Incentive Pay System For Staff

February 5, 2005

Last Revised: May 23, 2012 4:50 PM

This Policy Is Referenced From Here

Another reference is here

Responsibility for Costs

Viability Depends On This System

The actual Excel Spread Sheet for the Working Model is here

I will be implementing an incentive pay system for staff at Vibrant Life. This Company Policy starts the description of that system. I will be developing this Policy over the time that it takes to test various possibilities.

It has been and continues to be strict Company Policy that any person whose regular (fixed, hourly) pay has been above some certain level (currently set at $15 per hour) is NOT eligible for any pay increase until they accept a position for payment within the Incentive Payment System.

The Incentive Payment System provides for some staff members to participate in the Incentive System to the extent of some PART (percentage) of their then-current salary/wages. That is, within criteria yet to be fully developed, a person at some pay rate, fixed as to a normal 40 hour work week, might be eligible to receive 50% (or some other percentage) of his total pay as a fixed amount, based on the hourly rate he had been receiving, and the other 50% based on the incentive pay system.

For example, a staff member currently receiving $12.00 per hour, for a 40 hour week, or $480 per week, might be allowed to switch over to a new arrangement where he would get $240 per week, representing his pay on the old, fixed basis, and some number of units (presumably about half of what it could get if he were 100% on the incentive pay system) where the value of each unit, each week, could vary as described in the details of the incentive system.

I've spent some time contemplating WHY I might want to implement an incentive pay system for Vibrant Life. The most basic reason I have realized is that it is suppressive act to ask someone to work harder but not pay any more. The other side of that is: "Why should I work harder when I don't get any reward? That is a suppressive system."

In truth I so much agree with that, that I have not ever been happy working for a flat salary, and always wanted to be in my own business -- where the rewards, or losses, depended entirely on me. Oh, when I started my work career I did work for fixed salaries, but I was always expecting that I would get out of that type of fixed income.

As I got older I found that I never wanted to work for someone else -- because I wanted to get the fruits of my own labor.

It has always been natural for me to enjoy my work, and to want to work long hours, with intensity, and to help my group prosper. When you have that attitude, but work for a fixed salary, it is not a fair exchange. When I finally started depending on my own business, where the only one I had to please was a customer, I became free of that slavery.

It may well be that many people do not want that freedom? Is it possible that many people would rather trade security for prosperity? I suppose so!

The low rate of personal saving in the US leads to the common saying, "I am only one paycheck away from bankruptcy." When a person is in this personal financial condition he often prefers the security of slavery over the prosperity of business ownership!" (Source)

With an increase in the social turmoil in our land, and the increased uncertainty about economic futures, it is NOT unusual for a very productive staff member to be stuck into the worry about his personal economic survival that he, without realizing it, trades his security for the slavery of a fixed income. Along with that slavery usually comes the attitude of dependence on others to support his survival regardless of the Company's welfare.

Within the Hubbard Management System there is a concept called the "unit system" or the "proportionate pay plan." In reference to this Mr. Hubbard writes:

Working for a wage is one of the deadlier control mechanisms since it brings about an irresponsibility in the person for his job. Fixed wage is a means of suppressing a person into a slavery class, pegging him at no hope. This mechanism is one of the best modern society has for keeping people down. It is artificial and arbitrary and denies a person the fruits of his labor.

(HCO PL 5 April 1957, "Proportionate Pay Plan Proposal," Page 325, OEC 3.)*

But, as I ponder further I realize that there is one single dividing factor between most very successful business and those which fail -- the passion and intensity with which the company's goal and purposes are felt and by whom are these felt.

In many cases it is only the top guy who has this passion -- in many other cases this passion is engendered throughout the staff. Where companies fail it may well be that the passion has died or never existed among the top executives.

An executive who has a passion for causing the company purposes to be achieved will also see that his own pay SHOULD be based on the group prosperity and his own contribution to that prosperity. If an individual does not have this passion then his job becomes a job for pay and he watches the clock -- feeling that "time" is his contribution. I've written about what motivates someone to work -- here.

Time is never the real value exchanged by an employee with the group -- although, of course, it is obviously almost universally actually acepted as just that. What IS or should be the value exchanged by the individual with the group is the contribution to the success of the group. A clock-watcher can never be a successful business owner, or in my mind, an Executive Director of any company.

People do not work harder because the pay is better -- they work harder because they have a passion for the purposes of the company. I've written about those purposes here. If you are reading this, do not fail to (again) read these purposes. If they are not YOUR passion, then you do not belong here as a top executive.

I laid this out in a Company Policy on "Executive Makeup," but found that I had become reasonable in expecting Vibrant Life staff to share my passion. I should not be surprised, I guess, but I have been surprised at the rarity of this viewpoint.

The Policy, "Executive Makeup" includes a link reference to essays on "fire in the belly" which describe what I think is needed. Executives, or staff, who have fire in the belly do not want to get paid by the hour, but rather by the success of their company and the value of their contribution to that success.

I will continue to employ those people who started working on a simple flat salary, so much per hour, but there will be no increases in pay, nor any promotions of anyone, nor any new hires who do not agree to some form of the incentive pay system. I tried the fixed salary approach and found that it did not bring success to the Company and it is time I made this change.

For these people with fire in the belly an incentive pay system is made to order. For the clock-watcher, the incentive pay system is a "fear to behold!"

When and as you design an incentive pay system there are certain factors that should enter in.

I outline them here.

Pay Rates Elsewhere

It may be possible to design an incentive system that, in final application, pays so much, or so little, that it is out of touch with commercial reality. The first question an incentive pay system should answer is "what share of company income should go for the staff, for research, for product/inventory replacement, what share for owners and what share for internal use for promotion and expansion?"

