Conference 7.286::digital

    
    
    RE: .0
    
    
    Yap, sales does...!!  :-)

    Re:                      <<< Note 3545.0 by RANGER::OBRIEN >>>

    I don't know about Digital plans in thhis subject, but my former boss
    who took a job at  Wang  told  me  that is the common practice there.
    His comments were both pro/con:
    
    Pro: more productive
    
    Con: less loyalty

    As I understand it, the PC group gets bonuses for achieving goals but I
    don't think they are on the reduced salary/bonus plan, like Sales is.
    
    It certainly would be an adjustment and would require a financial
    cushion that many may not be able to put aside.  But on the upside,
    these kinds of plans usually give you the opportunity to make more
    than you normally would via straight salary.
    
    The hard part is defining (and not changing) appropriate metrics and 
    implementing  measurement systems that work.  As any Sales person 
    at Digital will tell you.
                                               
    -j

    
    	Was thinking of a long reply, but have decided to pass.
    
    	I love Digital's sales pay plan. And I think it should apply in
    one form or another to everyone, ESPECIALLY BOBBIE AND ENRICO, ETC.
    
    
    		the Greyhawk

    Variable pay is an idea that many companies are trying as we paradigm
    shift our way into the next century. The idea is that people will be
    more motivated to perform if their performance is directly related
    to their compensation. The problem (one of several) is that many times
    the employee doesn't really have the resources to deliver on what
    s/he's being measured on. To go to variable pay in the Service business
    would take an honest-to-goodness restructuring of Digital - something
    we've supposedly been working at, but so far little has changed in the
    field.
    
    	BD�

    Unfortunately, the downside is usually very easy to achieve, while the
    upside is very difficult, and limited.  I think the sales folks, at
    lease in some areas, find that they can really sell a lot in total, but
    not get credit for all the sales because of targets, etc.  So they can
    exceed budget, but still get less than 100% of base salary.
    
    Personally, I believe in base plus commission, based on revenue and
    time delivery.  Won't ever be that simple, though.

    For the company, the advantage is, that Digital can adjust the salary
    cost to the success. In bad times, more or less nobody achieves his/her
    goals, in good times the company can afford to pay better. The question
    is only: how to measure, and how can you enforce and measure team work.
    I am in sales, but I heard quite a lot of upset support people "we are
    doing the job, have a salary freeze and these sales folks take the
    commission. The metrics and how you get the actual figures with our not
    for commision planned systems are the crux....A bad thing is, when the
    salary costs explode based on a quick implemented variable compensation
    plan and the company is not able to afford the additional costs...
                                                                    

    Here in France this was implemented some time ago. Basically whatever
    was your final salary has been divided into 2 parts; a base part, and a
    discretionary performance part. 
    
    The base part is ~95% of your original salary. The performance part is
    conditional on all of DECfrance exceeding targets.
    
    And guess what?
                                            

The UK implemented variable pay in FY94. Each employee agreed 
a list of goals for the year which are reviewed at the end of
the year. These goals are related on personal work as an
individual or as part of a small team. If all goals are
achieved then the reward is 2.5% of base salary. If one
goal is missed then 1.25% is paid. If more than one goal is
missed, the 0% is paid.

There is then a multipying factor based on company performance

It all works like this...


                                       ALL GOALS                  ONE GOAL
                                        ACHIEVED                    MISSED

    PERSONAL GOALS                          2.5%                    1.25%

    PERSONAL GOALS &        (2.5% x 1.5) = 3.75%    (1.25% x 1.5) = 1.875%
    10-14% REVENUE GROWTH

    PERSONAL GOALS &          (2.5% x 2) = 5%         (1.25% x 2) = 2.5%
    15-19% REVENUE GROWTH

    PERSONAL GOALS &          (2.5% x 3) = 7.5%       (1.25% x 3) = 3.75%
    20-24% REVENUE GROWTH

    PERSONAL GOALS &          (2.5% x 4) = 10%        (1.25% x 4) = 5%
    25% + REVENUE GROWTH
 
The minimum payment is �500

It seems to work OK, but does assume that base salaries
are correct - which they're not!


	Ian

re Note 3545.8 by 48649::HUMAN:

>     The base part is ~95% of your original salary. The performance part is
>     conditional on all of DECfrance exceeding targets.
  
        I don't see how it is an effective incentive to make one's
        bonus contingent on the performance of a large, diverse
        division of the company.  The group has to be small enough
        (or your responsibility large enough) that your personal
        actions can have a significant effect on whatever performance
        measure is used.

        Bob

    reference .9
    
    The system implies that the goals of the individual are discrete
    and measureable.  The farther you get from a pure numbers driven line job, 
    like sales or manufacturing, the more management judgement enters in,
    making equity amongst groups and individuals very difficult.  I agree
    with .10.  The goals need to be local, realistic, tangible and
    measurable.  
    
