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Future Personnel Pay Plans

January 12, 2004

Last Revised:  May 23, 2012 4:50 PM

This issue was originally written in January 2004, since then the need for planning expansion of space has grown and, as yet, little or no changes have been made.  On October 5, 2004, I wrote a simple task to move the large TV in the den so that the den could be, in turn, further changed so as to provide more work spaces.  I'd like to see more planning done for all of the changes suggested in this issue.  It is NOT that these changes need to be implemented, but I would like to see them evaluated as to desirability and scheduling for action.  Peggy will be leaving on her vacation near the end of November and it is certain that neither Bonnie nor I expect to make breakfast, for instance, for all the staff -- nor am I very eager to change the dynamics, further, of the work experience here as to see some sort of "joint effort" to share the cooking and cleaning responsibilities in some way among staff.  The implementation of an incentive pay system gets harder and harder the more people we have working here -- who have signed on expecting a standard salary unaffected by company statistics.

The present circumstance at Vibrant Life is that we have 7 staff members.  The space available is very tight, so it would be difficult to add even one staff member.  We have three people working in Maia's office, three in mine, and Jean in the study.  Theoretically we could add one new person, in my office, but that would be very crowded.

We also have very tight parking on our street.  Our home has about three parking spaces in front, but there are some seven cars (including Peggy's) needing to be parked.  So, we often encroach onto the normal parking space of our neighbors.

We are also operating a business in an area zoned for  residential.

We have been providing a full breakfast for all staff members, four days per week, and that takes at least one full hour of time out of the business day.  I estimate that it costs us about $100 per week for food to provide these breakfasts. (The practice of providing free breakfasts was canceled.)

Finally, we have been following the practice of all staff going to the Spa and a fancy restaurant when we have a particularly high sales week -- the cost of this award is about $600 or more each time.

The above is the "situation" we have, and I believe we need some changes to increase our space and productivity on the job.

The changes involve two areas:

1.  We need and expect to move and that move should include the expectation that we will have a larger space for offices.

2.  I have long-wanted to implement a "unit pay" system with bonuses, and give each staff member a financial incentive for seeing the company stats increase as well as their own personal statistics increase every week.See the actual description of the "unit pay plan" that has been designed.

This second change is planned in outline form here:

1.  I want to take the money we would save by eliminating staff breakfasts and spa awards, and put that into a pot for incentive pay to staff instead.  This is one of the sources for incentive payments.  As sales targets are now set, casually, the "large sales increase target" will become formalized so that approximately $700 is put into the incentive pot for each week that the sales increase meets or beats the weekly target.  I will write separately about these sales targets.

2.  We have been running a very loose ship with regards to hours worked and meals.  For instance we have allowed staff to "skip lunch" or eat lunch "on the fly" at their desks.  The breakfast was originated because I wanted to have staff members who were better fed when they arrived for work.  When and as we stop doing the Company Breakfast, there must be a Company Policy that staff have the personal responsibility for arriving at work, on time, well fed, and well rested.    Staff will function better if they eat well, including lunch.  So, I'd like to see a mandatory one-hour period for lunch.  This could be a lunch brought to work, or the person can go out, but the time for lunch will become a required break.

3.  While it may suit our convenience to have a staff member work unusual hours, and that may still be permitted, the standard hours are from 9 AM to 6 PM, with one hour for lunch. That makes the standard 40 hours of work per week.

4.  There is something called a "CGI Bonus" which would go into the "incentive pot" when earned.

5.  There is something called the "VSD highest ever bonus" which would go into the incentive pot when that is earned.

6.    Staff will now be divided into four categories, based on current hourly pay rate.

A.  Staff earn $10 per hour, or less

B.  Junior executives earn $20 per hour or less

C.  Executives earn more than $20 per hour, currently and includes Maia

D.  Owners include Jean and Karl receive an "owners" pay that is not calculated on the unit system

7.  Staff access to bonuses is also based on the same three categories.

A.  Staff should expect to earn about 80% of their weekly income from guaranteed hourly payments, and about 20% from bonuses.

B.  Junior executives should expect to earn about 60% of their weekly income from guaranteed hourly payments, and about 40% from bonuses.

C.  Executives should expect to earn about 30% of their weekly income from guaranteed payments and about 70% from bonuses.

8.  Changes in current pay?  An "incentive system" should have some risks as well as rewards.   Different categories of staff will be expected to take different amounts of risk.

A.  Staff members should expect a relatively small reduction in their current hourly salary, and should see that the weekly incentive pay they will receive is relatively stable and predictable, even if not spectacular.

B.  Junior executives should expect a larger amount of risk and a related increase in possible weekly incentive pay.

C.  Owners get anything between zero and a lot, since no one guarantees their income.  Executives are in an almost similar category.  Executives should expect a larger amount of risk than a junior executive, and a concomitant increase in the percentage of their weekly income from incentive pay.

9.  Changes in work hours and expectations.

A.  Staff members work their normal 40 hours per week.  While there is no overtime pay for extra hours, the willingness to work extra hours is part of the criteria for promotion to higher levels.  Arrival time and departure time are rather closely monitored for staff members and there is not much room for taking hours off during the day without making up the time.

B.  Junior executives in many outside business firms are "expected" to work, standardly, more than 40 hours per week, at no increase in pay.  Junior executives should normally expect to work about 50 hours per week, putting in extra time on a schedule that suits them, but allows them to contribute in areas that need extra work.