Vibrant Life is a "retail establishment." We do not "manufacture" our products -- they are manufactured elsewhere. We design the products (formulas) but they are made in a couple laboratories. Pay rates in the retail trade have, historically, NOT been as high as in, for instance, the manufacturing sector.

A "retail establishment" is an entity that sells some product to the final user -- for consumption, not for further manufacturing use or resale. Food stores and clothing stores are simple examples. The fact that our customers find us on the internet rather than in a "bricks and mortar" building does not change the fact that we are "retailers."

Let me start with some simple context for earnings nationally and in the retail trade:

Based on the results of the National Compensation Survey, hourly earnings of all workers in private industry and State and local governments averaged $15.36 in 1999; average earnings varied considerably by industry and occupational group, ranging from $33.26 per hour for executive, administrative, and managerial workers in mining to $6.49 for service workers in retail trade. (Source)

More recent statistics are not available in the same full detail, but the summary data is as follows, from the same BLS source:

Bureau of Labor Statistics
August 2004
Summary 04-03
Earnings averaged $17.75 per hour in July 2003 for private industry and State and local government workers in the United States. (Source)

The above paragraphs, and the further data at the "source" come from the respected Bureau of Labor Statistics. According to their analysis the average pay of all people working in the US Economy, in 1999, was $15.36 per hour. A more recent figure pegs this income at $17.75 per hour, an increase of $2.39 per hour in a four-year period.

Within those figures the "retail trade" sector (1999) showed all the various occupations averaged 63% of the average US wage, or $9.68. Within the "retail trade" the wages varied by occupation, as they do in every industry, with "Executive, administrative and management" earning an average of 133% of the average US wage, or $20.42 per hour. The lowest paid occupation in the retail trade was in the "food service" category where wages were only 41% of the national average of all wages, or $6.30 per hour.

For those who aspire to be in the "Executive, administrative and management" sector of any industry, the highest pay was in the Mining industry, at 217% of the average national wage, while the lowest pay (133% of national average) for that category was in the very retail trade sector in which we find ourselves -- Vibrant Life.

The "spread" from the highest to the lowest pay rates in any one industry are shown on a table in the above reference. This "spread" however, is based on averages for those different occupations. When you look at the highest salary in any one company, and also at the lowest salary, you get a different view of "spread."

Another Bureau of Labor Statistics Report shows:

Top executives are among the highest paid workers; however, long hours, considerable travel, and intense pressure to succeed are common.

The formal education and experience of top executives varies as widely as the nature of their responsibilities.

Keen competition is expected because the prestige and high pay attract a large number of qualified applicants.

All organizations have specific goals and objectives that they strive to meet. Top executives devise strategies and formulate policies to ensure that these objectives are met. Although they have a wide range of titles—such as chief executive officer, chief operating officer, board chair, president, vice president, school superintendent, county administrator, or tax commissioner—all formulate policies and direct the operations of businesses and corporations, nonprofit institutions, governments, and other organizations.

Median annual earnings of chief executives in 2002 were $126,260. (Source)

If we use the figure of $126,000 of the highest paid executive in an average company, and use the average lowest wage in the retail trade sector, or $9.68 per hour, or $400 per week, or about $20,000 per year, then the "spread" from the top to the bottom is not much different from 6 to one. That is, the top executive earns about six times as much as the lowest paid employee. It is also clear that the top executive, generally in all industries, works far more than 40 hours per week.

It is also true that the single top executive (usually CEO) typically makes quite a bit more money than the several executives and managers that might be on the next lower levels of management, below the CEO. The same BLS figures show

Median annual earnings of general and operations managers in 2002 were $68,210. The middle 50 percent earned between $45,720 and $104,970. Because the specific responsibilities of general and operations managers vary significantly within industries, earnings also tend to vary considerably. (source)

Thus the averages suggest that the top executive might earn about double the general range of other executives and managers in an average company. It is easy to deceive with false statistics and often done by people who have some political agenda -- hidden or not. Here is a typical deceitful news item from an admitted ultra-liberal paper -- never revealing where they get their statistics from:

In 1980, CEOs made 42 times the pay of average factory workers. In 1990, they made 85 times as much. By 1999, CEOs made 475 times as much as workers. How big a gap will we tolerate? (Source)

When the CEO is also the OWNER of a company, the salaries tend to be larger and/or additional drawings are accounted for as dividends or "partner's shares," etc. Since most "owner-operated" business are also small, they often file tax returns that do not allow for simple statistical measurements. Tax considerations are usually primary for the method by which these small owner-operated firms declare various forms of income to "owner-operator."

The Form Of The Incentive System

The system which I will be implementing is called the "unit pay system."

In this system each person, from the top executive to the lowest level staff member is "paid in units" not dollars. The value of one unit varies from week to week depending on the income of the company for that week.

Say the system and the firm have employees who hold a total of 465 "units." Some staff have 30 units per week, others might have 50 units. The number of units varies. The value of each unit is calculated by some simple formula each week. For instance the management can figure that 10% of the gross income each week should be used to pay all salaries.

However the total salaries are figured, the formula should be one that the staff can see changing on an hourly basis. Gross Income from sales that arrive by mail, or eMail, or phone, can change virtually every hour of a 24-hour day. The statistics on Gross Income can be measured as often as someone wants to push a computer button -- and print out the current report. (Vibrant Life has just this type of current statistical reporting in place.)

As in this example, if the gross income happens to be $46,500.00 for one week, then the amount of money allocated for salaries, 10%, would be $4,650.00. Since there are 465 "units" in existence, each unit is then worth $10.00 for that week.

A person who is paid "50 units" would receive $500.00 in pay for that week.

A person who is paid "120 units" would receive $1,200 in pay for that week.

