Sean IddingsKeymasterOfflineTopics: 110Replies: 25
In 1967, Robert “Bob” Kierlin co-founded Fastenal (FAST), the national distributor of threaded metal fasteners and related supplies. He would lead the company as CEO for 35 years until 2002. He made shareholders a lot of money.
Intelligent fanatics go against the crowd. They’re frugal in all the right “cents”.
While perusing the September 12, 1994, Minnesota Star Tribune, I stumbled upon something interesting. I found the 1994 list of 150 highest paid CEOs in Minnesota.
I wasn’t surprised with what I found. Look who was dead last:
Fastenal didn’t pay Kierlin a low salary because of bad performance. Fastenal net sales increased from $27,094,000 in 1993 to $39,388,000 in 1994 (+45%).
Net earnings rose from $2,876,000 in 1993 to $4,570,000 in 1994. Per share growth was 60%.
Actually, Bob Kierlin’s compensation hadn’t grown since Fastenal went public in 1987. This is what Fastenal looked like back then:
Bob Kierlin grew Fastenal’s top line at a 12.8% CAGR and bottom line at a 19.2% CAGR from 1986-1994!
Fastenal’s board repeatedly authorized a pay raise for Bob, but he never took it.
Bob sounded a lot like Ken Iverson, chairman and CEO of Nucor Corp. With a base salary of $243,000 in 1990, Iverson often said he was “the lowest paid executive in a Fortune 500 company-and I’m kind of proud of it.”
Bob Kierlin’s Frugality
Bob Kierlin’s frugality was observable to all. His office was adorned with used furniture, some family photos and a PC. That’s it. Nothing fancy. This of course isn’t a surprise to us. As we wrote in Intelligent Fanatics Project:
Chester Cadieux had a drab office, and Sol Price had bookcases made out of concrete blocks and boards, set on vinyl floors. Price Club suggested that employees pay five cents for each page of personal copying. At Anheuser-Busch InBev and other 3G-led companies, there are no offices, just large tables where everyone sits, works, and communicates. Employees at Amazon have “door desks” just like the one Jeff Bezos built for himself when the company was a start-up. And the Nucor headquarters offices were furnished with orange plastic kitchen chairs.
Bob also liked to shop cheap. He could afford new suits, but he chose a different route. He bought second hand suits off a discount store manager. Bob said, “Luckily, we’re the same size. I picked up six of those suits for 60 bucks each.”
In 1997, Bob drove an Oldsmobile despite being worth $243 million. In a recent interview Bob said, “I’ve always been the type of person that if it is not necessary, I don’t buy it.” Bob Kierlin’s frugality resembled Sam Walton’s personal penny pinching. When Walton became the richest man in the world, he still drove an old, beat-up 1979 Ford F-150, and he famously said, “What am I supposed to haul my dogs in, a Rolls-Royce?”
Bob Kierlin believed, “Frugality is an attitude you develop. Once you have it, it sticks with you in everything in life. You don’t have to think about it.”
Here is how Bob and his manager led by example. Instead of taking an hour flight to a Chicago conference, Bob and, then CFO/today’s CEO, Dan Florness drove five hours. They lunched at an A&W and shared a motel outside Chicago to save money. Bob said, “This sends a message that cost control is important to everybody in the organization. By being attentive to all expenditures, you can really set the example at the top.” And a total commitment is necessary from all levels. Bob described, “Either you do a good job of cost control in all aspects of your business, or you just start losing it.”
Fastenal didn’t offer a 401(k) plan. The company never offered stock options. But how on earth do people buy in to such a tight wad culture?
And how has Fastenal’s stock price grown 43,000% since 1987, yet the S&P 500 has grown 630%?
It’s possible because Fastenal leadership was respected. Fastenal vice-president Will Oberton mentioned, “He [Bob] never talks down to people, and he treats everyone with equal respect, whether they’re a janitor or a vice-president.” Management didn’t enjoy special privileges like a reserved parking space, dining area, or golf course.
While not all employees owned Fastenal shares, every full-time employee participated in the company’s profit-sharing plan. Fastenal employees were incented to think like owners. As Bob Kierlin said, “I believe people should be paid all their rewards up front and make their own choices on how to spend their money.”
And when a recession hurt Fastenal growth in 2001, management were the first to cut their pay. Variable pay for management declined 30%. Bob’s salary was hit the hardest. His $121,000 salary was cut almost in half to $63,500. But for other employees, variable pay increased 4%. Fastenal decided to revise its bonus structure to make pay more competitive for the workers in the trenches.
Of course, a culture of smart frugality is only one piece of the puzzle. Leadership, investing in the right people and allocating resources to the right areas are highly important too.
Various newspapers: The Post-Crescent (Appleton, Wisconsin), Star Tribune (Minneapolis, Minnesota), Lincoln Journal Star (Lincoln, Nebraska)
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