April 08, 1987
GIVING BONUS-THE AMERICAN WAY
(PART II )
it was a simple, efficient system. The lower the employee (manpower) costs, the higher the bonus. It Is very much like the family-planning drive of our Government. With a fixed family-income. If you have a small family, each member of the family gets a larger share of that Income. If you have a very large family, everybody gets a very small piece of the cake!
Whereas one can try and stop adding members to the family (prevent future births), what about the children who are already born? You cannot sell them off - or send them to an orphanage! They are there and they must be looked after.
It is the same thing with a company. It can stop recruiting further employees (as we are trying), but what about its existing employees? It has to look after them.
It must Increase its Income. It must generate more profits which can be used to look-after its large family - even if it means a small piece to everybody.
To motivate its employees to work harder to Increase the company's profits (and profitability) one American Company has tried a novel approach.
Problem : Two years of declining sales and a year of substantial losses threatened the company's survival
Solution? : Chief Executive Rattigan introduced an unusual bonus-plan. Each employee will receive a bonus equal to 1% of his (or her) annual salary for each point Commodore's stock (share-price) has gone above 6 1/2 (the August 15, 1986, closing price) by March 31, 1987.
· Wage Freeze Massive
· Increased Work-load.
These days, when Commodore employees enter the lunch-room, the first thing they look-up is a large blackboard showing a graph of Commodore's dally share-price.
These days Commodore-employees have a better appetite! With massive retrench-each has to do the work of two!
The Business Week (March 16, 1987) story does not tell , us,, what would happen to Commodore-employees If the share-price went below 6 ½ !
A few days back, L&T employees have already received an offer from the Management for Right Convertible Debentures worth
And the 23rd March Annual General Meeting of the share-holders passed a resolution to offer to L&T Employees, Employee Convertible Debentures (stock option scheme) worth
Rs. 2.5 crores (Approximately)
So from next year onwards, you wilI no more be concerned with Bonus alone -you will also be concerned with the Dividends - and with future Issues of bonus-shares.
In our country, we do not need the Commodore-plan; India already has a BONUS-ACT, which may give employees 18% bonus even if a company's share-price may have come down by 80%!