Compare this system with the typical corporation where the CEO, and the lowest employee EACH make the same salary every week, regardless of the condition of the organization. It is not surprising that particularly in these typical corporations the lowest employee has no great interest in the affairs of the company -- he gets paid the same regardless. Typically a CEO can expect annual bonuses or other adjustments in his income, depending on the prosperity of the company.

In line with the "spread" mentioned above, the Executive Director of Vibrant Life would receive six times as many units as the lowest level staff member. The value of that "unit" would vary, but the incentive, then, is the same for ALL staff, including the Executive Director. The ED earnings depend just as much on company success as the lowest staff member.

The "number" of units that are used to construct such a system is a simple arbitrary -- we can use "120 units" for the ED, and using the spread mentioned, the lowest staff position would have a weekly pay measured as "20 units." The number of units awarded to various other positions would depend on how much responsibility they are taking for what portion of the organization.

The ED could earn 1,200 units and the lowest staff member would earn 200 units. The actual numbers are an arbitrary -- but the relationship among them, and what position earns what rate -- these are significant.

Following the Hubbard Management System, we recognize that the top position as the ED, Executive Director, and allocate to that position 120 units of pay.

Below that level are various titles, comparable to Vice Presidents in many companies. In accordance with the spread between top and next to the top, the unit pay rates at this next lower level would be 60 units.

When a new person is hired, the number of pay units assigned to his position are created for him -- adding to the total of all units in existence. (This obviously reduces the value of each unit since there is one total of "salary sum" divided by the number of units in place. When that number of units is increased, if the salary sum remains the same, then the value per unit goes down.

This is one of the intended consequences of the "unit system." Every staff member can and should have an opinion of the value to the Company of a new hire. Each staff member "gives up" some part of his salary in order to hire a new person, and will certainly want to be sure that the new person soon contributes MORE to the income of the Company than his new unit pay costs.

Likewise, when some staff member leaves, for any reason, the units he had been assigned are "retired" -- they are subtracted from the total of all units in use. This means that every staff member will have an increased salary -- since there are now fewer pay units dividing into the same amount of "salary sum." Obviously, the staff again have a great interest in this -- they would have an opinion of whether the person who left was contributing value to the Company in excess of the cost of his salary.

This "effect" on each staff member is, in fact, one of the main values and purposes of this type of pay system. The intention here is to make EVERY staff member have the viewpoint of an "owner" who judges every person in the Company as to whether that person contributes MORE or LESS than the cost of his pay. This internal pressure among staff members is deliberate -- no longer can a staff member just ignore the poor performance of one of his colleagues. That poor performance means lower pay for the other staff members. Likewise, each staff member can look around, make judgments and have an opinion on whether some particular staff member is SO valuable to the Company that he increases the pay of each person.

Managers or executives who hire, or fire, or train, or don't train, staff members no longer do this without every other staff member judging the action of the executive. Each person is an "owner" in this system.

Lower level managers of smaller departments and sections, particularly where there are few staff to be supervised, would receive unit pay ranging from 20 to 60 units. The lowest full-time, non-temporary worker would get 20 units as a starting pay. Perhaps there will be a "trial period" when a person gets some different method of pay.

A more formal description of the names given to different "units" within the Company is HERE.

Highly specialized technical staff members may not have an "executive" title, but because of their special skills may still be paid the number of units of an executive -- about 50 or 60 units in individual and highly skilled cases.

(Since any executive level staff is expected to work more than the usual 40 hours per week, a technical staff member who would be on a 50 unit basis, is still expected to work those extra hours. If he works "one half time" the actual hours would still be more than 50% of the usual 40-hour week. This necessity for executives working extra hours is common in industry, and is covered in a Policy HERE.

A person who works "extra hours" in the day does NOT get more units because of this. Units are awarded by the type of position, not hours.

A "part-time" person could get the number of units that relate to the percentage of a normal week and related to his position.

If "one unit" is worth $10.00 in a particular week, then some staff who is earning 20 units would receive $200. It would be possible also, particularly for the lower level staff, to provide a guaranteed minimum, plus units. Thus a lower level staff member could receive a "Base Pay" of $400 per week plus 5 units or 10 units as an incentive pay. When the units are worth $10 in some particular week, this person's pay would be $400 base pay and $100 incentive pay.

If the value of a unit fell to only $2 in one week, then this person's pay would be the $400 base pay plus $20 incentive pay.

Obviously, if the unit is worth $30 in a particular week, then this person would receive $400 base pay and $300 more of incentive pay.

The general rule is that guaranteed salaries represent more of their source of income for the lower level staff, and much less of the likely source of income of an executive. The thrust here is to give every staff member a feeling of the "owner's motivation." After all, the owner has no one guaranteeing HIS income, but of course he also stands to make the "big bucks." How much risk a person takes is measured by what percentage of his total pay is determined by the incentive percentage and how little risk he takes is measured by the percentage of fixed or guaranteed pay.

For instance, a "Vice President" may have a guaranteed salary of $400 per week. If he were willing to be on a total incentive pay basis, and had the position worthy of 50 units, he would NOT get the 50 units along with any guaranteed pay. He might get his $400 base pay, guaranteed, and 20 units (or 10?) of incentive pay (rather than 50 units). When the unit is worth $10 one week, this person would get the $400 of base pay plus $200 of incentive pay. When the unit is worth $30 in one week, this person would get $400 of base pay plus $600 of incentive pay, or total of $1,000.

Should this same "Vice President" be willing to move to a "pure incentive" pay arrangement, with no guaranteed weekly salary, he would, presumably then be "earning 50 units" per week. The relationship between some amount of fixed pay and some incentive pay would vary depending on the position -- and will depend on my further examination of various choices for these decisions -- choices that can be inserted into the Excel program so I can easily judge the results of various combinations.

