In some enterprises, in a short period of time, the basic salary of employees (the individual part and the position part) rarely changes; the performance-based salary is what changes more significantly. For example, a salesperson and a recruitment specialist may both have a fixed salary of 2000 yuan, but their performance-based salary portions could differ greatly. The ratio for the salesperson might be 3:7 (fixed to performance), while for the recruitment specialist, it could be 7:3. When it comes to technical personnel, how should their compensation be designed? It depends on the situation. For instance, for some technical personnel engaged in research and development with long-term and forward-looking work natures, their salaries should be designed to include a larger proportion of fixed salary to be more reasonable. So, what kind of compensation structure is reasonable? And how should the proportions of its components be determined?
This article is excerpted from Dr. Hu Bayi's book "The Art of Three-Thirds Compensation Design." Under the planned economy system, many units' employee wages had no talk of structural design; they were just a single number. Such wages provided no incentive for employees.
In some enterprises, in the short term, employees' basic salaries (individual and position parts) rarely change, but performance-based salaries do change significantly. For example, a salesperson and a recruitment specialist might both have a fixed salary of 2000 yuan, but their performance-based salary portions could differ greatly. The ratio for the salesperson might be 3:7, while for the recruitment specialist, it could be 7:3. Regarding technical personnel, how should their compensation be designed? It depends on the situation. For instance, for some technical personnel involved in research and development with long-term and forward-looking work natures, their salaries should be designed to include a larger proportion of fixed salary to be more reasonable. So, what kind of compensation structure is reasonable? And how should the proportions of its components be determined?
According to the three major value-oriented principles, any compensation structure is actually composed of the following three parts, which remain unchanged regardless of variations, namely:
Some people ask, where should meal allowances, housing allowances, etc., be placed? These are benefits rather than salary components.
So, how should the ratios between qualification-based salary, position-based salary, and performance-based salary be determined? Let’s look at the following two cases:
Case One:
Table 5-1 Partial Overview of Performance Salary Proportion and Fluctuation Ratio of XX Company
From Table 5-1, we can see that for director-level positions (Class A), in marketing management roles, performance accounts for 70% of the weight, and the fluctuation ratio is also 70%. If their base salary is 10,000 yuan (base salary = position salary + performance salary), then we can calculate that they could earn up to 14,900 yuan at their highest, and as low as 5,100 yuan at their lowest. Therefore, to better incentivize employees, we need to leave some room when designing performance-based salaries.
Case Two:
Table 5-2: Salary Structure and Proportions of XX Company
Table 5-3: Performance Grades and Fluctuation Ratios of Performance Salary of XX Company
From Tables 5-2 and 5-3, we can see that XX Company designs the performance-based salary as 40% of the base salary, but its fluctuation method differs from Case One—it is calculated based on evaluation grades. For example, if the performance grade after evaluation is Class A, the performance salary is 1.5 times, and the worst grade E results in a performance salary of 0.5 times. Using this method, we can calculate that for director-level positions (Class A), in manufacturing management roles, if the performance salary proportion is 40%, and if the base salary is 10,000 yuan, the highest salary would be 12,000 yuan, and the lowest salary would be 8,000 yuan, thus providing a stable range and greatly encouraging employees to strive for the highest salary.
Let’s consider further: under similar circumstances, which companies would emphasize a higher proportion of performance-based salaries? Answer: Sales-oriented companies or newly established companies generally do so. Additionally,...
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