FastCat phase II.docx
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FastCatphaseII
Part1.ExecutiveSummary:
WeproposethatFastCatimplementourpaysystemthatisdesignedtorewardgrowthofsales(productivity)withinthecompanybylinkingpaytoperformanceoftheorganization.Thissystemisdesignedtocontrolemploymentcostssoasnottogrowfasterthanthecompany’ssalesgrowthrate.Inordertoremainstrategicallycompetitive,FastCatmustensurethatitspaystructureisstrategicallydifferentiatedwithinthemarketplacesothatitcanretainemployeesandincreaseproductivitythroughmotivationincentivesrewardingperformanceandemployeeengagement.Aligningthecompetitivenessofemployees’payisimperativetoFastCat’ssuccessascontrollinglaborcostsisthelargestdeterminantonfirmprofitability;ultimately,FastCat’ssuccesswillbedeterminedbyitsabilitytobalanceitssalaryprogramwithfirmprofitability.
Asyoualreadyknow,FastCat’slaborexpensegrowthratehasoutpacedthatofthesalesgrowthrateoverthepastcoupleyears.Asaresult,firmprofitabilityhassufferedwiththelackofsalesproductivity.Inordertorewardproductivityofthefirmourpaysystemisdesignedtoattract,rewardandthenretainthebestsalesanddevelopmentstaffsthatthecompanycanobtainthroughacarefullydesignedsystemwhichalignscompensationgrowthwithincreasedproductivityforthecompany.Ontheotherhand,ourpaysystemisdesignedtotightlycontrolcostsinrolesthatarelessstrategicallyimpactfulandthusdonotaddsignificantmarginalvaluetothefirm’sperformance.Inordertodothiswehavesetforththefollowingprinciplesforestablishingasuperiorcompetitivepositioninthesoftwaremarketplace:
◆AlignFastCatemployees’compensationwithanexternallyverifiedlevelofcompensationsothatcompensationlevelsarestrategicallyandmethodicallydetermined.Asaresultemployees’compensationwillbetiedtothestrategicobjectivesofFastCat–namelyincreasingstaffproductivity.
◆CompensatetheSalesandDevelopmentDepartmentswithpotentialmarket-leadingwages,buthavethosewagesdeterminantontheirabilitytoproduceresultsforthecompany.Therevenuetolaborcostratiowillincreaseovertimeassalesgrowthwilloutpacelaborcostgrowth.
✧Market-leadingcompensationwillreducetheexpensesassociatedwithsearching,interviewing,training,on-boarding,andmotivatingemployees.
◆ControlthepaylevelsassociatedwiththeAdministrativeDepartmentbytargetingwages15%belowmarketlevelsothatwecandecreasetheoverallcostburdenofthedepartmentonFastCatasawhole.
Currently,FastCat’semployeeshaveasomewhatconfoundedviewofthecompanymanagement.While90%ofemployeessaytheywouldbewillingtogo‘aboveandbeyond’intheirjob,only70%feelastrongsenseofcommitmenttothecompany.Further,only40%oftheemployeessaythattheyunderstandhowtheirpayisdetermined.Therefore,FastCatmustclarifyandarticulateitspaystrategytoemployeesinordertoexplainmanagement’sdesiredbusinessobjectivesandhowemployeescanincreasetheircompensationbyaligningtheireffortwiththisstrategy.OursystemhelpsclarifyandarticulatehowFastCatwillbeabletomatchemployeesalarieswiththecompetitiveenvironment.
Part2.StrategyonExternalCompetitiveness
Whendesigninganexternalcompetitivenessstrategy,wedevelopedauniquestrategyforeachgroupofadministration,salesanddevelopment.Wedidthis,sothatwecouldmoreeasilyintegratetheexternalcompetivenesswiththeinternalalignmentstructurethatwedevelopedforeachgroupinphaseI.Whentheinternalalignmentandexternalcompetitivenessarecoordinatedandalign,thenFastCatwillbeabletomoreeffectiveachieveitsstrategyandgoalsaswellashaveacompensationstrategythatcompetitorscannoteasilycopy.
DevelopmentGroup
PayLevel-AswediscussedinphaseI,itisourinitialrecommendationthattoattractthebestsoftwareengineerstohelpdevelopandcreatetheproductsthatwilldriveFastCat’ssuccessinthefuture,werecommendthatthetotalcompensationpaylevelbeabovethemarketaverage.However,theindividualbasepay,meaningtheannualamountofcashthattheemployeeisguaranteed,willbeatthemarketlevelofcashbasepaytoallowforotherformsofcompensationandincentivestoincreasethetotalcompensationabovemarketlevel.
Thepaylevelfordevelopmentwillalsohavetwotiers,eachconsistingofitsownpaypolicyline.Thefirsttierwillconsistoftechnicianjobs;thesejobsareresponsibleforqualityassuranceandtestingpurposes.Thesecondtierwillconsistofengineeringjobs.ThesearethejobsthatarethecreativereservoirfordevelopingFastCat’sinnovativeproducts.Thereasonwhyestablishtwotiersisbecausethesalariesfitaquadraticfunctioninsteadoflinear.Thusitwasdifficulttohavearegressionlinewithareasonablefit.Furtherdifferentiatingthesejobsallowsustobetteraligncompensationwithouroverallobjectivesofinnovation,creativityandcooperation.