When the unit was worth $10 one week, his income for that week would be only $500, all incentive pay, but when the unit was worth $30 in some week, his income for that week would be $1,500.

Before any staff member could be comfortable with such a pay system, based on units, he might well want to examine carefully what a unit was worth in various past weeks -- so he could feel good about predicting the likely future incentive pay. Obviously, this system places the high incentive to make the Company successful.

I have an "Excel spread sheet" program (LINK at top of page) into which various levels of company income can be inserted, and various different numbers for units and criteria for awarding units based on some form or another of performance, or merit. When this Excel program is fully statisticized any staff member can see the various changes that would happen to HIM under different levels of Company performance, and based on the other criteria that adjust the units or how they are figured.

The number of units can be adjusted weekly

Generally each different staff position is allocated the number of "units" considered to be "right" for that position. This decision is not much different from the decision on what should be a person's pay in dollars per hour -- guaranteed. However, in most organizations the hourly pay for each person is considered private and confidential. Only the owner knows! However, in this system EVERYONE knows the pay of everyone else -- there are no private or secret deals.

Everyone is an owner and should have an owner's attitude.

The great bulk of pay system in the US provide for increases based on seniority only. If the person has worked on the job for three years he is said to "deserve a raise" without regard to the health of the company or the contribution of the staff member.

In fact this is notoriously true about teachers' pay:

The new contract includes "step increases" that move teachers up the pay scale based on seniority. This fall, lower-ranked teachers will move up one step, a salary increase of 3.14 percent, while top-paid teachers will get a 3 percent raise. (Source)

In recent years the absurdity of automatic raises based only on seniority have been questioned increasingly. Over the recent past many thoughtful academic papers have been presented on "merit pay:"

This book is about a total compensation solution, or what used to be called pay and
benefits. The total compensation solution is based on a rethinking of employee
compensation and investment systems into an employee-driven system I call cafeteria
compensation. It is the new "new pay."

Compensation thinkers have been raising questions about the structure of existing (and
often rigid) pay systems for some time. In 1971, Ed Lawler-way ahead of his time introduced the then-shocking idea of linking pay and organizational development, in a
book of that title.1 W. Edwards Deming pointed to the random nature of the relationship between pay and performance in Out of the Crisis (1982).2 Lawler scored again in 1990 with his classic Strategic Pay: Aligning Organizational Strategies and Pay Systems.3 And in 1992, Jay Schuster and Patricia Zingheim introduced the concept of new pay in another book (with a foreword by-you guessed it-Ed Lawler!).4

. . .

Employers often realize that old pay creates entitlement, cap-out, motivational, and
annuitization problems. But like runners with stones in their shoes, they can't seem to
find time to stop and change the situation. However, the story does not end there. Old
pay systems drive some more general problems for employers that compound the initial
set. Compensation systems are supposed to attract, retain, and motivate employees. Most pay systems fail on this larger count. Many current pay systems give the wrong message. Their very structure communicates messages that are at variance with the publicly expressed wishes and commitments of executives and the corporation. The system itself fails to walk the talk. It is hard to attract and retain when the gap between pronouncement and practice is large.

.. .

Here is something I studied at the Harvard Business School some forty-five years ago -- it has still not affected much of business!

2. Theory Y. One of the most famous distinctions in management is that between Theory X and Theory Y.11 Theory X refers to a belief that workers do not want to work and that an employer therefore needs a reward and punishment system (very much like that used in animal training) to assure that workers show up and shape up. Part of Theory X is the notion of "span of control," the idea that the number of workers a supervisor can supervise is about five. Each worker has to be closely watched. And the watchers have to be watched. You can see how this produces a tall pyramid with a narrow base and many levels. Part of the organizational structure that is now passing was driven "by the numbers."

Theory Y argues that that workers want to work and get satisfaction out of doing a good job. The job of the organization is not to control the worker but to provide resources so the worker can get the job done. Theory Y is the one needed for today's flatter, more self-directed organizations. This theory replaces span of control (n = 5) with "span of communication." Managers do not check on workers; workers check in with managers when there is a problem.

The problem is that we continue to have a Theory X mind-set in a Theory Y
environment. Old compensation systems are still, in many ways, driven by Theory X
thinking. No wonder they hold back change and diminish the organization's productivity.

...

There are many changes on the horizon. Phrases like variable pay, flattening base,
cafeteria benefits, opportunities for growth, and psychic income are common. Pay
programs go by various names such as nontraditional rewards, alternative reward
strategies, and contemporary pay. (Source)

There are powerful movements afoot, for instance, to change the method that teachers have been given raises -- almost all currently based on seniority without any regard to the merit of their performance. These powerful movements are meeting drastic resistance -- by teachers and teacher unions who are sabotaging our future and our children's education. Eventually these obstacles will be cleared away.

"I propose that teacher pay be tied to merit, not tenure," Schwarzenegger said. "And I propose that teacher employment be tied to performance, not to just showing up."

That proposal immediately drew harsh criticism from union leaders, who warned that such a plan would trigger an all-out fight between the governor and unions, and from some administrators who consider the plan untenable and far too costly. (Source)

Any merit type, or incentive type, pay that has hidden criteria loses almost any value as a management tool. After all, this system makes each staff member take the viewpoint of an owner -- and he can and should have an opinion about the "fairness" of not only his but EVERY person's pay status. The system by which merit pay is earned must be transparent -- open to all staff to observe. If you feel that your "work" is five times more valuable than "Joe's work," but see that he is earning twice as much income as you, on the incentive system, then you will not be happy!

