The salary in one factory has long been piecework. It was introduced without intention (just like such things are introduced everywhere else) for "stimulation" and "for it to be like other people". Since it had happened long ago, nobody remembers now. However, since time immemorial, every year each employee makes exactly 80 items per shift. Not more, not less. It is perhaps not because they could not do more or that they did not want to, but most certainly because this is "how it has always been".
The story actually happened the day the foreman changed the shift task in the cell marked “plan” (which to tell the truth, earlier was never filled) noted the number 90 and all 90 items were made… On the next day (though he was a bit afraid) he wrote down "100". And once again all the items were made by the end of the shift. The foreman did not notice any difference in the rate of work: nobody protested, or hurried or urged each other. But yet, he did not dare to write "110"…
Sometimes even the following happens. During the development of remuneration systems for the salespeople of a jewelry shop, the director pleaded: "Just do not introduce any plan. Our team filled in the plan by the 20th of the month (in successful months) since the soviet times. Hence, after the 21st we started to suffer from amnesia and forgot to present the new product in the showroom. We just delayed the sales artificially. Big results are dangerous for us: if we do more – the plan will be implemented"...
By the way, in one media-holding, decent premium was paid according to the results of achieving the plan of sales of advertising space. Moreover, additional bonuses were paid to the overtimes. But this is the actual plan.... The Director implemented it each month on the principle "from the achieved". The more advertising space sold, the more the normative. The plan rose — bonuses were decreased. The managers bore with it and overworked. In the beginning they hinted on unfairness, and then they started to complain. At a certain point came complete and utter demotivation.
This article is not about whether the plans are "right" or "wrong". It is about how to set them up.
PART 1. "WE PLACED THE PLANK, BUT WE WERE NOT GIVEN THE POLE"
The first will not be he who runs fast but he who came out early.
The Director of a wholesale company decided: "If you were to place a result plank on the average level, then some will be able to jump over, but some will not. If you were to place one on a high level (even on a very high one), then maybe not even one will be able to jump over but most will jump through the average level. Let the average market salary correspond to the average results". That is how they lived: two out of eight managers fulfilled the complete plan, three only half of it, the other three one quarter. They received a salary accordingly.
One company was in dire need of money… The Director gathered the regional managers and they planned. If you want a higher salary — raise your plan; if you want a company car — again raise the plan; if you wish for more subordinates — you need to raise the plan again. The managers were paid their salary, and when they reached the planned value (once a year) they received a good bonus (amounting to 2-3 times their salary). The plan was constantly raised, and bonuses long became a rarity.
Then the managers understood that: it is better to raise the plan and… have a good ride than a bad walk. They happily agreed to higher tasks, not really thinking about solving them... That is why the percentage of plans completed in a year, fell...
In a third company (just as in the first one) the plan was overestimated on the spot. A basic salary was set up and during overtime, it was strengthened with a “progressive” (in the form of a percentage of the turnover). But it was not possible to jump to the “progressive” part and in fact, everyone lived on their salaries. Each employee had his own salary as agreed with the manager, but in relation to the market value, it was not very high. This happened in the capital, where low salaries are not acceptable. Once or twice in a year a couple of best managers achieved the target plan and received a bonus because of the sales of expensive equipment. But the rest never did: too much effort was required for that. They were loyal to a small salary... not only in their company but also in others (part-time jobs).
In all three situations, the thoughts of the managers were NOT directed towards the improvement of the technologies of work, but on the personal capabilities of an individual — if you want more, then jump higher. The managers, in a way, did not think about how to jump, but how to improve the jumps... by moving the planks. In each of the described situations, there are signs that the optimal results are not clear to the managers, and the technology of work is not set up. It is not a coincidence that the achievements of the managers differ widely.
It is as if professional and amateur rock climbers were selected in a group of mountain tourists and they were pointed towards different summits: in one case — to a high summit (based on the idea that not everyone will reach the peak but at least the middle), in the second case — depending on the choice of the tourist (by promising various prizes), and in the third case — to the highest summit (without any particular hope and not only with promised prizes but also a jackpot).
The tourists moved as they could to climb their summits. One after much torment got tired and decided to become a diver; another just remained on duty at the fire camp.
