EDITOR’S NOTE: This is part three of a three-part feature. You can review parts one and two on work life quality and flexible benefits by looking for Web site news featured during the past two days.
Ralph is an experienced employee. You think he is good but he is complaining that his salary is not enough. You're puzzled and angry because you gave him a raise and a cost of living increase a month ago and the salary is competitive. Ralph seems ungrateful and his output is down.
After talking with Ralph, you learn that he feels he should be paid more than Ed, a new employee. You hired Ralph two years ago at $62,000, a year. He's now making $68,500. But Ed was just hired at $56,000. Ralph thinks he should have more to show for his two years experience compared to Ed, who is younger with no experience.
You realize that starting salaries have gone up at a faster rate than regular pay increases. Attracting educated employees was competitive. Result: the difference in pay got smaller between experienced and less experienced employees. This is called salary compression.
Your experienced employees don't like it. They will react negatively, slowing down and looking for another job, another promotion, or another raise. In this situation you could recognize Ralph's experience, tenure and value with flexible benefits.
Using quality of work life techniques to motivate and to reward employees can result in productivity gains. The ultimate goal, of course, is to achieve the maximum result from the least effort, the greatest profit for the least cost, the largest output from the smallest input. To work toward this goal you've got to know how productive your company is. Thus, you must define and measure productivity for comparison from time to time.
PRODUCTIVITY MEASUREMENT. Definitions of and ways to measure productivity vary. A basic way to express productivity is productivity equals output divided by input, i.e. productivity is the ratio of output to input, or simply output over input. The quantity of output is measured in units produced, dollars of sales, or any term that suits your need. The quality of output is measured by workmanship, adherence to standard and absence of complaints. Input is measured by labor costs, hours worked and number of employees. To be useful, measures must be as simple and as consistent as possible.
A simple and understandable method of productivity measurement is to divide total sales (output in dollars) by total compensation costs (input). Increases and prices are accounted for automatically; however, you must adjust for inflation. To compare productivity measures in different years, pick a base year and give it an index of 100. Then figure your ratio of compensation to sales and with that number calculate the index and compare the fluctuation of the indexes.
Suppose as follows:
Year xxx1 xxx2 xxx3
Total Sales $500,000 $550,000 $610,000
Compensation $247,500 $275,000 $302,500
Ratio 2.02 2 2.02
Index 100 99 100
Compute the index by multiplying the output ratio for the given year by 100 and dividing that result by the output ratio for the base year.
100 x 2 200
xxx2 Index of Productivity =__________= ________ = 99.00
2.02 2.02
The figures are hypothetical and are not adjusted for inflation, but they show that productivity declined in xxx2 compared to the base year xxx1 and that in xxx3 productivity returned (increased) to the level of xxx1.
But you had ten employees in xxx1 and xxx2 and eleven in xxx3. So you could also measure productivity output (sales) in terms of hours worked. Assume each employee worked a 40-hour week of 2,080 hours a year.
Year xxx1 xxx2 xxx3
Total Sales $500,000 $550,000 $610,000
Hours Worked 20,800 20,800 22,880
Ratio 24.04 26.44 26.66
Index 100 109.9 110.9
This index shows more sales to hours worked in xxx2 over xxx1 and the same again in xxx3 over both xxx1 and xxx2. Productivity increased. How valuable was the new employee?
Using output over input, you can measure any activity and employee. A typist's productivity can be measured in terms of numbers of pages typed, a salesperson by number of customer calls or amount of sales. When deciding how and what to measure, consider what a person does, how well, how much and how often.
The indexes measure the productivity increases and decreases that indicate changes in your company's performance. You need these measures so that you:
1) Can set goals and priorities
2) Know where you stand
3) Are motivated by objective reasons - by numbers, not subjective feelings
4) Have a common basis of communication with employees, bankers and consultants
CHANCING THE CHANGE. For many, if not most, companies adoption of quality of work life and flexible benefits management techniques can dramatically change how things are done. It is difficult and risky to make these changes; however, such changes may be not only necessary but also the difference between companies that are competitive and companies that aren't. Experience shows that with proper consultation, planning, training, and implementation the innovative human resource management concept is becoming the standard for effective management.
This article was reprinted with the permission of Bizmove.com.