School administrators are generally opposed to merit pay for different reasons. The main one is that administrative evaluations will inevitably be scrutinized carefully by teachers who do not receive merit pay. This is not something administrators look forward to, especially since it's always possible to criticize the criteria or the applications of the criteria for merit pay. However, to avoid criticism, most administrators blame the teacher unions for the absence of merit pay. Their hypocrisy is easily observed; check the last time your school administration proposed merit pay in negotiations on the union contract.

Even if teachers, teacher unions, and school management agreed that merit pay was a good idea in principle, the problems of implementing the idea would be difficult to resolve. To cite just one problem, how can we compare merit among teachers of different subjects and grade levels? With the best will in the world, different interests will lead to differences of opinion on this issue. (source)

Any time some objective method is proposed for judging teacher merit, someone finds a reason to shoot it down. This will continue until teachers and teacher unions are replaced by those who truly care about merit and performance.

Units Influenced By Company Condition

The Hubbard Management System is often called a "system of management based on statistics." This is a valid description. One of the most brilliant aspects of the Hubbard Management System is the identification of many standard measurements of the success of an organization -- and also the connection with various measures of that success (or lack of success) to methods of handling each type of measure so as to cause expansion of the group.

When statistics go UP the pay goes up. When statistics go down the pay goes down. Each person's pay is treated as the very owner he is! When and as he disagrees with some management decision, he can and should have a means of voicing his opinion and having it listened to. This procedure must be added to the unit pay system -- it consists of a method of allowed written (not verbal) queries of management decisions.

This is NOT a democracy where each staff member can vote on Company Policies, but it is a system where each staff member can have his voice heard.

Thus, one obvious statistic to measure would be the "Gross Income" of the group. There are many well-proven measurements which Vibrant Life has been using for many years, and many other measurements that will be implemented as we are moving along. In fact when a system such as this is in place, you'll find that staff members DEMAND that training is provided and job descriptions are formalized. Most of all, each staff will have an interest in what "personal statistic" will be used to measure his personal contribution to the group.

In fact one of the main statistics that reflects the health of the entire Company is called the "Value of Service Delivered" and is defined HERE.

The "VSD" will be used to evaluate the "condition" of the Company from week to week. Without getting into all those various conditions, when the statistic gets better, there could then be MORE money allocated to the total of money allocated to salary.

When and as the condition of the Company, for one week, worsens compared to the previous week, less than the normal allocation to salaries could be made.

Let's say that the "normal allocation" of "Gross Income" to the salary total for all staff would be 18%. When the condition of the Company is "normal" the "normal" allocation would be made. If the condition of the Company is quite a bit lower than "normal" some LOWER percentage of the Gross Income would usually be allocated to salaries. Likewise, when the condition of the Company is quite a bit higher than normal for one week, there could be a higher than normal percentage of the Gross Income allocated for salaries.

This same procedure would also be applied to the statistics used to measure INDIVIDUAL performance. The careful planning of an integrated set of individual statistics is one of the most important jobs of management. For instance, management may decide that one of the important jobs of the Company is that someone should be in charge of sending out 2,000 personal letters per week (with increases every week). If the target is set for "2,000 letters sent out in a week" and the actual production is 3,000 letters, the person responsible for getting that production done that week would be in a PERSONAL condition higher than normal.

In fact the "condition" is based on actual week-to-week statistics not targets set. A special bonus (extra units) could be awarded to a staff member who achieves some target set by the ED. Even if he does not meet the target, his statistic could still be "up" and his "condition" higher than normal, and thus the number of his units increased because of that increase.

If his normal number of staff units is 20 for his position, he might get an extra 4 units every time his personal statistic is up significantly. He might also get a subtraction of 4 units every time his personal statistic is down significantly.

Each of these various conditions, and formulas, must be well described in advance, and understood by each person -- he must understand them well enough to accept them.

There could be a "double whammy" when the statistics of the Company, on a whole, are up significantly, making extra money to be allocated to total salaries, AND a person's personal statistics are also up significantly, he could get more of an increase for that week than if just one or the other improvement took place.

Many places in this Policy the unit system is described as "maybe" it could have some certain characteristic. The final form of this system will depend on my finishing the Excel spread sheet program and testing each of the many variables in the crucible of reality. Also, each staff member who is invited to take part in this unit system needs to see this Excel program in action -- to see how HIS and any other person's income is affected by various factors.

Training Also Affects The Number Of Units For A Person

Within the Hubbard Management System "training" is referred to as "hatting." This word comes from the early use of the word "hat" in the locomotives -- where the engineer would wear a different type of hat from the fireman.

Each "hat" in our Company is worn by some staff member. Each hat must have a compilation of written Policies and other references that completely describe HOW that job is to be done.

A man working in the coal mine would wear a "miner's hat' and be easily distinguished by most people as to his job. So, in Vibrant Life each staff member must have a written hat. He must study this hat and that "study" is the "hatting" he receives. When this hatting if formalized into a "study course" and the staff member "takes" that course, he is getting hatting and his unit pay can be increased because of the hatting he has done.

Some forms of training, such as in computer programming, will utilize training courses created by others -- outside the Company. Other forms of training will often depend mostly or entirely on the very Company Policies such as this one you are reading.

Training is the key to any worker's future prosperity. This nation is turning into a "two-tier" labor market -- where a large segment of the society fails (is unwilling) to be trained:

In a state long known for its poverty, this region is growing fast -- but some are being left behind. As in some other parts of the U.S., a two-tiered labor market is emerging in Northwest Arkansas, with a well-paying rung for college-educated workers and a much lower rung for those with less education or outdated skills.

And many of the best jobs are going to newcomers, not to native Arkansans.