And someone although managed to crawl to the summit, it is not a fact that he did it within the optimum time.
In a good company, the majority of the employees have a stable high result, and it happens because the manager of a good company understands the way to achieve a good result. But for such an understanding high planks are not required at all. Or it is not so important, to choose a higher or lower mountain. It is important to break the destination into the correct steps, get a good instructor and prepare the ammunition.... And thus a part of the group will move faster (~ 20%), and part — a little bit slower, but overall at a good pace, and it is highly probable to reach one or the other summit in a time range accepted for the chose summit.
In order for the employee to have the will to "pull out" each percent of the plan, we can, increase reward for results shown in the "region of the plan" (most of the employees should work in this "region") by preliminarily reduce the spread of "achievements". Just as when we measure the body temperature, we do not measure it from "absolute zero to infinite", but we are just interested in a narrow range of 35,0 to 42,0 degrees Celsius, comparing it to the standard of 36,6.
PART 2. "FROM FALSE TESTS TO FALSE "FIVES"
The distinction is not the split but the difference in levels.
In a furniture shop, wardrobes and sofa-beds were weakly (much worse than in other furniture shops in town) sold. The salespeople got their salary. In order to correct the "advanced" situation, a bonus was introduced (from the percentage of completed plan). The plan was set up, focusing on the modest sales of the last months. The salespeople tightened up, and the results rose almost by 4 times and the sales tended towards the town’s average. The salary became three times higher and the salespeople of this town became the most well paid in town...
The bonus part of the salary of specialists, in student recruitment for a commercial university, was related to the number of agreements for learning signed. A quite low plan was set: about 5-6 agreements a month for each. The recruitment was quite slack; however the slackness had a "justification": "this is the situation on the market". However the management got tired of the "justification" and a marketer was hired and he was asked to study the situation. The marketer paid attention to the following circumstances: there is a stream of applicants, in the second half of summer, who were not enrolled in other universities and he proposed to set entry exams a few times: "in the usual time" and also later. This decision drastically increased the number of applications to the university. The salary of the specialists in recruiting (for a plan of 5-6 agreements a month) made a pole jump... However this university did not become the leading university in town in the number of students.
A third grade pupil was transferred from one school to another. Even the third-grader understood how much the level of teaching in the second school is higher and consequently the level of knowledge acquired is higher. And the same third-grader was surprised why though he now works more and doing much more homework, he gets "the same" excellent marks. His parents answered him as follows: "The excellent marks in the first school were NOT real my boy, but in the second school they surely are".
Now let’s suppose that since in these two schools with a different quality-wise panel of teachers ("weak" and "strong"), it was decided to set a certification of the teachers. “The average level of teachers” was deduced, it was a little bit “overstated” to have somewhere to aim at, and a standard was set. It is obvious that the standard will be more correct in the second school than in the first one.
In examples 4, 5 and 6 is described the widespread error margin, allowed during the implementation of new salaries, when the plan is set up on the level of the current, though not the best, results + 20-30%, after which the efficiency usually increases by 2-4 times, and with it the salary (in relation to the average market salary) increases inadequately. As a result, some directors immediately increase the normative, and the workers "symmetrically" stop trying.
This can be compared to "hidden downtime" at the factory, when the situation with a usual "slack" in the rate of work is explained by the fact that “there are not always orders” and there is no need to rush when there is no work. As a result, workers not only get used to low productivity but they also extend a small work-load over the whole day. If a plan is set up focusing on such achievements, then the error is just inevitable.
In the same way, a cheetah at the zoo was used to walking slowly from one corner to the other and when he was left in a clearing, it was bitten with impunity by jackals that are less agile in nature.
An administrator (ex-military) was employed at a toy-shop. Salespeople were literally given a military training. A strict discipline was established. The habit of being absent from work was long gone. At last the program to study goods and working methods with Clients was implemented and activated. Sales grew. After that a plan was set (focusing on the growth of sales for the last months) and salary was introduced in relation to plan-fulfilling — sales grew a little bit more. The general growth of sales, beginning from the employment of the administrator and ending with the implement of salary, could not fail to please.
That is why....
