Returning to his factory he decided that he will share 25% of value-added with his employees. The formula is simple, Value added is defined as the sum of Profit before Tax, Depreciation, Interest and Employee Cost. This is divided in three parts: Retained within the organisation 50%, Paid to Shareholders and Bankers 25% and shared with employees 25%. The employees’ share works out to approximately 8% [of the PBT] after deducting employee cost. This is shared equally with all employees!
There are two types of entrepreneurs – [a] those who are successful and make tons of money, and [b] those who are successful and help others [also] make good money. The former variety is the most talked about in seminars and written about in magazines. The latter variety makes a huge impact on the lives of people – they are not just the techies who understand technology well, but they are also transformational leaders, they positively impact the way people think and behave; in that sense they are ‘touchies.’
You guessed it right, I am going to write here about the latter type.
My quest for hi-tech and hi-touch people began when I heard about Polyhydron. Just in case you have not read about it here is what their website says about their belief and practice:
‘Employees should earn wages, not be paid’
A transparent system of wealth generation and a link of compensation to employees ensures that the employees earn their wages and need not be paid. This system makes the employees responsible for their returns and in turn improves wealth generated per employee. It promotes multiple skill, reduces total manpower requirement. Polyhydron has established wealth-sharing scheme. It ensures 30% of the wealth generated gets distributed (100% Bonus is the limit.)
I wanted to meet the Mr. Suresh Hundre, the entrepreneur par excellence who moulded Polyhydron in an exceptional and ethical organisation. I had spoken to him for an appointment too, but fate intervened. Mr. Hundre passed away before we could meet.
Polyhydron shared value-added with employees. I always wondered if there was anybody else who had implemented sharing value-added with all employees. My search began and ended quickly. I discovered that my friend Mr Hemant Mondkar, Chairman of HyTech Engineers Group, Thane had done it.
In the mid-nineties, an important customer of Mr Mondkar’s company met him and set three seemingly impossible conditions for future business: [a] practice ‘just in time’, [b] no quality checks at the customer’s end, meaning that quality standards must be upgraded very substantially at Mondkar’s factory, and [c] reduction in cost by 10%. The customer allowed just one year to make this happen. There was no option for Mr Mondkar but to accept if he had to be in business.
Mr Mondkar succeeded on all counts. That’s because he implemented the ‘Toyota Production System.’ We will talk about it some other day, today we are discussing how he pays his employees.
Mr Mondkar camped for three days at Belgaum and met Suresh Hundre. He understood how Polyhydron employees received their share of value-added.
The workers calculate VA every month, and enthusiastically remove non-value adding activities. The result: They get their share of VA which is equivalent to about 30-35% of their fixed pay including a guaranteed 12% bonus on actual salary [this is very substantially more than the statutory bonus]. How many organisations do you know which share Value-Added even with their managers?
That was a stupendous result. More benefits ensued. Decision making moved to lowest level in their company, and they found themselves making it far more democratically. The attention of employees moved from ‘results’ to ‘processes.’ And they experienced a higher level of trust among employees and across the organisation levels [which crashed to just a few]. This was initiated by the Toyota Production system and substantially catalysed by the ‘share-the-value-added’ way of compensation.
It takes tremendous courage to take such a decision. The trouble is that many entrepreneurs [and managers too] view employees as people who personify all assumptions of Theory X – lazy, responsibility shirkers, negative in their attitude. The fallout is that all decisions in people management arena are based on fear and extra-caution. Add to that the fact that in every organisation almost all decisions in people management arena are practically irreversible.
Among all decisions affecting employees, the one that generates tremendous passion and controversy is about wages and salaries. It was not just another way to pay employees, it also signified trust, responsibility and a way of life. Nobody was paying them salaries, they were earning them. That is precisely why Mondkar’s courage must be appreciated. What he did was not easy, and it was unprecedented.
In this country where it is common for the CEO to earn more than 400 times the salary of his lowest paid employee, this initiative is welcome. It is also welcome because it helps build success through higher customer satisfaction, and it helps build a ‘great place to work’. Success stands on the spirit of co-operation, passion for excellence and sensitivity to customers and employees – surveys of business magazines have no place in Mondkar’s scheme of building organisation. They are just irrelevant.
Mr Mondkar’s organisation is called HyTech Engineers. We can readily see that it is half-truth, they are so obviously a Hi-Touch organisation. Thanks Mr Mondkar for being the role model and inspiration!
Vivek S Patwardhan