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Agenda

I.     Presentation on how BASF YPC is setting up its salary structure ( Mrs. ZHU Yue, BASF YPC Nanjing)                    

II.    Discussion – exchanging experiences

Meeting Minutes 

I.     Presentation “Setting salary structure at BASF”

       Introduction

       This presentation is the second part of the series “compensation and benefits” dealing with the remuneration of employees. As a first part Mr. Marxen at the penultimate meeting presented the employee evaluation system, the last part will follow at the next meeting.

      The main objective of a salary structure is to attract, retain and motivite good staff. Questionable is which system is the most likely to achieve this goal. It has to be emphasized that there is no such thing as a “magic bullet”: every salary structure has its advantages and inconvenients. General spoken a salary structure always has to be set up according to the firm’s philosophie since it has to be presented and communicated not only to the outside, but also to the employees themeselves. The more coherent it is with the main ideas and values for which the firm or its HR measures stand, the better it will be accapted.

       As an example Mrs.Zhu will present the processes which lead to the establishement of such a structure at BASF

       The remuneration of an employee at BASF is composed of three parts: the fixed salary, bonus (flexible payments because of individual prformance) and benefits (advantages because of individual performance). The salary structure shall provide a clear, just and understandable system used throughout the whole firm to define the first part mentioned above: the fixed salary.

      The key factors for defining such a salary structure are

             a. the value of the position and

             b. the market situation.

      1. Since the salary should pay the job, it is important, to evaluate each existing position in order to find out what it gives to the firm (q.v. “how to evaluate employees’ position” – HR working group meeting 7.9.2006). The evaluation system defines a level for each job, depending on how important it is for the organisation. Each level has several salary lines in it, so the employee can move within a level according to his personal development and his working experience. Each company has to choose individually how many levels and how many salary lines per level it wants. However, one has to pay attention on the fact that the employees should always be able to understand in which level/ line they fall. An overlapping (somebody in a lower position gets a higher salary than somebody in a higher position) can occur since an employee will always move up in the salary lines the more working experience he acquired (i.e. the longer he worked for the firm), but will not move into a new level, unless he changes the position. Therefore the salary of an employee who has been working for the firm for a long period of time might be as high as the salary of a new employee in the level above.

      2. Taking in account the market situation is above all important for firms which have branches in various countries around the world. It appears to be clear that an employee in China will not earn the same salary as a european one, even if the value of their position is considered equal. When one fixes the salary it is recommendable to take in account the medium of the market, i.e. the average salary which is paid by firms operating in the same region and delivering a comparable product. If an organization pays less than this market average, good employees might quit, if it pays more, it faces high expenses. However a gap between the market medium and the firms salary can accur if the firm considers this to be desirable (BASF YPC’s philosophie is to pay a salary which is always above the market average). The main problem concerning this issue is to get good information about the market. Surveys might be expensive, therefore an information sharing between several companies is recommendable. Once the firm knows where its salary is positioned in the market, it can carry out some adjustment measures.

      Summing up we can say that the evaluation of the employees position divides the employees into the different levels and salary lines, according to the market situation there might be an adjustement.

      There are some additional factors defining the salary, which are

                1. the working experience and

                2. the personal performance.

      1. As mentioned above an employee will constantly move up in salary lines the longer he has been working for the firm. The idea is that his salary increases with his working experience.

      2. There are two types of promotion caused by personal performace: salary line promotion (which means that an employee stays in exactly the same position but receives a higher pay) and level promotion (which means that he is promoted to a higher position or at least gets some new tasks and responsabilities).

      Self-criticism

      Positive about this system is that everybody is baised on the same system, therefore it is equal. It easy to understand for the employees and employers can predict the salary expenditures.                                         However, since it is a system it occurs to be inflexible (for example the possibility to provide talented staff is limited since you can only make somebody move into a higher level if you change his position).                                                 

Individual performance is also rewarded by the bonus part of the salary, but this only composes 10% (normal employee) or 20% (manager) of the salary. However it is recommandable to increase this percentage since this would give more flexibility. The problem about increasing the fixed salary because of performance is that this increase is durable and irreversible, even if the employees’ performance might not be long-lasting, whereas a bonus can just be paid for one year.

