Compensation incentives to overcome difficulties in transformation

July, August and September are low seasons for China's electronics industry. However, this year's off-season has excited Wang Xinchao. The chairman and general manager of Jiangsu Changdian Technology Co., Ltd. implemented a special incentive policy for sales staff, stipulating that as long as the sales performance of the sales staff is not lower than the peak season, they can earn more than double their personal income in the peak season. remuneration. As a result, Wang Xinchao saw that the sales of discrete devices and integrated circuits, the company's main products, rose steadily, breaking through record highs one after another.

This kind of compensation policy, which Wang Xinchao called "special", is not only used in the sales department, but also has been tried and tested in motivating technical talents and management personnel. Wang Xinchao believes that this shows the incentive potential of managers and employees in the period of enterprise transformation, as well as the power of clever use of compensation incentive strategies.

For quite some time, "special" was the most taboo word in Chinese enterprise distribution system and policy. It took Jiangsu Little Swan Group Co., Ltd. nearly 10 years to make employees who are deeply affected by egalitarianism accept and get used to the concepts of market economy such as "special distribution" and "distribution difference". There is a longer transition period, with vague wages.

Transformation is China's greatest national condition. International organizations such as the United Nations and the World Bank call China's market-oriented reforms "transition", and have invested in the research and practice of the transition economy. The major transformation, including the transition of the economic system, the upgrading of the industrial structure and the evolution of the enterprise development situation, has caused the compensation strategy of Chinese enterprises to encounter three major problems: how to motivate executives, egalitarianism, and how to adapt to the different development trends of enterprises.

Indirect MBO to achieve long-term incentives

The survey results of the salary of Chinese managers by Watson Wyatt, an internationally renowned human resources professional organization, show that the salary increases of senior managers are at all levels lowest among managers. Shanghai Rongzheng Investment Consulting Co., Ltd., which focuses on "human resource capital operation", also published the "Report on the Value of Chinese Entrepreneurs (2002)", which also shows that the rate of increase in the value of entrepreneurs is much lower than the rate of corporate growth.

"This is an unreasonable phenomenon." Wang Xinchao said, "We advocate people in the whole company, including me, that all employees' efforts should be commensurate with what they get in return."

The undervaluation of senior executives has existed for a long time in the transformation of Chinese enterprises, and now it has become the most difficult problem in corporate compensation incentives. The current popular executive incentive programs are mainly annual salary system and MBO (management buyout) and employee stock ownership in between.

It is generally believed that in order to solve the problem of long-term incentives, a profit-driven model must be established, so that employees' remuneration is linked and consistent with the company's shareholder value. Therefore, the most typical long-term incentives are equity or virtual equity incentives.

Equity incentives are divided into two levels: employee stock ownership and MBO. Employee stock ownership is an annual salary system that uses virtual equity, value-added equity and other forms to modify short-term incentives to achieve long-term incentives to a certain extent. Strictly speaking, MBO is a part of employee shareholding, which means that if the quantitative change of employee shareholding accumulates into a process of qualitative change, MBO is realized when employees and management gain control of the company. It can be seen that MBO is a long-term incentive in a complete sense.

"The implementation of MBO requires three prerequisites," said Zheng Peimin, executive director and general manager of Shanghai Rongzheng Investment Consulting Co., Ltd. "One is that the seller is willing to sell, that is, the company's current major shareholders are willing to sell; the other is that the buyer is willing to sell. If they are willing to buy, it means that the management of the company is an excellent management team and is full of confidence in the future of the company; the third is that the management must be able to buy it, and they have money or can borrow money to buy it."

In today's China During the transition period of 2009, a large amount of state-owned capital will withdraw from the non-monopoly competitive field, which provides an opportunity for the first premise of MBO. State-owned enterprises operating in non-monopolized competitive fields can use MBO to effectively motivate senior executives; while private and private enterprises and foreign-funded enterprises can choose employee stock ownership to enhance long-term incentives for key employees.

Changdian Technology has been experimenting with long-term incentives, and finally established an indirect MBO model that adapts to the transition period of state-owned enterprises: senior executives and key employees use a company controlled by themselves--Jiangyin Xinchao Technology Co., Ltd. indirectly controls Changdian Technology.