Source

The level of "hatting" that will affect a person's unit pay will be called "fully hatted" where the person has studied all the various courses designated for his position. The mechanic is simple: A fully hatted staff member simply receives some EXTRA units, in addition to his basic allocation, to represent the fact that he has done these courses. Much of the training that will bring extra units will be about health, vitamins, or any of the subjects Karl writes about.

Seniority Has Some Value

Earlier in this Company Policy I wrote very derogatorily about using "seniority" as the only criteria for pay increases.

However, seniority DOES have a role to play within the unit pay system.

Generally each person has a basic designation of pay units -- corresponding to his position.

The number of units in any one week can be increased or decreased based on the "condition" of either the Company, or his "personal" statistics.

Generally an adjustment to his units based on training would be permanent -- until he gets a new or additional job responsibilities.

So it is with "seniority." Seniority is not a HUGE factor affecting your number of units, but there is something valuable about a person's having been around for some years. So, there is an adjustment to staff units based on their individual seniority in the Company.

Guaranteed Versus Incentive Pay

I have alluded to fixed or guaranteed pay for staff members. Generally any NEW pay increases, and any new hires, will involve SOME level of incentive pay. The top executives are expected to have their pay based 100% on the unit pay system -- with no guaranteed salary. This means they have the complete owner's viewpoint.

However, a brand new person, perhaps even hired as a part time or temporary staff can take a position where his income is 100% guaranteed.

In between these two positions there is a range of opportunities to make SOME part of a person's income based on a fixed wage (so many dollars per hour) and ANOTHER part of the person's income based on the unit system.

I do not expect to force any current staff to accept the unit pay system immediately. Thus while each staff member is expected to have some participation in the unit pay system, on an individual basis I will implement this gradually.

However, acceptance of some form of incentive pay (either 100% or partial) is the requirement for any increases in pay or promotions in responsibility. Likewise, any executive who declines to take a owner's viewpoint, reflected by accepting some amount of or total incentive pay will be placed on a "time schedule" to switch over to the level of pure incentive appropriate for that executive position.

Amount of Money Allocated To The "Salary Sum"

Each week there is a "financial planning" activity that starts with the "gross income" of the Company and makes certain adjustments to arrive at a figure of "Corrected Gross Income."

Each of these terms, and others, are defined by Company Policy -- hit the link.

The amount of money allocated for staff salaries is called the "salary sum" and it starts off, each week, as a fixed percentage of the Corrected Gross Income. That fixed percentage, however, can be adjusted upwards or downwards depending on the overall condition of the Company. It is this percentage which must (eventually) fit within the "20% rule" I've described HERE.

The final figures are not yet set -- but we might well start with a percentage of 18% of CGI for the Salary Sum, and increase that to 19% when the Condition of the Company is in "Affluence" and to 20% when the condition of the Company is in "Power." When the Condition of the Company is lower than Normal, the percentage allocated to salaries would be lower than 18%. These terms, or conditions are explained elsewhere. As in the case of other final details, I will want to test out various percentages when the Excel program can combine ALL these criteria with the actual CGI for some previous period of time.

The amount of money allocated for the Salary Sum is then calculated, weekly, by the "Financial Planning" person. That amount is then divided up by the total number of "units" that are active for that week.

"Active" units include some that are fixed for the individual, such as his units based on his position, seniority, even training. However, some units for each staff member will depend on his personal statistics. Obviously if a person does not have a hat to study, or a "personal statistic" he could not receive the adjustment based on these factors.

Again you can see that this incentive system works to make each staff member take on the owner's viewpoint -- and be very interested in the success of the Company and also very interested in the contribution of each other staff member.

That is why I have felt that the changes needed to boom the success of this Company need the application of this management tool -- the "incentive pay system" based on the "unit system" described in this Company Policy.

Group Enforcement Of Group Morals

A vital part of the Hubbard Management System is the concept of individual staff responsibility for the ethical behavior of every other staff member.

I have seen, too often, the case where some staff member personally observes another staff member behaving in an unethical or unproductive way.

Bill arrives at work so sleepy that he cannot function well. Mary, staff member, observes this and realizes that Bill's poor performance is likely to affect her personal income on the incentive system -- since Bill may well cause a reduction in some important statistic by his arriving at work in violation of the Company Policy that covers this, HERE.

In fact this internal, group enforcement of Company Policy is so vital to the success of any group that we operate on the policy that a person who observes some improper activity and FAILS to report it is just as guilty as the person behaving in the non-optimum way.

This may take some "getting used to" by staff who come to us from the "outside world" where people have the consideration that "it's not OK to 'snitch' on another." Even the laws, however, hold to the same standard which we will implement.

Various laws in various jurisdictions have long held that it is a crime to fail to report a crime. The following section is from another web site I have published, on morals:

Prosecute failure to report rape

Pretoria - Anyone who does not immediately report cases of rape, abuse or molestation to the police should be prosecuted, anti-violence lobby groups said on Thursday.

Requiring the reporting of school crime

Reliable statistical information is necessary for a clear picture of the safety of America’s schools. Therefore, safeguards to ensure compliance with provisions requiring the reporting of school crime must be in place.

When You Suspect Child Abuse or Neglect: A General Guide

Anyone "having cause to believe that a child's physical or mental health or welfare has been or may be adversely affected by abuse or neglect" MUST report the case immediately to a state or local law enforcement agency or the Texas Department of Protective and Regulatory Services (TDPRS).

The ‘hue and cry’ system worked because there was also a system of community fines

So if a member of a tything [a communal group] committed a crime, others had to catch the offender and bring him (or her) to court. Failure to do so resulted in a collective fine. And there was a responsibility of “hue and cry” if anyone actually witnessed a crime being committed. The “hue” part meant things like sounding horns. The “cry” part was verbal shouts. When a hue and cry was raised, everyone between the ages of 12 and 60 had to join in the chase to catch the criminal. The Normans (1066 to 1485 AD) retained this idea and the statute of Winchester was England’s first Police Act. Other than hue and cry, inhabitants of a region were also responsible for crimes committed within that region.