However, employees would oppose to a reduction of the fixed salary and and increasement of the bonus part even if this might be beneficial An additional problem is that the bonus is always defined as a percentage of the fixed salary. This does not seem to be fair, since an employee in a high position would always get higher bonus payments for good performance than s.b. in a lower position.

A special problem in china is the tendancy of Chinese mangers to equalize the staff (i.e. to avoid salary differences), which is often contradictory to the HR measures. In addition to that, managers in China do often take sides with the employees when they complain about the salary structure instead of defending the firm’s policiy abd explaining it to the staff, which would be their role. Naturally they should discuss internally about the salary structure, but ones it is established it is their task to identify with it as one of the company’s policies, i.e. they should be on the firm’s side. More information and training is needed in order to solve those issues.

No matter which salary structure the firm choses, a lot of effort should always be put in communication. Employees might even be unhappy with a salary which is above the market average if they can not understand the system (which is the case in BASF).

II.      Q&F - Experience Sharing 

           Questions and Answers

Q: “What do we do if people refuse to believe in and understand the system? For example if operation people can’t understand why they should be in a lower level than the technicians?”

A: “Best is to hire a third party to exerce a job evaluation which will define the value of each position and to come to the agreement with all employees that the result will provide the basis of the salary structure. There mustn’t be any discussion afterwards, afterwards everybody will always try to increase his own salary.”

Q: “The job evaluation puts each employee into a level. But his salary is also determined by the (level or salary line) promition caused by personal performance. How do carry out this evaluation?”

A: “Usually the managers are asked to evaluate their staff. There are two main problems occuring: first, managers in china are not always impartial and often the promotion of an employee depends more on his relationship to the manager than on his actual work. Secondly all managers do not evaluate equally: some are really severe, wheras others give good evaluations to everybody. This problem can be solved either by defining an average which has to be reached (i.e. if a manager nomiates a high performer, he will also have to nomiate a low one in order to reach the average), or by requireing the nomination of only one (the best) employee of each section. Both measures are problematic since the first might oblige a manager to evaluate people very bad just because he has to reach the average and wanted to promote others, with the second you can not evaluate all employees.”

Q: “You said it is desirable to decrease the fixed salary in order to have a higher bonus part. But this will not attract new staff, since peoplew who search for an employeement above all pay attention on the fixed salary.”

A: “The only way to solve this is to communicate the system also to potential new employees, and also to try to attract people not only by the remuneration, but by training and carrer opportunities and so on.”

             Everybody's short comment on his company's salary structure

SASOL:

Our bonus is not strong enough to encourage good employees. We set up an average performer, good people get a bonus, bad people receive less money Problem: if you have to achieve the average everytime you evaluate good u also have to evaluate bad, this might decourage s.b. (see above)

ZF Stering

This year we set up a new system. The variable part is 30 percent of the remuneration and paid according to your performance of last year (this year’s performance will define next year’s salary). The fixed salary can also increase because of individual performance. As mentioned above this is problematic since a good performer in this year might a bad one in the next (no decrease of the fixed salary is possible any more). We have put a lot of effort in communication. Before, every employee didn’t now the structure but knew everybody’s salary, now new structure we have provided a lot of information concerning the system and it is forbidden to talk about one’s salary. We also face the problem of managers wanting to equaize everybody’s salary.

Koh-I-noor

Since there are only ten people at the office and about 70 workers, our structure is quite simple. 25 % of the salary is paid as a monthly bonus, good performers are promoted, bad ones are punished.

ATLAS COPCO

Quarterly bonus, paid in the next month after the quarter

Zhu CELANESE

There is a company bonus (overall productivity and quality) which is equal for everybody ans an individual bonus. It is questionable how important the company bonus should be.

MERIAL

Since this is also a small company (only 50 staffs) the HR work not so hard. Each year, the fixed salary increases, the final decision is taken by the top manager, according to the evaluation carried out by each section’s manager. We also have he problem that each manager evaluates differently.

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