[3537]

Financial incentives for personnel. Automatic system

Date:
April, 2013
Prototype:
proto$ gen VI mod 3FFECA (Londinium)
Customer:
I-Zet
dia$par calculates all the KPIs in the background. The raw data is taken from its own depths. You only have to determine the salary calculation formula for each position once. The automatic system will do the rest — free, on time, and without mistakes. Significant productivity growth and cost reduction are attached.
  One can rarely meet such a business owner who in a private conversation wouldn’t complain about their "dickhead employees".

However, many companies exist in the same environment, and in some of them people work (relatively) well, while in others — not really. In Russia (as well as almost all over the world), "the others" are in the majority.
Meanwhile, personnel resources on the open labor market are the same for everyone.

So what’s the secret?

 

It is not a big secret, but a complex one. On this short text we’ll touch upon just one its aspect — financial incentive program for employees.

The basic rule is: employees always do what they’re paid for. We don’t take into consideration a marginal percentage of criminal deviations.
?
Another thing is that in a great many cases the employer’s and the employee’s opinions on WHAT they’re paid for in actual fact differ dramatically.

An example would be a permanent employee. Regardless of their position, whether it’s an accountant, a driver or a deputy director. The employer believes that the salary is paid for a high-quality and diligent performance of accountant’s/driver’s/deputy director’s duties. And gets offended, when in 99% of cases there’s neither quality, nor diligence; moreover, duties don’t seem to be performed altogether. Hence is whining about "those dickhead employees", who "don’t wanna work whatever you pay them", etc.

Those employers have no one but themselves to blame.
Fixed salary, when translated into Business-Practical, means that these employees are paid pensions (which has nothing to do with any work at all).
The only thing the employees have to do is to create the impression they are worth while paying. Don’t be rude, make your superiors happy, look useful, don’t be late for work, don’t show up drunk, or simply show up from time to time. Depending on the pension payer’s leniency, some (or even all) of these conditions might be optional.
The fixed salary, which is same as pension, is paid because an employee has the right to it.
What kind of work are you talking about? Any product of pensioner‘s labor is a voluntary and self-sacrificing transfer of earthly goods to the pension payer.

So, if we look at this situation from the right point of view, we’ll see that there are no dickheads (except for the pension payer), on the contrary — everything is absolutely logical and rational.

The employer’s task is to be just such, and not a pension fund at the expense of shareholders. This means that money should be paid in exchange for products of one’s labor.

In the end (we’ll skip a few steps in our line of reasoning to keep it short), we conclude that it’s necessary to build the right kind of a financial incentive program, whereby

  • a) employees receive money for reaching specific (numerically measurable) goals;

  • b) these goals are fully in line with the company’s (shareholders") goals;

  • c) employees fully understand, reaching which goals/figures is required of them;

  • d) employees" rights give them full (or a high degree of) influence over reaching those figures;

  • e) employees fully understand how the final amount of their income is calculated and know, how much they’ll earn upon reaching certain figures.

Once again: we’re talking about the right kind of a financial incentive program. The fact that an abstract company has set up an abstract program, which establishes salary calculation rules for various positions, doesn’t mean anything. If not all of the conditions a) through d) have been met literally, the system would not operate at its best. And the more conditions have not been met — the worse the system operates.

Let’s move on from introductory theory to real experience using the same i-Zet as an example.

Since in conventional business (we don’t consider to be conventional business such things as startup bubbles of sales/users/clicks, as well as efforts to boost in a similar way share prices of companies traded on exchanges; these are just scams with varying degrees of success and more or less good-looking labels) shareholders are seeking profits, it’s obvious that employees" financial incentives should also to a certain extent be linked to profits.

Right.

However, if we rely straightforwardly on profits only, strategic drawbacks of this approach (such as ignoring customer interests in favor of immediate benefit, in reality — money grab, attempts to push services that the customer doesn’t need, etc.) become clear already in the mid-term period.

Consequently, the right financial incentives for employees should include two figures (KPI’s) — a derivative of profit and a derivative of quality, which would leverage the former.

Almost all dia$par business processes are permeated with incentive components. Let’s take as an example service engineers, who are principal business actors in the on-site service model.

Their salary is calculated using the formula, where "the rating" is the derivative of quality (it’s all clear with the profit in this case — it’s simply the profit on orders).
Beside other things the final "rating" is calculated using a special index, which shows the number of completed warranty claim. Such a repetitive inquiry ("my washing machine’s leaking again", "my computer freezes", etc.); is not paid and  moreover significantly lowers  the employee’s rating. When the rating goes down the possibility of getting a profitable order goes down as well — we should remind you that employees with the highest labor quality index are the first to be offered the right to take the order?.
It’s quite logical and rational that an engineer is dedicated to close the issue at once.

But what happens, if, say, a screw-up is fixed by another service engineer? Quite simple. The cost of warranty work is automatically charged to the balance of the screw-up "originator". We should remind you that the customer never pays for a repetitive inquiry.

Let’s have a look at the equipment sales business process. Within the profit sharing plan an engineer receives a percentage of  the profits from sales; the percentage amount correlates with their rating. Quality control and customer feedback, collected both automatically and on the phone?, prevent from pushing expensive unwanted junk to the customer.

Now, the results.
No "fixed salaries", no boss’s pets or corporate corruption.
We’ll also note that shareholders have no reason to complain about "those dickhead employees".

The system rejects dickheads (that is — the real dickheads, whose numbers amount to mere percentage points)– lazybones who screamed that "it won’t work" during implementation, didn’t survive a single week at i-Zet. Good riddance.

Determined and hard-working employees increased their income by 2-2.5 times. Those who are willing to work — do so and make good money. Employees are totally responsible for the amount of money they get.

Such approach results in satisfied customers who recommend the service to their community, which is the best advertising ever. Income growth wasn’t long in coming — net profits grew by 900% over the first 6 months after installation.

Healthy economic relations in any single country a company inevitably lead to enrichment of shareholders and employees as well as customers being happy.
It goes without saying that it all works  if the strategy? is ok.

Being inside dia$par. Some stories
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