When planning a task, it is useful to think about how to carry it out at … 500% at once (and not 20% or even 100%). Which "bottlenecks" in the business process will manifest in such thinking? What organizational solutions should be taken to address the "most important task"? What will the smart employee who in good sense wants the delivered plan to be "outsmarted"? It is useful to get the maximum number of answers to these questions and improve the situation as best as possible. And already on the basis of the made changes - introduce a new model of salary.
The "Month of sale" was announced in a company before the introduction of a standard on the number of sales. A special mark was noted in the asset book for each employee who sold any (even a small) good. In order to help the salespeople (for them not to forget to propose additional purchase), “lotto” cards were introduced with related goods (analogous to what was described in "Article about salary"). By closing lines in each card, bonus was increased. Every day, the administrator held a “debriefing” and thus bringing the salespeople to a conditional reflex in their method: "They bought “А" (For example, paint), propose "В" (for example, a brush or a roller)". The number of sales increased and with it the revenue. It became clearer, how many goods could be really sold in the show rooms in one shift. After that a standard was set, and in relation to it, a decent bonus. The fulfilment percentage came as no surprise. As a result, it was not necessary to think about the how to increase an uncertain prognosis and not to offend anyone in doing so.
In other words: "First increase the cage size, and only set up the plan for the Cheetah".
The situation below should also be considered in the same way:
The company was founded six months ago. In the beginning there were no sales at all and then it slowly started to crawl up. It was now time to think about stimulating the employees. The sales of goods had no season limit, that is why it was decided to count the sales for the last month and added 20%. That is how the plan was established. (But we already know that it is not correct to do so.) The sales increased by twice the initial value, though the managers did not put in too much effort. The reason of the rise was that the new product was advertised for quite a long time. And it finally "went through"... The Director did not know whether to laugh or cry.
A young company has a business plan when it starts at least for the first three years (at least it is extremely useful to have one). We shall consider the result from these three years as the "standard". Apart from the "standard", we shall give the intermediate results — those you should get by the end of the terms. The factual results in the start period "will not be compared to the standard but with the intermediate results. (Note. Visually you can imagine it as a ladder, where every step corresponds to its result and its month.)
Important moment: the intermediate results are given in the beginning and not when it "happened" (is achieved).
а) The plan rises because term has been reached, when it's time to reach the indicators outlined in the business plan;
б) The plan rises because good results have been reached and we always want more.
Clause а), unlike clause б), does not cause protest.
To mitigate the situation, you can also schedule an (either / or):
а) A small estimated increase in variables (in case the daily plan is fulfilled). It is true especially for those professions where the market salary increases each year;
Note. Estimated variable — This is the value which the employee would have received as a "variable" part for a 100% working time, for a 100% result criteria, if they pass all the tasks on time and there are no errors / violations.
б) a one-time bonus for a successfully completed year;
в) a rank promotion of a specialist on completion of a yearly plan (respectively, with an increase in the base part of the salary).
We can and should discuss about everything which causes a change in the standard (with the employees) beforehand.
For example it can be:
- A change in technology (for example, because of the purchase of new equipment; a change from counter service to self-service etc.).
- An area extension or/and a change in the shop format.
- The import of new goods (which were not dealt with before).
The clearness and openness in planning helps if, of course, the director does not wish to lie to the employees. But even our information cannot help such directors.
If the target-standard is not reached, the director should find out together with the employees, why this happened and should think about what he should do. We shall note that for a deal (percentage) salary, this does not happen: when there is no “measurement", it is not possible to differ between good and bad result.
PART 3. "SEASONAL BREAKTHROUGH"
The term of pregnancy is not reduced by changing the calendar
The director of jacket shop could not fathom how to pay his salespeople. For the period "end of spring — beginning of summer" sales were "from zero to two". We cannot set up a standard at the level of this delicate point. Introducing percentage from turnover did not help. The salespeople did not agree to live on the money saved from colder months. The basic salary did not stimulate active work.
Flower sellers do not rest on holidays (especially on the 8th of March and the 1st of September), but they work. And they actually earn much more than other days and even for whole months...