The specific operation of this indirect MBO model is: the local government took out 30% of its shares in Jiangyin Changjiang Electronics Industrial Company, the predecessor of Changjiang Electronics Technology, and rewarded the company's executives. Executives get 30% of them, and the remaining 70% are allocated to key employees. The senior executives and key employees were entrusted by 1,035 employees of Jiangyin Changjiang Electronics Industrial Co., Ltd.'s Employee Stock Ownership Association, and invested 32.53 million to set up Jiangyin Xinchao Technology Co., Ltd.

Jiangyin Xinchao Technology Co., Ltd., Jiangyin Changjiang Electronics Industry Co., Ltd. and several venture capital companies invested in the establishment of Changjiang Electronics Technology Co., Ltd. Jiangyin Xinchao Technology Co., Ltd. accounted for 34.24% of its total share capital, the largest The largest shareholder of Changdian Technology, while the executives and key employees of Changjiang Electronics Technology Co., Ltd. control Jiangyin Xinchao Technology Co., Ltd., thereby indirectly controlling Changdian Technology.

"Through this kind of equity relationship, the community of interests between the executives and the company has been greatly strengthened, and the combat effectiveness of the company's leadership team has become stronger," said Wang Xinchao.

The relatively large-scale Little Swan Group follows the company's consistent and stable operation style in terms of long-term incentives. First, it will hold a pilot shareholding in a newly established subsidiary company and wait for an opportunity to promote it to the whole group. 37 operators and key employees purchased 5 million of the subsidiary company's 30 million assets. Although they did not reach the controlling position, they made up for the lack of long-term incentives in the annual salary system to a certain extent. More importantly, it has spearheaded the group-wide shareholding change envisioned by group president Zhu Dekun. Zhu Dekun said, "In the second stage of Little Swan's business with the goal of international operation, state-owned shares will gradually withdraw from the entire group company, and the company's management model must also be in line with international standards."

Little Swan : Short and medium-term performance assessment by annual salary system

Chinese managers have successively implemented a fixed grade salary system and a post salary system, but they have not made their contributions to the enterprise get a commensurate return, so the annual salary system came into being. Enterprises initially introduced the annual salary system, mostly simply pursuing the improvement of numbers, but practice has proved that it is not so simple.

In fact, the annual salary system is a combination of short-term incentives and medium-term incentives. The classic approach of the annual salary system is to divide the annual salary of executives into two parts: one part is fixed salary or called base salary, and the other part is variable salary or risk annual salary. The fixed salary is actually a short-term incentive issued every month, and the risky annual salary is a floating income determined after the performance appraisal of the one-year or one-quarter appraisal cycle.

In Zheng Peimin's view, there are four conditions that Chinese enterprises must meet to fully and effectively implement the annual salary system. Two of them are internal conditions of the enterprise, and the other two are external conditions of the enterprise. Internally, the enterprise must first be a pure enterprise with clear property rights and no non-operating assets such as schools and hospitals, which lays a clear foundation for the performance evaluation of executives. The second is to have a scientific performance evaluation system to provide a strong basis for the payment of annual salary.

One of the external conditions is to have a perfect capital market to objectively assess the value of enterprises. This evaluation is closely integrated with the company's own performance evaluation to measure the contribution of executives to the company more objectively and scientifically. The second is to have a perfect professional manager market. In this market, managers can go in and out, and they can go up and down. In this way, the annual salary system can play a very good role in incentives and constraints.

The first two conditions can be achieved through the efforts of enterprises themselves, while the latter two conditions are not yet mature in China. However, in China's transition period, it is not until the conditions are ripe to do things, but to improve the conditions in the process of doing things. The leaders of Changdian Technology and Little Swan have a deep understanding of this. Zhu Dekun said: "The transformation of Little Swan will continue. In the process of transformation, we will continue to create conditions so that the assessment, remuneration and management model that conforms to international standards will gradually operate effectively in Little Swan."

Little Swan The group implements an annual salary system for more than 100 general managers, deputy general managers and financial directors of its dozens of subsidiaries and group companies. It determines the annual salary of each senior executive based on factors such as the size of each company, annual performance, senior executives' qualifications, and the original salary of the executive position. Each year, these senior executives are assessed on the basis of four indicators of sales, profit, payment for goods, and accounts receivable. Senior executives receive their annual salaries at a ratio of 3:3:2:2 based on the assessment results of the four indicators. If the indicators are not fulfilled ideally, not only will they not be able to get a penny of their annual salary, but they will also have to deduct money, forming a relatively balanced incentive and restraint mechanism.

