1. After some probation period, fire only as a last resort or for really terrible behaviour. Have a plan to correct behavior in all other cases.
2. No layoffs unless the firm's very existence is threatened. It's a tough year? Too bad, that's part of the risk involved in being the owner.
3. Keep pay up to market/replacement rates. If someone is 20% more valuable with his new knowledge, pay him 20% more. 4. Have good benefits/vacation policies.
5. Make sure there's lots of interesting and challenging work to do. Allow people to switch roles/teams on a regular basis if they're interested.
6. Hire good people.
That's a company I'd be loyal to, and I think a lot of others would be too. Sure, you'd get people who would leave for their own thing, or a dream job, or because their husband/wife got a job 2000 miles away, but I don't think you'd see people jump ship nearly as often.
The other stupid thing is companies trot out how much it costs to hire a new person, but never want to invest in just retaining their employees.
Knowing you could get paid more elsewhere, would you accept the pay cut to prevent layoffs or would you leave?
I'm not ashamed to say that I would probably leave. Loyalty shouldn't be expected on either side, and that's ok.
So the owner asked if we'd all take 20% or so paycuts, with some of the older/better paid staff and the owner himself taking bigger cuts. As the business was otherwise profitable (being in a pretty niche market) we all agreed. Something like 9months later we all got paid back with interest and a bonus.
Smaller scale, and a bit more recently at a different (also small) place, all the non-management staff offerred to forego the (expensive) christmas party so one of the contractors could get paid back pay they were owed due to problems with a difficult client.
It's obviously very situational, but in both cases it felt like the right thing to do and both places were smallish firms where loyalty and morale etc. at the time, were high.