The Hubbard Management System includes this reference:

To live at all one has to exert some control over his equals as well as his juniors and (believe it or not) his superiors.

When misconduct and out-ethics is occurring in a group, it is almost impossible for other members of the group not to know of it. At least some of them are aware of the outness.

When a group has down stats, it is not true that all of them are trying to fail. Only a few are dedicated to not doing their jobs.

The question one can ask of any group that is not doing well is this: Why did the other group members tolerate and ignore the loafers or out-ethics cats in it?

In analyzing countless numbers of groups with whom it has been my good fortune -- or misfortune - to be associated, I finally isolated ONE factor which made an upstat group upstat and a downstat group downstat and a horror to be around.

The single most notable difference between an upstat, easy-to-live-and-work-with group and a downstat, hard-to-live-and-work-with group is that the individual group members themselves enforce the action and mores of the group.

That is the difference -- no other.

In an upstat group, at the first pinprick Joe would probably have a black eye!

In a downstat group Joe could go on and on with his pins, each group member watching and shrugging.

In a group where members have some concept of controlling their environment and their fellows, you don't have loafers or out-ethics cats. Because the rest of the group, on an individual basis, just won't tolerate it.

Those who would have a tendency to wreak havoc or loaf don't dare. And the group becomes easy to live with and work with.

It is not whether the group individuals should be preselected or carefully made ethical by some process or inspired leadership or a separate police force. It is whether the group members themselves exert any control on each other.

One can say, "Oh well! If I reported the Reg [a "Reg" is a "registrar" or sales person] violating policy, the ED would fire me -- she is his wife!" One can say, "If I complain they won't let me wear my hat, they'll comm ev [a "comm ev" is a group justice action] me for third party actions." If such conditions prevail, the group has already lost the group ability to control the environment -- and they will be downstat. Their pay will be low -- their working conditions rotten.

Do we have a mechanism to prevent this?

Yes, we do.

It is called Knowledge Reports.

....

1. Anyone who knew of a loafing or destructive or off-policy or out-ethics action and WHO DID NOT FILE A KNOWLEDGE REPORT becomes an ACCESSORY in any justice action taken thereafter.

...

IT IS A FAILURE OF THE INDIVIDUAL GROUP MEMBERS TO CONTROL THEIR FELLOWS THAT MAKES A GROUP HARD FOR ALL TO LIVE AND WORK WITH.

(HCO Policy Letter of 22 July 1982, "Knowledge Reports," page 617, OEC Vol. 0)*

Mr. Hubbard then goes on to describe more of the types of actions that might be taken in reference to any group member who observes something "not right" and fails to report it.

When each member of the group has the viewpoint of an owner it is rather likely that they will observe and report on, or try to correct, the off-policy activity. Implementation of the unit pay system helps people adopt the viewpoint of an owner.

He who sees the improper deed MUST report it, or be held just as responsible for the deed as the person who does it!

It is this internal, self-enforcing of Company Policies and individual behavior that makes this system, the unit system, finally able to succeed in bringing about the "owner's viewpoint" in each staff member. Many years ago, long before I had heard of Mr. Hubbard, I had this sense of obligation to report wrong-doing, and am pleased, NOW, that I was fired because I did just that!

I was living in the Philippines, working as the Executive Vice President of a large transportation company -- Delgado Brothers Transportation.

We had about 5,000 employees, including the longshoremen who are responsible for unloading ships. I was the top executive, reporting to the two brothers who were the owners.

They each had one eldest son who had received an MBA degree in the US, as did I. These two "boys" were yet young and I was half-way between the youngsters and their fathers with my age. The fathers believed that I would be a good transition from their old style of management to the new stuff being taught in Business Schools, so they figured I was just the right man to run the company and train the two young men.

I had 9 Vice Presidents reporting to me. Big deal. High salary.

I gradually learned about this business, including the complexities of how ocean freighters are handled in assignment of time and space for docking, and men scheduled for the loading and unloading procedures.

I accidentally learned something that greatly disturbed me! Here is the background.

A ship coming into dock may have daily operating costs of $5,000 -- for fuel and pay. They often have to wait, in the harbor, at anchor, for several days until a docking space is assigned.

Delgado had just such people who assigned space and work crews.

I was fired from that job because I reported to his father that one of the sons was taking bribes from ship captains for giving them preferential docking schedules. It is a very wide-spread custom -- the ship owners are willing to pay the bribes so the dock authority deliberately arranges things so that the people in charge of schedules can use extortion to collect bribes and then share them with their seniors. I saw this with my own eyes.

It was such a surprise to me that I never even considered that this bribe was the custom -- not the exception.

The owner's son was doing exactly that -- when I reported the bribe to his father I was fired. I was not only fired, but they assigned one of their armed guards to stand at the exit and make sure I didn't take anything with me when I left, and to prevent me from returning.

That company is no longer in business -- yet it was, back when I worked there, a multi-million dollar company with more than 5,000 employees. It was the Delgado Transportation Company and the owners also owned the Hilton Hotel in Manila -- they were rich and famous. They are now out of business.

Corruption of this sort MUST be known to hundreds of others in and around the Company. It is such a usual thing that it is NOT considered immoral.

I was violating THEIR moral code!

At the time I didn't think it was so wonderful to be fired for "being moral" but the termination was a tremendous blessing for me.

Consider if I had fallen into that cultural corruption and decided to stick with the Company, take my share of bribes. Where would I be after 10 more years of such rotting away of my soul?

