The Concept of Pay by Performance – Part1

The Concept of Pay By Performance

Coach Cahyadi Kurniawan

Coach Cahyadi

It is quite common nowadays, most company has company vision and mission that stated: Human Resource is our most valuable intangible asset. No body can deny that this statement is true, but the most difficult job is how to motivate the whole human capital to contribute its best for the sake of the stake holders, in the other words: How to motivate people that they not only come to work physically, but also bring their brain and heart into their work.

Motivation factors

Before we can motivate a group of people, we have to look into the level of people we have (or our society situation) according to Maslow hierarchy law. For industrial advance country where the society has reached a high standard of living and good social security system, factor which can provide people to obtain their self-esteem and chance for them to self-actualize, will be a good motivation factors. Therefore factors like clear job assignment, meaningful challenging job, proper working environment, longer annual leave are become concern although income in money wise is still in the priority list.

While for lower level, where the basic needs and security are still not met, a significant better pay, is the most important criteria for motivation. Dilemma is paying a higher that market price level will not make company competitive and flexible in the market.

The situation in developing country especially for current situation in Indonesia (political and economical are not stable yet), creates a situation that only the best and the worst will stay in current Indonesia.

The middle level will easily get some stable job outside the country; the worst does not have any chance except stay in Indonesia.

The best choose to stay, as with Indonesia’s potential and problem, provide them an excellent opportunity to thrive compared to moving to the others country, this type of people will not satisfy with something descent and stable pay, they will perform if there is a clear rewarding target.

Total Payroll factors

Therefore it is important to establish an attractive Total Payroll packages to attract, reward and retain the best, and squeeze out the under performance consistently.

We should look into all the components which add up such as:

A. Basic Salary
B. Allowance
C. Facilities
D. Performance Bonus
E. Fringe benefit

A. Basic Salary

This is a fix component, depends on company policy, it can be 12 to 14 months salary in a year including the Lebaran and/or Christmas extra payment.

This basic salary also more or less control by the market price in the same business sector, such as within our chemical industry but more specific to ink industry & paint industry. But most of the time if our industry is not a favorable industry, we will end up loosing our best people to OTHERS industry, which we have to accept as a fact.

It is advisable to pay our employee according to the market price through the Grading measurement, but it is NOT A GOOD practice to pay OVER MARKET PRICE, as this will result with in flexibility and high cost provided some negative impact to the company and has to down sizing.

B. Allowance

This is related to a temporary job assignment, it is not fixed.

C. Facilities

This is related to the job function, a sales man should have a car for operational use, a finance person should have the latest fastest computer etc

D. Performance bonus

This is a variable paid only strictly depends of the measure able financial result in a certain period, and this should be open ended, and should be finance by the extra result company gain! It is advisable to design a total pay roll cost with a much higher percentage on performance bonus rather on basic salary and allowance

E. Fringe Benefits

This is very much depends on the market price, and usually applicable for higher management level, as they are suppose to “mingle” at a certain society level for net working, such as certain type of car, sport club membership, golf club membership to private jet, exclusive holiday etc depends on the size and policy of company.

To be continued : The Concept of Pay by Performance – Part2

– Coach Cahyadi –

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  2. How To Systemize Your Growing Business


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