Changdian Technology: Fuzzy Salary Challenges egalitarianism

Distribution is always accompanied by issues of efficiency and fairness, and this issue becomes more prominent during the period of enterprise transformation. "Chinese egalitarianism is the biggest challenge I face in terms of salary incentives," Wang Xinchao said frankly. "I have been fighting against egalitarianism since I was the director of the factory in 1991."

Wang Xinchao's strategy is to retain the transparent characteristics of the traditional salary system, and at the same time, to provide "year-end red envelopes" to the management cadres above the assistant director of the branch factory according to the size of their contributions, and to implement "compensation" for other employees. excitation". The entire compensation of employees forms a transparent part and an opaque part. In this way, the transparent part of the salary dispels the employee's mentality of comparison, while the opaque part forms a certain atmosphere of healthy competition, and employees can be recognized by the company's leaders because of their intense work, and they can also be spiritually motivated.

In fact, the transparent salary policy and the fuzzy salary policy have their own advantages and disadvantages. The key is to evaluate the employees' work scientifically and objectively. The current popular evaluation methods can be basically divided into two categories: one is to evaluate the performance results produced by employees, and the other is to evaluate the knowledge and skills of employees. The former is more suitable for work results that can be quantified, while the latter is because the results of some work cannot be scientifically quantified, so the evaluation object is based on the knowledge and skills of employees. It assumes that employees with certain knowledge or skills go through the normal work process. , can produce some predictable results that are useful to the enterprise; it also assumes that employees with different knowledge or skills have different work results.

With scientific and objective evaluation as the basis for compensation incentives, the egalitarianism that uses "fairness" as an excuse will be easily broken. However, without this evaluation basis, pay differentials constructed for other reasons will not only fail to eliminate egalitarianism, but even have a serious anti-incentive effect. Therefore, the lack of fair egalitarianism is bad, and the lack of fair pay differentiation is even more terrible.

Perhaps, Changdian Technology will eventually transition to the annual salary system, just like the little swan. "From the traditional eight-level salary system to the current annual salary system and management's shareholding, we have a very stable transition. Fuzzy salary is a positive way to break people's psychological imbalance." Xu, Vice President of Little Swan Company Yuan said, "If you don't take into account China's national conditions, you can't do anything you want."

Special policies are urgently needed for enterprises

The compensation strategy should also adapt to the special needs of different situations of enterprise development. Changdian Technology, which is rapidly emerging in the emerging IC packaging industry, is well aware of the supporting role of technology in the growth of enterprises, so it highlights the incentive effect of salary on scientific and technological personnel.

It implements a project salary system for scientific and technological personnel, forming an innovative mechanism of "determining projects, requirements, personnel, acceptance, and rewards". Through employee self-declaration and public bidding, the company's employee technical association summarizes technological innovation projects, and after evaluation by the evaluation team, the project manager signs an agreement and implements rewards according to the project progress. A file is also established for the personnel involved in innovative research. After each project is completed, the evaluation team will score the project according to the difficulty of the project. When the accumulated points reach different amounts, different rewards and salaries will be implemented. The project salary system enables Changdian Technology to successfully develop more than 100 projects every year, providing strong support for the company's rapid growth.

For maintenance technicians, the Human Resources Department of Changdian Technology organizes an evaluation team to implement maintenance grade system, design different salaries, and regularly evaluate or promote or demotion through the evaluation of maintenance technology, service level, work attitude, etc. file, and strive to maintain a dynamic and benign interaction mechanism.

The performance appraisal is used for administrative personnel. There are hard targets to assess the achievement rate of hard targets, and only soft targets are to assess the horizontal coordination services and the achievement of work goals assigned by superiors. In the performance appraisal, the Human Resources Department regularly organizes a review team to make suggestions to the company management based on the completion of his own performance and the opinions of the horizontal departments: either promotion, transfer or elimination, and try his best to play in the most suitable position according to his personal characteristics. maximum efficiency.

Little Swan implements "negotiated wages" for personnel who can bring special benefits to the company's stable operation, mainly for some key, special and urgently needed positions, but cannot solve vacancies in accordance with conventional methods of. For example, one of the company's vice presidents and chief financial officers adopted this strategy. "We will make good use of the compensation lever to promote the company's continuous transformation in accordance with the relevant resolutions of the company's board of directors," said Zhu Dekun.

Chinese companies are transforming, managers are transforming, and compensation strategies are transforming. The compensation strategy of managers during the transition period should not only adapt to the transition, but also promote the transition. The attempt of Changdian Technology and Little Swan still needs the test of time.