"Reports" as described here, about another staff member, must follow the formal Policy I will be publishing, but these reports include a requirement that the person who writes the report must give a copy to the person being reported on.

There are no secret accusations here!

Obstacles To Seeking The Prosperity Of Business Ownership

At the top of the page I quoted:

The low rate of personal saving in the US leads to the common saying, "I am only one paycheck away from bankruptcy." When a person is in this personal financial condition he often prefers the security of slavery over the prosperity of business ownership!" (source)

"We no longer do any saving," Volker warned at a recent conference in New York. "We can no longer ignore this underlying problem in the U.S. economy." Volker noted that federal statistics show U.S. personal savings rates are now in negative territory. And while debates can rage over what is the proper way to measure savings—the government, for instance, doesn’t measure equity in a home as part of the savings equation—there is little doubt that bad fiscal and monetary policies feed a stock-market bubble that eventually leads to wild speculation.

(source)

One of the common sadnesses of any employer or parent is to set up a true savings account for someone, and watch that person dip into savings for candy, run out of savings, and feel forced to keep working in a dead-beat job, or fear an incentive pay system because they have no "cushion" of personal savings to help them avoid bankruptcy from ten cents less in the pay check!

I once set up a personal savings account where the person was invited to "save" $100 per week out of her current standard of living and I would match that savings with another $100. The offer was made contingent on the savings NEVER being used for any emergency. For if you plan for emergencies they will happen!

After the savings account had accumulated thousands of dollars, the child just decided that the original offer was something different than I intended and took all the money out for what it was never intended.

Such people will fear the incentive pay system described on this page.

Mr. Hubbard wrote this:

Spend less than you make.

....

Refuse to spend reserves. Make more money to meet the emergency instead.

....

Gather bit by bit a cushion of cash to fall back on and don't ever fall back on it.

HCO PL 28 January 1965, "How to Maintain Credit Standing and Solvency," Page 245, OEC Vol 3.*

Is there a solution?

Certainly "giving" more money to someone, to set up a forced savings account is NOT the answer -- it is the impulse to squander that is at fault -- or the lack of personal discipline to stick to a savings plan once started. The quote from Mr. Hubbard, below, applies, I believe, to the individual as well as the group -- individual savings will always be used for trivial needs if there is not some reason (or threat) that it cannot.

As in my experience an organization always spends all it makes, financial management on an international level consist not of carefully balancing income above outgo in an effort to save a surplus in an organization but of (a) preventing an org from spending more than it makes and (b) setting aside enough money from its income to care for salvage operations and salvage expenses.

...

You can only attain a financial cushion in an org by removing it out of reach so that it appears to be spent, then producing it when the org overspends or gets into trouble.

Orgs, like children, are fantastically improvident. And a group, to work, must believe it is spending all it makes.

HCO Policy of 18 January 1965, "Financial Management, Building Fund Account," Page 42, OEC Vol 3.*

I have a plan to help ease Vibrant Life staff into more personal savings and a greater willingness to take on the owner's viewpoint -- the viewpoint of business ownership rather than slavery.

The well-known 401k savings program was originally designed to encourage people to save some of their pay on a regular basis. The original plan was to allow the person to make payments out of their personal income (thus making it a true "savings" account). As long as the money was left in the 401k it was not subject to taxes. This plan also allowed the employer to make a contribution. The employee's contribution to this savings account COULD be taken out, simply by paying the taxes on the amount plus a penalty. The contribution of the employer was often restricted in another way -- the employee could not withdraw the amount of the 401k contributed by the employer for some number of years, or retirement, etc.

Those who have 100% of their pay based on the incentive system will receive the maximum Company contribution into their 401k accounts.

Vibrant Life will be offering an "company-contribution" to a person's private 401k savings plan with the Company contributions restricted from being "vested" and therefore withdrawal for 5 years. and also the restriction that IF the employee withdraws any of his personal contributions to this plan, the Company withdraws all the non-vested contributions made by it!

But, I am serious about empowering Vibrant Life staff to be owners rather than clock-watchers.

Details on the 401k system are HERE. Details on the offer from Vibrant Life are HERE.

Private Medical Savings Accounts

There is another increasingly popular way that society is trying to give private individuals an incentive to increase their savings -- and thus increase the amount of personal responsibility they take for themselves.

One of my favorite writing themes has been, for decades, that "health insurance ensures disease" and that whenever you pay your health care costs with "other people's money" (government money) the health care will be terrible.

Fortunately there has come along the "private health care savings plan" that allows you to make payments into a personal savings account, only to be used for health care needs, and whatever you do not use for that purpose is available to you as savings when you retire.

Self-Insuring through Health Savings Accounts. As of January 1, 2004, 250 million nonelderly Americans now have access to HSAs, provided that self-insurance through an HSA is combined with catastrophic, third-party insurance. With HSAs, individuals will be able to manage some of their own health care dollars through accounts they own and control. They will be able to use these funds to pay expenses not paid by third-party insurance, including the cost of out-of-network doctors and diagnostic tests. They will be able to profit from being wise consumers of medical care by having account balances grow tax free and eventually be available for nonmedical purchases. (Source)

Vibrant Life will be implementing a private health savings plan for all staff -- to reduce the fear people might have about becoming an "owner" and participating in an incentive pay plan.

Details on private medical savings accounts are HERE. Details about the Vibrant Life medical savings plan are HERE.

Gradual Transition To This System

I suspect that this system will seem to be a dramatic change to some staff members. The implementation of this system will be done gradually, with a full explanation of all the terms and mechanics reviewed by me with each person, individually. I do not expect to force anyone to shift to this incentive system -- but neither do I expect to give any pay increases, or promotions, to someone who is not ready to share the owner's viewpoint.

Official,

Karl Loren

Home Page - Restricted

Home Page Public