Should the standards be changed for poor months in relation to sales? Well, if there is nothing to sell and nobody to do it, then it is not possible to set up a salary formula. And if you ever set one up, you will not pull buyers into the shop with it. In the same way as you cannot teach an owl to see in daytime, even if you offer it a fat mouse on a leash... What shall we do?
You should think about a solution and not a formula, in order for the sales to rise instead of falling. The same results as in peak days/months should be reached. And the method should be without cost! And let the competitors solve the salary problem.
August is considered as a “collapse” month in relation to sales in a chain of shops selling technical appliances in a small town. The collapse is explained as follows: people spend their money on trips during holidays and not on televisions and washing-machines. As a matter of fact, the director of this chain made an experiment. The birthday of the company was declared in August... Earlier, for almost a year, without cost, that is, exclusively “using its own resources” (explanations from the salespeople, information stands in its own and friendly shops etc.) information about the imminent event was "advertised". An area before a big shop of the chain was chosen for the event to be held. The program of the event consisted not only of promotions (which were easier to get from the suppliers in a “non-seasonal” period), but also many different games (children drawings of technical appliances, songs and other small things on the same topic), lotteries (on the receipts) and gifts. The second year this event was held, the volume of sales in August rose almost to the new-year level (!).
For an acute seasonal characteristic of goods or services it is useful to:
- Arrange the goods in such a way that a specific group of items dominates sales in each month (it "moves", is advertised; is present in the best position on the sales floor etc.). (Note. If there is no such item group, then it should be "discovered" and started.). In the same way, in normal supermarkets and shops selling hardware and construction materials, in the beginning of each season, a zone is set for the "seasonal" item, where attention is drawn. For example, for New-year — all the possible decorations and ornaments for the Christmas-tree, for the country-house period — garden range of items, chaise long, and inflatable mattresses — for summer, etc.
- After you set a Client base "in the season", propose other ("resourceful" for the company) services, which are in demand in the present "non-season".In the same way, successful language schools become "a bit of tour agents' in summer (when the presence of pupils fall) by selling trips to language schools abroad (which also include fun) and trips to summer language camps. And a group of free teachers also go there.
- Go to "anti-phase" regions (in relation to "climate"), where the goods and services are needed when they are already not required in that region. Or to regions with "a longer duration" in interest.One southern-Russian factory which produces mineral water faces some problems to do so in winter. No advertising measures and campaigns seem to help: people drink less water in winter when it is cold. But in the meantime, in the "neighboring" Turkey, (in the south) or in Cyprus, the temperature is — 26 degrees even in February. On top of that, the range of still and mineral water consists of only - 2-3 brands. Drinking-water is viable for the whole year. Many import it. A glass of British sparkling water costs 1 pound in any tavern in Cyprus. Seriously, why not think about exporting it?
- In "non-season" periods, turn (reposition) the goods towards other groups which are active for that period.When there is a drop in mass booking in health resorts and boarding houses, tour-agencies become more active in the search for corporate Clients.Reeducate the staff about the production and service of the goods (which require an analogous qualification and skills) with the "opposite" season.
- In the same way, some firms which specialize in the installation of air-conditioning systems in the warm periods shift to the mounting of heaters and heating appliances in winter.
- Make 'future" deals and contracts with the buyers (during "non-season" concentrate on strengthening it).
- Change the work form; reduce working hours during collapse periods, and maybe the number of temporary employees, who were invited during peak periods.
In a consulting Company, summer (the time when it is not "season" in a variety of training programs) is declared a "methodical" period and the work of the employees, changes. Trainers of seminars work on the development of new training programs, on the improvement of delivered information etc. Consequently, absolutely other result criteria and plans are set up. That is, the employees still have the same efficient workload of 100%, but have different work.
Hence, in example 10 we should (in a way) rename the shop from "Jackets" to "Jackets + Swimming-suits", and in example 11 in order to solve the problem with seasonal periods (in the floral business), it is possible to:
- Increase the range of items (with flower and vegetable seeds, fertilizers, planting-soil, pots, chemical products to protect the plants, flower and vegetable shoots; the sales of accompanying goods, starting from water-cans to flower room plants and ending with motobloks and grass-cutters, services of a phyto-designer on transplantation etc.);
- Find other events which are more "widespread" throughout the year. For example, concentrate on the wishes for birthdays (count the number of birthday boys and girls in town every day, cry about almost losing such an opportunity and think about how to attract those who wish them);
- Introduce services about "corporate wishes", for example VIP-Clients of different companies.
