sorts: constant numerical feedback that shows every employee how close he is to scoring a bonus. Thirteen 40-inch plasma screens hang from the ceiling of 180solutions' offices, displaying real-time metrics crucial to each department. All employees can watch minute-by-minute increases in revenues and profits, among other measures.

Every worker also receives a daily report of the company's ten most important measurements and a monthly 50-page report that goes to the board of directors. That report contains such arcane information as how much it costs to obtain a user of Zango, 180solutions' free software product that allows people to try online games in exchange for accepting two advertising messages a day. Why should workers try to absorb this torrent of information? Because every employee gets an additional $250 to $500 if the company meets a monthly revenue target. That bonus was paid five times during the first half of this year. If they hit a more ambitious sales goal for the month, workers collect an additional $250 to $500. The firm also awards quarterly bonuses for each employee who meets an individual goal.

"You really feel in control of your own destiny," says Shelby Ratto, 23, an account manager at the company since 2004. Plasma-driven management helped 180solutions increase revenues to $53.5 million last year, from $2.5 million in 2002, and drove double-digit percentage growth in profits over the same period. (The company's good fortune hasn't cheered everyone. Five employees, who became independent contractors when the company was struggling in 2000, filed suit last year, claiming their stock-option grants were wrongfully extinguished. "We don't believe the suit has any merit," Smith says.)

Insider Training

Along with instant feedback, the star workers of this generation want jobs that offer lots of action and little bureaucracy. "Sitting still or working slowly is frustrating for me," admits Nick Runyon, 25. In 2003, a year after graduating from college, he joined PrintingForLess.com. He is now a production manager, overseeing $17 million a year in print jobs and supervising 30 workers.

Founder Field's pay-few-dues approach succeeds because he showers new employees with training, which, believe it or not, is a key element in the Nintendo generation's definition of fun. The most heavily schooled are technical-service representatives, who spend 16 weeks learning three disciplines--sales, digital processing, and customer service--before starting their jobs. Field says his training costs amount to 14% of payroll, compared with the 2.5% most companies spend, according to the American Society for Training & Development. The payback? Stellar service, says Field, which generates positive word of mouth. One-third of new customers come through referrals. Between 2002 and 2004, PrintingForLess doubled revenues, to $14.9 million.

Voluntary Reflex

A young worker's natural skepticism toward authority can become corrosive if it turns to cynicism--an attitude that several Best Bosses combat through volunteerism. The 21 employees at Sitewire, an Internet marketing firm, have built websites for local charities, such as Starshine Academy and Homeward Bound. President Bret Giles, 39, nicknamed "Dad" by his young workers, reports that "when others respond to someone's cause, they feel more closely connected." CEO and co-founder Margie Traylor, 41, sees another benefit: Sitewire has acquired at least a half-dozen paying customers through its community service. "People in the community associate our brand with really good things," says Traylor.

The downside of fostering a unique environment is that finding the right employee can be trickier than it is at a more conventional company. Bob Cutler, 49, founder of Creative Consumer Concepts (C3), a supplier of children's activity books, crayons, and toys to restaurant chains such as Olive Garden, considers his "more interesting and more enlightened" business environment to be the key to "how we can outsmart the bigger companies that can pay a little more."

Yet in 2000, Cutler hired Steve Ohler, a former senior vice president at Mattel, whose use of tight controls began to chafe the longer he was president. "He wanted to suck the life" out of C3, charges Cutler, who felt there were too many meetings, too many approvals, and too many reports. "I have a different perspective than Bob," responds Ohler. "I was charged with the responsibility of bringing the numbers in, and I do that differently than he did, no question." Ohler, now a consultant, left in 2003.

Businesses hire ill-fitting employees all the time, of course. But how often do owners part with seasoned executives who deliver superior results--in favor of keeping the company fun? That is an idea aspiring Best Bosses need to get used to as the Nintendo generation starts filtering in. Ohler's "financial performance was phenomenal," says Cutler, whose business is based in Overland Park, Kan. "But his cultural performance was abysmal--and keeping employees happy is critical."

Meet the Best Bosses, chosen by our distinguished panel of judges.