TOM PHILLIPS KNOWS KARAOKE.

No one will discuss the quality of his singing, but his enthusiasm gets two thumbs up. After all, how many corporate chairmen would spend more than $1 million of their own money to take 1,350 people — the entire company plus spouses, children, and significant others — on a three-night Disney Cruise to the Bahamas for the company's 30th anniversary, then stay up in the lounge until 1 a.m. singing and dancing with the troops?

It started when a Phillips employee took the stage and dedicated his rendition of “Born to Be Wild” to the boss. Then it was the boss's turn.

“They put a microphone in front of me, and I did ‘We Are Family,’” says the founder of Potomac, Md.-based newsletter publisher Phillips International.

Phillips employees who were there will forever think of that as their song.

TOM PHILLIPS KNOWS SURPRISES.

Taking his entire business — which includes Phillips International; Eagle Publishing, a conservative book and newsweekly publisher; and a multitude of smaller divisions — on a cruise and keeping it secret wasn't easy.

Veteran Phillips employees knew the company's 30th anniversary was approaching in the fall and figured the boss would do something memorable, just as he had for the 20th and 25th anniversaries. But at one of the company's regular off-site divisional meetings earlier this year in Gaithersburg, Md., there was no reason to think anything out of the ordinary was about to occur.

“Then Tom just popped in,” recalls Chip French, assistant managing editor of the Alternatives monthly newsletter. “He was wearing Mickey Mouse ears.”

Phillips was accompanied by his wife, Randall Brooks Phillips, his 2-year-old son, Reagan, and a local TV news crew. Stepping up to the stage, he said, “You might wonder why I'm here.”

When Phillips then announced his surprise reward for everyone, the response was pandemonium. Applause. Tears. And frantic grabs for cell phones to call home with the good news.

“It was amazing,” marvels Shamima Ahmed, who is a print buyer for Phillips Health. “We were told that there would be an announcement, but nobody had a clue. I couldn't believe it was real.”

TOM PHILLIPS RUNS A $250 MILLION BUSINESS THAT APPRECIATES THE FAMILY.

Accompanying Phillips on board the Disney Wonder in September were 30 members of his immediate and extended family, including his wife, their son, his 91-year-old mother, and Randall's parents and brothers. (Phillips stresses that he paid for all their tickets out of his pocket, not out of the company's receipts.)

Phillips started his company in 1974 from his daughter's playroom in his Chevy Chase, Md., home with a $1,000 initial investment, three employees, and two newsletters. Today, he publishes a range of health, investment, and conservative political newsletters, as well as books by William F. Buckley Jr., Ann Coulter, Barbara Olson, and Ted Nugent. The Evans-Novak Political Report is also a Phillips product.

He began his company with strong values about rewarding people. Incentives started on a smaller scale, with a monthly Cake Day to recognize employee birthdays. That grew into Recognition Day, which added employee anniversaries with the company, welcomed new employees, and included things such as surprise drawings and raffles.

That tradition continues. “It's a once-a-month occasion in each (division) that lets us focus on individual achievements,” he says.

While he can't point to a single company that inspired his approach to recognition and incentives, there is one person Phillips credits with his corporate values. “I've always been a big fan of Ronald Reagan,” he says. (Randall, too: She was Reagan's National Honorary Chairman of Youth during his 1980 and 1984 campaigns and held the same position for George Bush's 1988 presidential run.) “Reagan enjoyed people, and he was a great leader. I wanted to be a great leader, not just a manager or an executive. By caring about people as individuals.”

Ten years ago, Phillips cemented his status as a beloved corporate leader by taking everyone in the company to Walt Disney World in Orlando for an all-expenses-paid vacation to celebrate the company's 20th anniversary.

Then, five years ago, for the 25th anniversary, Phillips wrote bonus checks for his employees: one week's pay for every year of service.

“It was well-received, as money always is,” Phillips says. “They paid off loans and put money toward their children's college educations.”

But in years 26, 27, and 28, a funny thing happened.

“Whenever anyone was talking about the company, they talked about going to Disney World for the 20th anniversary,” Phillips says. “Nobody talked about how ‘Tom gave us a whole bunch of money for the 25th!’”

“Oh, I remember it,” jokes Vanessa Henderson, the company's vice president of human resources. “But it's gone!”

As a result, Phillips began thinking about a return to Orlando. But he wanted to do something that wasn't just déjà vu all over again, which is when the idea of a Disney cruise came up.

“Tom called and said, ‘It's my company's 30th anniversary; I'm thinking of a cruise. What do you think?’” recalls Kim Githler, president of InterShow, a Sarasota, Fla.-based producer of investment trade shows and cruises that helped to plan the Phillips cruise. “I said, ‘I think your best bet would be Disney.’” She ended up spending 150 hours negotiating the details of the half-charter for Philips.

The group size — 440 cabins — was manageable for the cruise line because it could accommodate both Phillips' and unaffiliated passengers with separate dinner and event seatings. And Phillips' numbers were large enough to demand attention without them disappearing into the population of an even larger ship.

