Remuneration Systems
published in: Educational articles
28 Sep 2010
Remuneration should reflect the contribution of the
respective officer or worker to company outcome! Person with greater
contribution must receive greater remuneration than those with lower
contribution.
It is easier to
measure workers’ outcome than officers’ (management and administration).
We will discuss the four most popular workers’ remuneration systems:
1. Payment per quality manufactured product.
From the very first
day the worker enjoys all company benefits. If, however, s/he produces
low-quality product, s/he gets no payment for it. The worker becomes a
self quality supervisor. S/he is repairing the low quality products at
her/his expense. The remuneration is proportional to the number of
quality-made products only.
The worker may also
get additional bonuses through the following system: each direct
supervisor has a number of points to distribute among his/her subordinates
based on predefined criteria (quantity, product quality, initiative, created
problems, discipline, etc.); each point provides financial bonuses for
its bearer; company best workers may receive one more premium, this time
from the Production Director. Experience and loyalty are irrelevant in
this system.
The disadvantage of
this system is the opposition between workers in their quest to get bigger
bonuses.
2. Flexible payment system.
Approximate
structure of such a system is:
- 85% of the income of the worker is flat salary;
- 10% - periodic premiums based on official criteria (which should not change frequently);
- 5% - directly depends on the success of the entire department.
The disadvantage of
this system is that it depends "85%" on workers’ labor discipline and
diligence, and direct manager’s timely reaction towards low-performing workers.
3. Payment against target volume.
For every worker’s
class there is a target, for example: miller sixth class - 80 details, miller
fourth class - 70 pieces. The base salary is adjusted depending on the
percentage of reached target. Most often the implementation is divided
into three groups:
- below 95%,
- 95-105%
- over 105% of target.
Depending on
worker’s results he gets different wages as per predefined scale.
It is recommended to
apply this system only to activities where the worker can measure her/his own
performance and productivity.
4. Multi-factor remuneration system for workers.
The increasing
complexity of workers’ duties and the manufacturing process has increased the
need of additional factors for assessing workers performance such as teamwork,
initiative, accuracy, versatility, reliability, experience relations, health
etc . etc. The multi-factor remuneration system divides workers’ income
into 3 parts:
- 70% - base salary
- 20% - allowances
- 10% - bonuses, twice a year.
Each of the three
parts is subject to different criteria.
The disadvantage of
this system is: determining the weight of each factor, and the complexity
of the system from the perspective of the employee.
There is no and
there cannot be an universal remuneration system that suits all companies or
workers. However, it is possible to build a system that fairly reflects the contributions of current workers,
system in which workers with higher contribution receive higher income.
P.S.
In the next article
we will examine remuneration systems for officers (administration and
managers).
published in: Educational articles
04 Oct 2010
Managers’
Remuneration Systems usually have more complex structure than workers’.
Managers’ motivation
is short-term and long-term. The short term is expressed as
individual prizes for successful fulfilment of a project, task, or
participation in profit sharing. In the last case it does not count personal
merit, but the entire department or company merits. A disadvantage of the
profit sharing incentives is that the bonus does not always correspond to the
real contribution due to the fact that often the current year profit depends on
the efforts during previous years.
Short-term incentives are crucial to attracting the
best qualified employees, where individual performance is tolerated.
Unlike short-term, long-term incentives are team oriented. They have less influence on attracting and motivating
employees, due to the longer period they apply to.
Due to the
complexity and multi-variability of the most common three systems:
- Hey’s system;
- System “Life”;
- Assessment system for employees and managers with blocked carrier opportunities;
in this article,
we’ll focus only on the last one. This system is widely underestimated.
Employees and
managers with blocked carrier opportunities, have 15-20 years work experience.
We say they have reached carrier plateau. In order to be able to influence any
situation we need to know the causes behind its occurrence. The three
main reasons for reaching a carrier plateau are:
- There aren’t any free positions in the company organizational structure (structural plateau)
- Thanks to their long experience, the managers know their work in details and they face no challenges. Thus they meet demotivation (knowledge plateau)
- The managers are completely dedicated to their work, it is the most important part of their lives. However, when promotions stop they became unhappy and demotivated.
Since these are
professionals, a need to establish an approriate incentive system for
arises. Such system would include the following techniques:
- Manager at “the plateau” are assigned specific tasks and projects that require great experience. Involve them in group management decisions within the sphere of their expertise.
- Move them to another managerial position at the same hierarchy level (rotation).
- Involve them in programs for self-development and teaching newcomers, but make it clear that this is not the road to a promotion.
- Assign them representative functions, put them at the spotlights.
Regardless of the
incentive system you use the most important is the differentiation between
different categories of managers. Differentiation is stimulating act when
people with a greater contribution receive greater benefits.
Differentiation is demotivating when those with smaller contribution receive
the greatest rewards. Another rule of differentiation is that any manager
must get at least 10% more than his/her best paid subordinate.
Inspect your
remuneration system critically once a yeary, consult with colleagues in similar
industries, use
consultants and you will surely have a better system than the current one.
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