    Defining the measurement group properly is key.  The group needs to have
    clear responsibility, proper authority, control over the needed resources
    and unambiguous accountability and rewards tied to the risks.  If the
    whole package isn't done right, the group is demotivated, motivated to
    leave or must trust luck or industry trends.  I doubt our
    organizational structure and internal measurement systems are up to it.    
    
      
    

    Variable pay! What a concept!
    
    I've got my first million sewn up already. I'm gonna travel around the
    vineyards and show all those field bosses how to make a killing off
    their migrant minions.
    
    You get this base pay, see; and because we're such a humanitarian
    operation we'll offer some health insurance which you can pay for out
    of that pay. (We administer it) Now, you get a bonus for every bushel 
    you pick above 30.
    
    The beauty here is the field boss never has to pay a single dime out.
    Picker brings in the 31st bushel - the harvest is bad in sector 6,
    sorry your base pay today is 10% less than the old salary + the
    bonus for #31. Don't like it? Go down to the next valley where things
    are just as bad. Got some funny sores? Too bad, I paid you to pick,
    if you chose to do so without adequate protection that's your problem.
    Claim denied.
    
    Don't like the quality of the work someone's doing? Don't pay them at
    all, call it part of the contract. If you already paid em just call the
    local bank and have them deduct from the worker's account. No account,
    have him arrested - after all, he stole your money. Bad year? Don't
    take the loss yourself, penalize every picker who managed to find
    grapes in spite of the conditions.
    
    Wow, what a system! What a scam! What a money maker! I'll go right out
    and get business cards done up for myself and ....
    
    
    Oh, you don't suppose anyone's already thought of this, do you?

    <.10> and <.11>sum it up nicely. Here in France it doesn't work. I have
    no ability to influence DECfrance results. DECfrance is in deep sh*t
    (like, almost bankrupt, I even heard that suppliers are asking for cash
    on the nail) so there will be no bonuses this year (surprise, eh?).
    Because of the lack of customers, I have little work, therefore it is
    difficult for my manager to define goals with me. We have had pay freezes 
    for the last 3 years (now lifted depending on results!).
    The whole pay restructure was viewed as a management massage/con
    exercise.
    
    I can safely say I am demotivated. Our management line? If you're not
    100% behind us, leave.  
    
    martin

I can see upside and downside.

The upside - there is nothing (well, in the area of compensation anyway) 
as good as getting recognized and paid more for success.  This is a big 
upside!

The downside:  

1. Less loyalty.  If times get tough, and the pay goes down, there is a 
rush for the exit.  There are many examples, but I saw it happen at Wang. 
 As soon as six figure compensation stopped happening, the sales force hit 
the road.  The effect on the company was to greatly amplify a negative 
trend.  The company was quickly in the toilet.


Interesting comment in the note from France.  Due to work rules, Digital 
is having a hard time downsizing in Europe.  So, we get unhappy people 
with jobs, with little to do, with managers trying to motivate them to do 
things that may be fruitless...  From the capitalist side of the ocean, 
this looks like a waste of resources, caused by the mistaken impression 
that work rules are helpful to employees and to the economy.  If Digital 
France is going bankrupt, managers and employees are unhappy, there's not 
enough work or business to sustain the workforce, wouldn't everyone be in 
a better position if the workforce were smaller? 

    I believe some significant (ie: > 5%) of everyone's pay in the company
    should be based on profitability. Given the latest business unit
    structure, folks in those worlds should get X% of their base pay
    based on operating margins (that we all have a part in influencing) for
    their business unit.  In addition, everyone in the company should get
    another X% times their base pay for total Digital operating
    profitability.  Upshot, everyone has a significant interest in their
    business unit and Digital in total being profitable.  Current aggregate
    base pay could remain (with annual salary plan/funding).  Bonuses would
    come on top (ie: 100% + bonuses) based on operating performance with
    funding generated from increased margins/profits.  A POSITIVE
    MOTIVATOR.
    
    Other potential benefits:
    
    		- could be made fairly easy to administer
    
    		- could limit management discretion
    
    		- could be most equitable across the company
    
    		- could increase cross-organizational
                  cooperation/accountability
    
    Just my $.02 which I debated via A1 with Bob Palmer in May, 1993...
    
    His basic response (paraphrased) "...we'll institute profit sharing
    when we become profitable again..."  My final retort, (paraphrased)
    "...we may never be profitable again if you don't incent everyone in
    the company with a significant economic stake in profitability just
    like you and the rest of the SLT have..."
    
    Discuss... (but please, stay focused on the ideas vs. nailing it on
    details/technicalities.  I don't have eons to debate ad nauseum... no
    negative connotations of noters intended, here...)
    
    ps. an ex-Decee friend works for a high-tech company where this sort of
    a compensation plan works great, so it CAN be done!
    