- ... (Please continue this list)...
If the seasonal oscillations remain within margins created by the management, “the salary problem” is often solved, not with a change in the standard (which is set on a good season) but by changing the planks for minimal results (for example on peak season it can be 90%, and out of season — 60%).
You can read about the minimum result in the article "Article about salary".
It is better than changing the standard. When the minimal result changes, the bonus part of the salary in a “non-season” period will not be high. And that is why no employee likes a “non-season” period. And this is right!
But it is not recommended to “reform” a standard in relation to season because of the following reasons:
- With a variable standard, the salary will be a constant number (which will not happen with a static standard). But since the workload is less in a “non-season” period, it will be more “loved”. Don’t you agree that this situation is insane?
- The employees will quickly “understand the rule” (that the standard changes in accordance to their sale: the lower the sales — the lower the standard) when they find out that the company is adapting to them and they will make the “appropriate conclusions”.
- The situation will end up in such a way that everyone is happy with everything: the sales department — with the salary, the director and the marketing department — with the absence of protests (and personal gain). What is there to be happy about here?
- After a few months, the employees will forget that the standard in the “non-season” period was lowered for “their own sake”, and rightfully notice that they work more in season and they get the same amount and that the salary should be increased during the active period. This is not correct for the given circumstances.
- Since the "sales" departments actually divide their responsibilities with the suppliers for the turnover and number of sales (that is, they are awarded for the results on these indicators), they should symmetrically participate in the responsibility for the absence of achievement. Otherwise, you get a “semiconductor": you get a bonus for good results and for bad ones too (with the change in standard). Why do we need “good results” in such a case?
- When the season changes, the employees who were expecting a collapse will most certainly not be happy with the “sudden” rise in sales, since the plank is raised taking into consideration the new season, no one knows what will happen the next year.
PART 4. "TWO STANDARDS INSTEAD OF ONE"
Those who were here yesterday ... well, they were very big...
In a souvenir shop, which is found at the crossroads of tourist flows, sales were more or less constant throughout the year. The tourists came; the salespeople did not stay idle. Big raises were noted only in three summer months. In the meantime buses of foreign tourists arrived and the sales rose by a few times and there were queues to the shop in which good-mannered foreign tourists waited patiently. The salespeople had to work without rest. There were more and more shifts. It was not possible to smoothen this peak in sales in the other periods. The "average" plan for the whole year was not applicable...
If it is not possible to beat the "local season period", we can introduce two different standard amounts — for a "standard" season and for a “high” season. But at the same time, in order not to demotivate the employees, for example, the estimated variable part of the salary (the amount through which bonus is calculated) is increased in the "high" season period.
The estimated variable — is the value which the employee would have received as a "variable" part for a 100% working time, a 100% fulfilling of result criteria, in the condition that all the tasks were completed on term and there were no errors/ violations.
That is, in "high" season both the plan and the estimated variable are higher than the standard. A higher "high" variable consists of what is known as an “excess payment for intensity."
Note that this solution can be implemented only in such a situation when there is no "low" season at all.
- Standard season: Salary = Basic part + Basic part'*General efficiency
- High season: Salary = Basic part + (Basic part' + excess for intensity)*General efficiency
Now let’s discuss the 'local seasons".
Adherents of clothing brands are impatiently waiting for the beginning of sales in retail stores and even the salespeople are waiting for them: prices are low and Clients take everything (or almost everything), and there is no discrimination. The income increases and thus the salary too. But it is important to also focus on those collections (including the new ones) which do not participate in sales during the period of "big visits". It is harder to sell them, but still the main income lies on them. What shall be done? How to set up a standard in those months when there are sales? On what is "on sale" and those which are "without sale"?
EXAMPLE 16(example of year 2004)
We can often see advertisements like: "following our promotion "SUPER" You can connect through any of our tariffs from the series "SUPER-SUPER" and get a sim-card with a balance of AMOUNT $. But that is not all! We also propose four of the most popular models of cell-phones at SUPER-PRICES of: X, Y, Z, W. By buying them with our tariff within the promotion, you not only save money but also get GIFTS: a water-resistant watch, a bracelet, a torch, a discount card and a discount... ".
