Compensation

I am thinking about compensation. It is a double edge sword. Paying very little to get very big results is what most companies do. The market rate is for the job is use as a basis for paying employees. The company provide financial resources and the complete business system. Every year, small amount of pay increase is given out. Meanwhile, for sales target the increase is substantial. Let's work out a simple theoretical example. We pay a sales employee $100K per year. He/she is responsible for $1 million in sales. For the employee to get 10% pay increase, the sales must increase by 10 to 20%. This mean the company just need to pay $10K to get a $100K to $200K return on sales. Of course this is quite simplistic as we did not look at base pay, market rate for the comparable job, years of experience, academic qualifications, etc, etc.

Why double edge sword? If the employee feel that $200K growth is too much and is willing to settle for less growth in his/her income, says 5% with a comparable drop in sales growth. The company will now have a sales growth of $50K to $100K.

With this kind of system, both employee and employer will lose. So this is a lose-lose situation.