C.  Executives in outside businesses often work 60 hours or more per week.  Generally anyone who starts his own business finds that the 60 hour week is a minimum for success.  Particularly for an executive he or she can "take off" time on almost any schedule and there is no formal "make up" time.  But, there is an expectation of a relatively large amount of time beyond the 40 hour week.

10.  Another change that fits in here is to award some part of the incentive bonus on the basis of a personal statistic.  We don't have personal statistics in place now and there will be some amount of money held back, even placed into a reserve, against the day when each person can agree with a personal production statistic.

11.  In the mean time, the stat called "VSD" or "Value of Service Delivered" has been the most important single statistic in the Company.   That stat, or "CGI" will be the "Company Statistic" that affects the money that goes into the incentive pot each week.  When that stat is down no money goes into the incentive pot.  When that stat is up, even for $1, for the week, there will be some amount of money into the incentive pot.  There is a concept called "conditions" which are not further described here -- other than to say that when the main Company statistic is in the condition of "affluence" or better, there will be a larger amount of money put into the weekly incentive pot.

12.  Pay will be calculated as the standard, guaranteed hourly pay for each person.  Then the bonus incentive money will be totaled and divided by the number of "units" earned by all staff members. 

13.  The "Unit Pay System" presumes that each person gets:

A.  Some number of units for the category of employee -- staff, junior executive and executive.  Probably 30 units for each staff, 50 units for each junior executive and 70 units for each executive, for a preliminary approach.

B.  Some number of units for number of years as an employee.  Probably 2 points for each full year on staff. 

C.  Some number of units based on a personal production statistic, when that is implemented.  Tentatively units will be calculated "as if" they were going to be added to the incentive pot, 10 units for each staff member when the Company Stat is in normal, 20 units (each staff member) when the Company Stat is in affluence, and 30 units when the Company stat is in power.    These units serve to allocate money weekly into the special personal incentive pot.  How much of it is then paid out depends on the personal stats of each person.

D.  If there is a stat for a staff member, then he gets the actual points for HIS condition of normal or for HIS affluence or his condition of  power -- as long as the Company stat is normal or higher.  Units planned for, but where no personal stat has been implemented, or where

E.  Some number of units for completing various training courses -- once earned the units associated with that completion are permanent, as are years and category.  A major training course would add, tentatively, 5 units per week.

14.  There will be some number of units, per the above, for each employee.  There will also be a number of units for the special personal incentive pot.  All of those numbers of units are then added up to get the total number of units.

15.  The amount of money that goes into the weekly incentive pot starts with an amount based on whether the VSD is "normal," or "affluence" or "power."  Each of these conditions calls for a different amount of dollars, either as a percentage of CGI or as a flat amount, to be placed in the incentive pot.

16.  Additionally, money is placed in this pot on the basis of special targets met each week.

17.  The amount of money from savings on the elimination of breakfasts and spa visits will be added, each week, $700, into the incentive pot.

18.  As an illustrative example, let's say that $4,000 is allocated for guaranteed salaries, and $3,000 is allocated for one week of normal VSD statistic, into the incentive pot, and that there are 600 units in total, including some for the personal incentive pot that may not be paid until someone's personal stats are implemented.  With these assumed figures, each unit is "worth" $5.00.

A.  A junior staff member, with no seniority, would get the basic 30 units, or $150 in incentive pay for that week.  Assuming that this person had been earning $10 per hour before implementation of the unit system, and agreed to take a guaranteed pay of $8 per hour, plus new units, the guaranteed pay for this week would be $320.  The incentive bonus would add $150, for a total of $470.  If the incentive system were not in place the person would have received $10 per hour for 40 hours, or a total of $400.  Thus the person earns 32% of his total salary on an incentive bonus basis.  He also earns $70 more because of the unit system than if he were on 100% guaranteed salary.  Normally junior staff members are the least able or willing to engage in a risk for their weekly income. The risk here should be small for any junior staff member, even if the bonus, also, is not huge.

B.  A junior executive, with one year seniority, would get 50 units for his category, 2 units for seniority, making 52 units, or $260 of incentive pay.  Presuming that he had been receiving $15 per hour (assumed average) and gave up 40% to enter into the unit pay system, he would receive $360 of guaranteed pay plus $260 of incentive pay, for a total of $620.  If he had been on just the guaranteed pay he would have received $600.  His bonus is not as large, percentage-wise, as the staff member because, presumably, the "size" of the unit was only $5.00. When the Company stat is in affluence, let's say that $5,000 is allocated to the incentive pot, instead of $3,000, and the unit value would be $10 each. Then this junior executive would get the same $360 of guaranteed pay and $520 of incentive pay, for a total of $880 in that week.

C.  An executive with two years seniority, would get 70 units for his category, 4 units for seniority, making 74 units.  Assuming that he had been receiving $25 per hour, and agreed to take a cut to go into the unit system, he would then be getting a guaranteed pay of 30% or $7.50 per hour, or $300.  His 74 units however, would be worth each $5 each or $10 each, depending, meaning his incentive pay would be $370 or $740 that week.  This means either $670 or $1,040 for the week, compared with the $1,000 if all the salary were guaranteed.

19.  Somewhere there is a proper design to this system that would make it practical and viable.

20.  This would be a good job for an Excel spreadsheet, allowing various assumptions in figures used here.

Karl Loren

 

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