Now those same promotions can cause a significant distortion to the salaries of the salespeople of the cell-phone shop. The sales of telephones which participate in the promotion can significantly surpass the sales of even the most popular models which are sold at their regular prices. What should be done?
For promotions and sales, a special "standard on promotion" can be introduced.
- For periods without promotions and sales, the salary of salespeople is calculated using the formula:
Salary = Basic part + Basic part' * general efficiency.
- For periods of special events the following can be used:Salary = Basic part + Basic part'* general efficiency + Basic part" * promotional efficiency.
Designations are given in the "Article about salary".
That is, salary during promotions should be “brought out” as a different part.
Of course, theoretically we can exclude "simple" periods "without promotions", that is, continuously propose something and sell.
We can also use an additional criteria ("efficiency for promotions"), which is expressed on selection: on the number of sales, deals, income etc. And the general efficiency can be calculated taking it into consideration.
PART 5. "DISCONNECT FORCE-MAJEURE"
Everything has already been written about. Fortunately, not everything has been thought about.
(example from year 2006)
For a whole month there was a 40 degrees frost which is not typical the town. The Directors of companies which are specialized in furniture were just scared: Who would go choose furniture when it is minus 45 degrees outside? It is also cold in the region of the dealers. Sales will be low. And what will happen with the salary of managers? They have a plan to fulfil (and moreover — a minimum efficiency, which if not achieved, they will not receive a bonus part in their net salary)...
While they were thinking about the salary, a few advertising and marketing moves were found (make special newsletters on the "topic of frost", "warm" large customers with souvenirs and surprises, "lead" the journalists to write news about them or about them caring for Clients on the topic of frost; pour away a bottle of ice-water the size of a bucket, fill it with champagne and ask to guess — will it freeze or not within thirty minutes...; construct an ice wardrobe and a cube-monument with the company brand, with frozen thousand-dollars notes and the reassuring slogan "Spring will come!"; proclaim happy hours; give a cross discount for another product when buying one).
"When all the calculations were made, the managers counted and cried for the last few days and then gathered and made the up to 85% of the standard. The weather was expostulated in vain" (see the source).
The author of the solution to example 17 — Mikhail Gerasimov,
In case a "force majeure" is non-recurring, then, the employees will, of course, be unhappy to get a low salary for once, but this is survivable. It is another thing when different problems become recurring and form a bad consistent pattern: either there is a short supply, or another department has not prepared the documents on time (and the deal was off), or the competitors just opened-shop across the street; or a bad collection came to the shop ... — here as a matter of fact, we should not think only about the formula of salaries...
And also. It is not recommended, even for a “force majeure” to play with the “standards”. Otherwise each time there are inconsistencies, the employees will demand them to be lowered. It is uttermost important to find a SOLUTION (and possibly, creativity will be required here): how to — without incurring loss to the company — improve the indicators, how to change something harmful into something useful.
Let’s make a summary:
- If the standards (task, plan, aim etc.) are not set in the enterprise by the Director, they are spontaneously set by the employees.
- It is NOT correct to set a standard from the "achievement". First it is not a fact that the preceding achievement is good and second, it is not good for the successful employees to “cut” prices. It is useful for beginning companies to set up standards and intermediate results and publish them in advance.
- The aim of setting up a higher plan tells about a raw technology. And a significant difference in the results of employees will only confirm that.
- You should not adapt standards to “seasons”. It is more useful to look for an idea which will cast away the "seasonal problem". And if the sales are good for the whole year (if there are no collapses), but there are acute (!) spikes in specific months, then we can introduce 2 standards.
- When organizing promotions/sales etc. we can set up different standards on the current sales (not on the promotions) and different ones — on events.
- It is better to avoid "force-majeure" (ideally — "turn something harmful into something useful"), but to adapt plans to them — is not recommended.
In the next article we shall discuss about whether it is good to introduce different plans for employees who have different qualifications; new comers and experienced workers.
How to spread a plan in a brigade, if the employees work in a smaller team than planned in the beginning and much more.