Another reason for the choice? There are no casinos on the Disney Cruise Lines, so no employees would lose their shirts while under the Phillips hospitality umbrella.

“I knew that our people, when they came on a ship like the Disney Wonder, would flip out,” Phillip says. “And that's the reaction we had. I had one person say he'd never even thought about going on a cruise. But this was fantastic! It opened up a whole new world.”

Many Phillips employees had never cruised before, including John Farley, corporate vice president.

“My wife didn't like the idea of being in a confined space,” Farley says. “But it's like a floating city. You can do anything you'd like to do.”

TOM PHILLIPS IS UNIQUE, EVEN BY DISNEY STANDARDS.

Disney Cruise Lines books just three or four complete ship charters a year for the Wonder and Magic, and just two or three half-ship charters.

In booking 440 rooms for its group, Phillips reserved the best (read most expensive) rooms. “They took all our top category stuff,” says Kevin Harry, sales director for Disney Cruise Lines charters, corporate and incentive sales.

“Getting a good deal is not only about trying to get a group rate,” Kim Githler says. “It's also about getting the best inventory. First they sent me the bottom. We had to reverse that.”

The volume of Phillips passengers made it possible for the company to have exclusivity in its restaurant rotation without interfering with non-Phillips passengers.

There were surprisingly few organized activities for the employees: a private deck party the second night with hot and cold hors d'oeuvres, open bar, and a DJ; a group photo opportunity the last full day at Castaway Cay (relocated to the ship because of torrential rain); and a mandatory evening program — with free champagne for all — in the plush, 977-seat Walt Disney Theater that night.

OK, so Phillips did ask them to wear bright red T-shirts with the company logo to these events. Small inconvenience. And they didn't even have to wear them, a company spokesman says — “as long as they didn't mind explaining to Tom why.”

TOM PHILLIPS KNOWS THIS TRIP WILL PAY OFF.

But that's the advantage of running a private company — not one that's consigned to the whims and rumblings of Wall Street. “We can do what's right for the long-term health of the employees as well as the business,” he says. “But you still have to be competitive. It's not a bottomless piggy bank you can dip into.”

To that end, Phillips maintains a board of outside directors that meets quarterly for corporate governance purposes.

“I sought their advice and approval for the cruise,” he says. “They knew it went well 10 years ago, and they share my philosophy that you take care of your employees. But it is easier than getting letters from someone with 10 shares who says, ‘You're wasting our money.’”

Ed Bersoff and Joe Wolinsky are on the Phillips board. And they were on the Wonder.

“Tom appreciates the loyalty of the people,” Bersoff says. “He knows that the staff makes it a people business. He wants to give back to them.”

“It's very expensive,” Wolinsky adds. “He even brought people over from Europe. You could only do this with a privately owned company.”

Phillips believes, however, that even a publicly held company could justify treating its employees this way. It's about establishing a corporate culture that rewards the company at large.

“It's defensible,” he says. “If somebody doesn't want to be a shareholder under those circumstances, so be it.”

But how can he be sure of the payoff? By talking to employees, for starters. People such as Peter Munsat, who joined Phillips as director of financial analysis just three months before the cruise and took the trip with his wife and 4-year-old son. He didn't expect to make the trip. “When I was interviewing, I knew the cruise was happening,” Munsat says. “Up until a few weeks ago, I was on the waiting list. Then they freed up the whole waiting list and everybody got to come. This is a nice incentive. I think at most companies this would be out of the question. It's a reflection of Tom Phillips and his approach to building a strong company.”

Phillips can also check in with people who have been around for a while, such as Dave Durham, a 23-year employee and and newsletter publisher. “Tom Phillips is a good guy to work for in between anniversaries,” he says. “As the company gets bigger, he still ties it together. The kind of work we do, if you're not excited about it, you're going to leave whether there's a cruise coming up or not.”

These trips pay back in other ways as well. In conjunction with the 20th anniversary trip to Disney World, Phillips was featured on NBC's “Today” show. You can't buy that kind of exposure. And while that didn't sell more newsletters, it did set off an avalanche of resumes and job applications.

TOM PHILLIPS IS NOT FINISHED SINGING.

On the cruise's third and final night, Phillips takes the stage of the Walt Disney Theater for a little business. Everyone is still a little disappointed because bad weather spun off by Hurricane Fabian canceled beach activities planned at Disney's private island, Castaway Cay. But Phillips has another spontaneous gift: He's buying drinks for everyone.

“The neat thing is that Capt. Henry is our designated driver!” he says, the Wonder's captain grinning at his side. “So you don't have to worry tonight.”

Phillips brings four of his top executives to the stage and publicly calls them “Wonderful leaders. We owe them a lot — I owe them a lot.

“I'd like to thank all of you for all you've done for Eagle for 10 years and Phillips for 30 years,” he continues. “We serve 1 million customers. We're a company that helps you provide for your family, put bread on your table and [drink] champagne today.” More applause and whistles of approval. “I do think of all of us as a family.”