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Profit Sharing at kvc info
Human resource
management has always been an important area at kvc info since it's inception. One
challenge was to develop a compensation system that would be fair, yet at the same time
based on results.
In our case (as with
many other smaller companies) the operation teams are also closely involved with client
communication, marketing, and in many cases, even mundane office work such as accounts,
buying office supplies etc- all of which would somehow help save costs and increase
profitability.
| The challenge was to evolve a system of rewards based on
performance that encouraged people to look at long-term results |
As a startup with just 3
people (all promoters) it was pretty easy and intuitive - everybody just did what it took
to stay afloat. But as the organization grew, it added on people who are looking at
building careers and who were more specialized in their chosen areas.
This brought us to some
fundamental questions - if a custom software developer only developed software, then would we not
need specialists in every area such as accounts, billing and payment collection? And even
in design, there were the architects, the designers, the
database programmer, the ASP/
JSP / Perl / Cold fusion programmers, QC teams etc. In such a scenario, would not the
generalist who does a number of tasks, some of which are "non-billable", get
sidelined? For example, how would we evaluate the "value" contributed by a
person, who spent the extra time taking designing, developing, and nurturing our own
websites? After all, it may take months to show results, by which time these contributions
would get long forgotten. Another question was the Catch 22 situation that all small
companies face - we can't offer high salaries till we make more money, and we can't make
more money till we attract the best talent by offering great salaries.
The easy way out was to
decide fixed salaries based on the perceived value that the person brought to the
organization, rather than just the number of hours of client or "billable" work.
But this calls for arbitrary decisions and compromises. The problem with compromises was
that it, at best, left everyone equally unhappy. And besides, any ad-hoc rewards only
encouraged everyone to look at short term, spectacular solutions. The challenge was to
evolve a system of rewards based on performance that encouraged people to look at
long-term results.
This seemed to be the
ideal time to introduce Stock Options. Unfortunately, we were not yet at a phase where we
could look at an IPO, and neither were the promoters too keen on "selling out".
Thanks to the power of
the Internet and the Search Engines, we were quickly able to look at different options
available in this area. Conventional 401K / ESOP/ Stock Option programs were screened out
simply because we were not listed on any Stock Exchange. Finally, after almost 4 weeks of
research, we settled on the Stock Appreciation Rights program (commonly called SAR or
Phantom Stock Options) as a probable delivery vehicle for our reward dreams. Based on this
framework, we devised a novel (at least we think so!) rewards program.
The SAR would be linked
directly to the net profit of the company. At the beginning of the year, we would settle
on the percentage that will be kept aside for distribution. We would also update the
entire organization on the financial status of the organization, as well as the plans for
the coming year. Financial updates would be published on the Company Portal at regular
intervals, so that every employee knows the current status of the SAR and our progress
against the year plans.
| Any activity, whether it increases revenue or reduces cost
would be valued, since both help increase the overall profitability. |
Any activity, whether it
increases revenue or reduces cost would be valued, since both help increase the overall
profitability. Even adding new resources would be done carefully, since more people would
mean less for each person, unless there was more than proportional increase in profits.
Thus there was an inbuilt incentive to build efficiencies and this ensured that the
organization remained competitive at all times.
In order to keep the
systems of rewards objective and integrated with the various performance measurement
criteria, the development team set about defining an objective "grid" which took
into account the individual's score on factors such as the Competency Improvement Plan
(similar to a Performance Appraisal, but focusing on building the individual's and
organization's competency) experience, market value, and alignment to Core Values.
Of course, in tune with
our philosophy that all employees add value, even employees that were in staff functions
such as Human Resources, Finance, accounts and system administration were included in the
program. This helped bring the team together, ensuring that every employee was aware (or
made aware by his colleagues) of the value that they brought to the organization.
The team also studied
other organizations where the SAR program had failed, and identified that one major reason
for the failure was the complexity of the entire program. Unlike a conventional Stock
Options program, where the daily Stock Exchange quotes told the employee how much his
stock was worth, the SAR demanded that he/she do the complicated calculations himself /
herself. In order to simplify this process we developed a "calculator" where all
that the employee had to do was to type in the number of shares, and the projected income
for the period and they would instantly know how much they would make. The calculator also
allowed the employee to view the share value under different scenarios, such as higher
productivity or changing workforce.
Overall, it helped to
boost the feeling of value and ownership in the minds of all the member of Team kvc info,
in addition to the fact that it fostered longer-term thinking and teamwork, since success
benefited everyone. Above all, it created an environment of fair play, where every
employee knew what was up for grabs. Moreover, since the monthly financial summary was
presented monthly to the entire organization, everyone felt the need to involve in
ensuring the organization moved ahead, month after month.
Will it succeed? We
figure that only time will tell. But in one area at least it's already proved it's worth -
in terms of the time that top management now needs to spend to decide on ad hoc rewards.
This time saved could be put to better use in planning and ensuring that the company made
money - for everyone. |
