GIVING BONUS-THE AMERICAN WAY (PART II )

Synopsis: Communication For Productivity Letters written to some 7500 Workers / Managers / Union Leaders, following a period of strike / Go slow / Murders (1979 - 1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open / honest communication led to a remarkable atmosphere of trust between Workers and Management, which, in turn, increased productivity at 3% per year (ave).

April 08,  1987 

To:

Dear Friends

GIVING BONUS-THE AMERICAN WAY           

(PART II )

A few days ago I told you about the bonus-system of A&P Food Stores In America.

it was a simple, efficient system. The lower the employee (manpower) costs, the higher the bonus.  It Is very much like the family-planning drive of our Government.  With a fixed family-income. If you have a small family, each member of the family gets a larger share of that Income.  If you have a very large family, everybody gets a very small piece of the cake!

This is the basic economic principle.

Whereas one can try and stop adding members to the family (prevent future births), what about the children who are already born?  You cannot sell them off - or send them to an orphanage!  They are there and they must be looked after.

It is the same thing with a company. It can stop recruiting further employees (as we are trying), but what about its existing employees?  It has to look after them.

So whether it is a family or a Company, answer is the same.                      

It must Increase its Income.  It must generate more profits which can be used to look-after its large family - even if it means a small piece to everybody.

To motivate its employees to work harder to Increase the company's profits (and profitability) one American Company has tried a novel approach.

The Company:             Commodore International Ltd.

Product           :            Computers.

Problem   :    Two years of declining sales and a year of substantial losses threatened the company's survival

Solution?         :   Chief Executive Rattigan introduced an unusual bonus-plan. Each employee will receive a bonus equal to 1% of his (or her) annual salary for each point Commodore's stock (share-price) has gone above 6 1/2 (the August 15, 1986, closing price) by March 31, 1987.

A five-point gain will mean a 5% bonus, and so on.

Results     :            By March 02, 1987, the stock had already jumped to 14!            

This means all employee? will get 71/2 bonus (14 - 61/2).

But there is nothing "free" in this world.

As Julle Andrew sang in the film "Sound of Music",

"Nothing comes from Nothing 

Nothing ever could -

Sometimes In my childhood 

I must have done something good".

the employees had to pay a "price" for this bonus.

The Price

·     Wage Freeze Massive

·     Lay-off (Retrenchment)

·     Increased Work-load.

These days, when Commodore employees enter the lunch-room, the first thing they look-up is a large blackboard showing a graph of Commodore's dally share-price.

These days Commodore-employees have a better appetite!  With massive retrench-each has to do the work of two!

The Business Week (March 16, 1987) story does not tell , us,, what would happen to Commodore-employees If the share-price went below 6 ½  !

We are not concerned, since we are quite unlikely to link employee-bonus with L&T's share-price.

But from NOW ON, you should certainly be Interested in keeping-track of L&T's share-price.

A few days back, L&T employees have already received an offer from the Management for Right Convertible Debentures worth

Rs. 2.1 crores

And the 23rd March Annual General Meeting of the share-holders passed a resolution to offer to L&T Employees, Employee Convertible Debentures (stock option scheme) worth

                       

Rs. 2.5 crores (Approximately)

That makes a total of Rs .4.6 crores.'

So from next year onwards, you wilI no more be concerned with Bonus alone -you will also be concerned with the Dividends - and with  future Issues of bonus-shares.

So from now on, you must ask    

·     Will my bonus-demand neutralise my prospects for bonus-shares?

·     Can I take away with another hand  what I am giving myself with the first hand?

·     Should I allow short-term gains to upset my long-term benefits?

In our country, we do not need the Commodore-plan;  India already has a BONUS-ACT, which may give employees 18% bonus even if a company's share-price may have come down by 80%!

Hemen Parekh