(FORTUNE Small Business) – The devil may wear prada, but she probably doesn't shop at Eileen Fisher. Tucked away in a sunny, converted factory on the Hudson River in Irvington, N.Y., not far from Sleepy Hollow, Eileen Fisher's eponymous company operates in a world far from the New York City apparel industry's sweatshops and sharp-clawed fashionistas. Acclaimed for designing sophisticated, flowing styles that are professional enough for the office yet relaxed enough for weekends, Fisher, 53, has also created a workplace that nurtures employees and avoids nastiness. "We call it simply comfortable clothing and a simply comfortable environment," says Fisher, a slender, elegant woman who wears her own designs.

Everything about the company--from headquarters to a distribution center in Secaucus, N.J., to 25 retail stores in 11 states--reflects Fisher's official mission to encourage individual growth, collaboration, and social consciousness. She gives her 400-plus employees a sense of ownership by sharing at least 10% of pretax profits with them each year. Everyone gets a $1,000 education benefit and a $1,000 wellness benefit, to be spent on rejuvenators such as massages, nutritional consultations, reflexology, spa visits, and gym equipment. The company hosts free classes in yoga, tai chi, dance movement, and stress reduction. After ten years on the job, workers get $5,000 toward a trip. And of course, there's the clothing discount: Employees receive anywhere from $500 to $2,500 a year to spend on Eileen Fisher clothes at wholesale, depending on how much contact the employee has with customers and clients.

Benefits on that scale are rare these days, especially at small firms, many of which can't even afford to offer health insurance. Fisher's brand of pampering is even scarcer in the often ruthless world of fashion, where screaming meltdowns are common and where a notorious designer once became so abusive toward his assistant that she filed a complaint with the police. Fisher's explanation for why she does things differently? "We just want people to love this company," she says.

So far, that approach has paid off, and in more than just office karma. Although women's apparel sales dipped by more than 6% last year, revenue at Eileen Fisher--which is privately held and profitable--was up 12%, to $144 million, according to the company. Employee turnover at the retail stores is 19%, compared with 50.7% for the retail industry as a whole--an advantage that saves about $325,000 a year in recruitment and training costs. And Fisher even looks out for her factory workers overseas. While labor activists have accused designers like Donna Karan of using sweatshop labor, Fisher has about 35% of her clothes manufactured domestically and the rest in China, under what the nonprofit watchdog group Social Accountability International describes as far better conditions than those her competitors offer. Her company is one of only three in the U.S. (Zeller Plastik and Arco Paper Products are the others) to comply with a strict set of workplace standards administered by the nonprofit. Called Social Accountability 8000, those standards cover health and safety, wages, working hours, and minimum working ages at factories around the globe. (Social Accountability 8000 is more widely known in Europe. For more information, go to www.sa8000.org.)

Fisher knew early on what type of boss she didn't want to be. As a teenager working at Burger King and Chinese restaurants in the suburbs of Chicago, she hated supervisors who constantly looked over her shoulder, waiting for her to make a mistake. "I didn't like people yelling at me," she says. Years later she got her chance to run a business differently. After graduating from the University of Illinois in 1972 with a degree in home economics, she worked as an interior and graphic designer and grew frustrated by clothes that never seemed right for her. So she designed four items she liked--two tops, a pair of pants, and a vest--and hired a seamstress to create them. Fisher unveiled them at a trade show in 1984 and walked away with orders from eight stores. Borrowing cash to pay for fabric, she found herself running a small business that quickly outgrew her apartment.

Because of her experience, Fisher encourages employees to move around within the company and find jobs they feel passionate about. Just ask Lauren Busing, 39, who started 11 years ago and spent five years as Fisher's executive assistant. When Busing told her boss how much she enjoyed helping the creative services department with ad shoots, Fisher let her take time away from her regular responsibilities to do more of them. Busing eventually worked her way into a job as a creative services coordinator. "I'm sure it was a sacrifice for her, because I was off doing things for another department," says Busing. "She gave me the freedom to find what was right for me within the company."

That management style doesn't work for all employees. The loose structure makes it hard for some to figure out how to move ahead. "That can cause frustration," Fisher admits. But for those who fit in, the idea of leaving the company and returning to what Fisher calls the "real world" can be daunting. "I think I give people the freedom to find themselves," Fisher says, "to find their path, to find their own way here." --ELAINE POFELDT