A few weeks ago, Larry Cabrinetty announced that there would be profit sharing
in Components and Perhipherals, details to be announced later. The amount would
depend on how much C&P exceeded its target profit. I thought I had heard
something similar about PCBU.

I like the idea, but profit sharing or bonuses should depend on a small enough
part of the company that employees can feel that they have some effect over.
Otherwise, it does not act as much of a motivator. 

    Re: Note 3545.15 by SOLVIT::CARLTON
    
    Nothing personal, but I hope Mr. Palmer gets advice from other folks as
    well.
    
�    I believe some significant (ie: > 5%) of everyone's pay in the company
�    should be based on profitability.
    
    The major problem with this is that Digital is currently structured
    such that the VAST majority of us cannot influence Digital's
    profitability. It is a significant DEmotivator to be compensated on
    something that you can't influence. The decisions made by the SLT (and
    a few others) determine our profitability, so their compensation is
    rightly related to profit. Most of us grunts, however, simply deliver
    service sold by others at a rate determined by others for a duration
    established by others. The only thing we service providers can directly
    affect is the quality of our work (and even that can be undermined by
    the acts of others, e.g. selling us to do something impossible).
    
    Consider a simple example of a widget maker. If I'm the boss and say
    that the widget maker gets paid according to the number of widgets s/he
    produces, then I set the assembly line speed so that the widget maker
    can't possibly produce more than X widgets/hour, what do you think the
    widget maker's attitude is going to be?
    
    So while the idea of tying compensation to the company profitability is
    nice in theory, and it may work in companies that are structured to
    support it, it would be yet another demotivator and morale buster
    in the current Digital.
    
    	BD�

How about making it variably variable? 

	//
	// Minimum suffering at 6 levels down
	//
	levels_to_palmer = min(6, levels_to_palmer);

	//
	// Each level up increases pain by 5%
	//
	profit_factor = (6 - levels_to_palmer) / 20;
	new_base_salary = old_salary * (1 - profit_factor);

	//
	// Higher risk = higher return, if it works!!
	//
	new_salary = new_base_salary + ((6 - levels_to_palmer) * profit_unit);

To keep your salary, the size of a profit unit must *become* at least 5% of your
former salary. We can also make the top of the pyramid the person at the top of
the profit center. Max level (6 above) would have to be adjusted accordingly.

>Per

    re .17 and others, I think you're missing my larger point.  I'm not
    suggesting that the current salary planning process be changed.  That
    process focuses on compensation for individual performance.  I'm simply
    suggesting that reward ONLY for individual performance is sub-optimal.
    I reject the notion that no part of our compensation should be based on
    things we can't directly and completely control.  This is a large group
    of individuals trying to achieve some common corporate goals,
    satisfying customers for a profit, chief among them.  Doesn't make
    sense that we should all have some significant collective financial
    incentive to do so?  I think part of digital's continuing difficulties
    stem from the lack of common positive financial incentives.  If the
    current company structures don't support them, (which I'm not sure I
    agree that they don't) then they can be changed to do so.  
    
    It seems to me we've just entirely missed the boat on common vision,
    purpose, goals, and the incentives to support acheiving them.

re Note 3545.19 by SOLVIT::CARLTON:

>     I reject the notion that no part of our compensation should be based on
>     things we can't directly and completely control.  
                                   ^^^^^^^^^^

        Nobody in this discussion has said the "completely" part. 

        Bob

    Well, from France again, the decision to make a percentage of your
    current salary dependant on national performance was seen simple as a
    cheap, slimy way to reduce you salary while keeping within the law, in
    that noone has a snowball's chance in hell of getting it.
    
    Incidentally (re a previous note) DECfrance's problems are generally
    seen as caused by i) French economy problems as a whole; ii)a general
    lack of direction over previous months by Digital worldwide, leading to
    complete customer and company disarray iii) ditto at a country level.
    
    You take your pick as to what influences what. The French labour laws
    are not a direct cause of the mess we're in.
    
    martin

    RE: .20  Bob, a technicality for sure!  Re-read the relevant replies. 
    The intimation is there.  However, take my word "completely" out, and
    how much substantive difference is my statement?  "Direct control"
    and "complete control" are are perhaps slightly different, but in my
    estimation, insignificantly so for this discussion.  
    
    Semantics...
    
    Let's stick to the main ideas please.  
           

re Note 3545.22 by SOLVIT::CARLTON:

>                               -< Technicality #1 Surfaces >-
  
        This is hardly a technicality.

        One can only have "complete control" over their own work
        (and, if they are a manager, the work of those under them).

        And if you're going to pretend that "direct" and "complete"
        are essentially equivalent, then perhaps you shouldn't dabble
        in "technicalities."

        Bob

    I think the requirement needed is "direct influence" on the
    results. Something quite different to direct (or complete :-)
    control.
    
    re roelof