PayMix-Thebasepayfortheengineeringsub-groupwillaccountfor60%ofthetotalcashcompensation.Tohelpfostercommunicationandcooperation,therewillbeshort-termgroupincentivesthatcouldcomprise20%ofthetotalcashcompensation.However,webelievethatindividualinnovationandcontributionsarenecessary,sothereisalsoa20%individualshorttermbonuses.Forthetechniciansub-groupbasewillaccountfor80%,10%forindividualperformanceand10%ofteamcompensation.
Thedevelopmentemployeeswillalsobeeligiblefora401(k)theirfirstyearwithuptoa$2,500match.Employeeswillalsobeeligibleforprofitsharingatthemanagersdiscretion.Fortechniciansubgroup,FastCatwillpay50%oftheirhealthpremiumsandfortheengineeringgroup,itwillbe100%.Also,theseemployeeswillbeeligibleforstockinthecompany.
Thepaidtimeoffforthisgroupis10vacationdaysand5sick/personaldays,startingoff.Withmoreseniority,moredayswillbeadded.
IntegrationofExternalandInternal-Thequalityassurancetechniciansandanalystsbenchedmarkedverycloselytotheexternaljobs,asdidtheengineers.Appendix1showswhichjobswerematchedup.Laterinthepaperwewilldiscussthegradesandranges.However,itappearsnowthatbybenchmarking9jobs,therewillberoomtodevelopahierarchicalstructure.Thisisintendedtomotivateemployeestodeveloptheirskillsandincreaseproductivity.Additionally,itisintendedtohaveeachemployeeexcelintheirspecificsetofdevelopmenttasks,whilealsotyingpartoftheircompensationtoassistinggroupproductivity.
PreliminaryIdeas-Webelievethatthetotalcompensationpackageisattractiveandleadingthemarketfortechniciansandengineersinthesoftwaremarket.Wechoseourrelevantcompetitorstobeallsoftwarecompaniesandourpaypolicyisbasedonthis.ThiswaschosenbecausewebelieveFastCatshouldaimtorecruitandretainthebestintheindustryandindoingso,willneedtocompetewitheventhelargestsoftwarecompanies.However,ourpercentagesmayneedtobealteredasweinvestigatethecostinthenextphaseoftheproject.WewillalsohavetoseeifproductivityofcreatingnewproductsthatFastCat’scustomerswanthasincreasedduetothefocusonteamworkandcollaborationwiththemarketingteam.
SalesGroup
PayLevel-ThesalesgroupplaysthepivotalroleofmaintainingexistingclientsaswellasacquiringnewclientsforFastCat.Theyarethegroupthatcanmostdirectlyaffectthetotalrevenue.Therefore,theirtotalcompensationwillleadthemarketbyabout5%.
Ourrelevantcompetitorsarethesoftwaremarketasawhole.WebelievethatthesalesforcemustbeveryknowledgeableaboutFastCat’sproductsaswellashaveageneralknowledgeofcomputersandsoftware-specificallyasitrelatestomedicalpractices.Webelievethatthisknowledgeisuniquetothisindustryandsalesrepsinotherindustrieshaveadifferentsetofskillsandknowledge.
PayMix-Withthegoalofreducingtotallaborexpenseswhencomparedtorevenue,thesalesgroupwillhaveacashcompensationstructureof25%basepay,60%commissionpayand15%groupcompensationthatwillbesharedwithdevelopment.Byhaving60%ofthetotalcashcompensationdirectlyrelatedtobringinginadditionalrevenue,therevenuetolaborcostratiowillbeincreased.
Theteamsthattheseemployeeswillworkwitharethedevelopmentgroup.Ifasalesmemberclearlyrelayscustomer’sneedsandwantsforfutureproductstothedevelopmentteamandthedevelopmentteamcorrectlymakesaproductthatthesalesgroupcansell,thentheentireteamwillbeeligibleforaperformancebonus.
Also,FastCatwilloffertopay50%ofthehealthpremiumforthesalesemployee.A401(k)retirementplanwithupto3%oftotalcashcompensationmatchannuallywillbeavailableondayone.Bymakingthisavailableatdayone,wearemakingagreaterefforttoretainemployeesforalongerperiodoftime.Forpaidtimeoff,themarketing/salesgroupwillhave10vacationdaysand5sick/personaldaysstartingoffwithachancetoearnmoreeachyeartheystaywiththecompany.Theseemployeesarealsoeligibleforprofitsharingasdeterminedbymanagers.Managersinthesalesgroup,asdeterminedbytheirpaylevelwillalsobeeligibleforequitypurchasesinFastCat.
AfinalperkthatwillallowFastCattoattractthebestsalespeopleanddrivethecorporatestrategy,istoallowtheseemployeestohavetravelclubs,thatFastCatwouldpayfor,inhis/herownname.Thesejobsarerequiredattimestotraveltoclients,andallowingtheseemployeestogainfrequentfliermilesandothertravelperksthattheycould