Fast-moving consumer goods dealer professional consulting management: kxpjxszyzxgl ------------------------ Setting salary standards is probably the most headache-inducing task for every dealer boss, especially under the current economic conditions. If wages are set too low, forget about recruiting new staff—you might not even retain existing employees. If wages are set too high, the company not only fails to make money, but the boss has to subsidize it. I believe many small company bosses have been puzzled: why do the cash management methods of big companies like IBM and HP not work for their own companies? Most dealer companies, like mine, share the following profile: established for several years or over a decade, fewer than 100 employees, annual sales of tens of millions of yuan, hundreds of problems, and high employee turnover—a typical small company. Frankly, I have never worked in a big company nor received systematic management training. Since starting my company, I have had to observe the successes and failures of various enterprises while learning from my own setbacks, constantly seeking management methods suitable for my company. Now I would like to discuss the issue of paying wages and how to handle it, hoping it might be practical for local small businesses in China. 30%..70% VS 60%..40%? Employee wages generally consist of two parts: fixed salary and variable salary. Every company pays both, but the proportions differ. My company has always used a low-fixed-high-commission approach for frontline staff in sales and other departments. This method has several advantages: First, it provides clear incentives. If you complete your monthly tasks well, your commission is high; if you slack off, your income drops immediately. So employees feel pressure every month and dare not relax. Second, fixed costs are low. During the off-season, because frontline staff have low fixed salaries and account for 80% of total employees, overall labor costs decrease, helping the company weather risks. However, problems arise during recruitment: although overall income is not low, the fixed salary is small. Candidates usually care most about the fixed salary. If we state it too low, we can't attract anyone; if we state it too high, we can't set new employees' base pay higher than that of veterans. So it's hard to recruit high-quality staff. Moreover, when employees compare with peers or classmates, they feel embarrassed to mention their base salary. Later, during recruitment, I had to resort to temporary remedies: not mentioning base salary, only total income, and after hiring, increasing income through bonuses and other forms on top of the base salary. But this is not a long-term solution. I also reviewed some cases and found a common difference in the composition of monthly income between sales staff in large companies and those in small companies: in large companies, fixed income accounts for 60% of monthly income, variable for 40%. In small companies, fixed income accounts for 30%, variable for 70%. Comparing with my own company, the ratio of fixed to variable salary for frontline staff indeed matches the average for small companies. Clearly, both methods have pros and cons. For small companies, with limited capital and low risk tolerance, fixed salaries are set lower. When the company performs well, variable salaries rise, increasing total income; when performance declines, variable salaries drop, effectively controlling labor costs during revenue downturns. For large companies, with substantial resources and higher profit margins, attracting and retaining talent is a top priority, and they are less concerned about labor costs. So they are willing to offer higher fixed salaries to enhance their appeal to talent. This leads to an interesting phenomenon: during economic crises, large companies often need to lay off employees to cut costs, while small companies don't need to lay off anyone—they just maintain low fixed salaries. In many small companies, employees leave on their own after months without bonuses or commissions. In fact, although nominal wages in small companies are lower, total income is not necessarily less than in large companies. But as companies grow and market conditions change, the drawbacks of low-fixed-high-commission become more apparent. Besides recruitment difficulties, more importantly, employees feel insecure—after years of hard work, their fixed salary remains low, so they lack a sense of belonging. When other companies poach them with higher base salaries, they are prone to jump ship, leading to high turnover. If a company continues to expand, its salary structure should gradually move toward that of large companies. Although this increases the company's burden, it's the lesser of two evils; otherwise, the inability to attract talent and retain key staff will hinder further development. This is a risk that small companies must take as they grow into larger ones. Facing Pressure to Raise Salaries In recent years, prices have risen sharply, and monopoly industries and civil servants have loudly increased wages. Naturally, every employee hopes for a significant pay raise, but over 90% of small companies cannot afford this. Facing such pressure, sometimes bosses wish they could just close the company and invest in stocks or real estate, seeking peace and possibly making more money. Management books often say: give employees lofty ideals, create development space, formulate personal career plans, analyze the company's current situation and long-term plans, inspire team spirit, and boost morale. Through years of practice, I've found it very difficult to achieve all these perfectly. Moreover, spiritual rewards alone, without material incentives, work only temporarily. Most people's pursuit of money is endless, and satisfying everyone is impossible. Nevertheless, we can try to satisfy the 20% of key employees who make up the core. My approach is to develop key employees into shareholders. Specifically: sell company shares to key employees at half price with a buy-one-get-one-free deal. If they withdraw within five years, they only get back their principal. After five years, if they want to withdraw, shares are redeemed at the net asset value at that time, or at three times their actual investment. Additionally, each year we distribute 60% of net profit as dividends—after all, if there's money, everyone shares. But rights come with obligations: if a shareholder does something disloyal, they are doubly penalized, and losses are deducted from their share capital. Of course, different companies implement shareholding schemes differently. In my company, we don't calculate intangible assets or price-earnings ratios. We only consider net assets. The boss gives up some profit, and employees get tangible benefits. At year-end, the accountant produces a report listing fixed assets, working capital, receivables and payables, deferred expenses and depreciation, annual profit, expenses and taxes, etc., all transparent. For key employees interested in buying shares, all these figures are disclosed. Because employees usually trust me, most don't even look at the report. They are satisfied knowing the company's net asset value and the approximate annual dividend and appreciation rates after investing. Of course, the proper approach would be to have a third-party accounting firm conduct an asset valuation and issue a report, but employees think it's unnecessary, and I'm happy to save the trouble. After employees buy shares, the company gives each a receipt stating the amount invested, and signs a shareholding agreement with each shareholder, detailing the actual investment, percentage of total shares, annual dividend plan, rights and responsibilities of both parties, and withdrawal methods. Both parties sign and seal, each keeps a copy, and everything is settled. Why not give shares to key employees for free? It's not that I care about the money, but people don't cherish what they get for free. Moreover, the investment serves as a deposit to prevent shareholders from misbehaving. Besides, employees can recoup their investment through dividends within five years. No investment, no return. In the early years, I distributed 30% of annual profits as dividends. Although the total was significant, for small shareholders it was somewhat trivial. In the past two years, following advice from experts, and because the company has sufficient working capital and the consumer price index has risen quickly, I raised the year-end dividend ratio to 60% of net profit. When the news was announced, small shareholders were overjoyed, and some hesitant employees also asked to buy shares. This strategy works well: giving employees a stake not only retains talent but also motivates them to work better. Thanks to the company's steady growth, no shareholder has left in the past five years. After several years of dividends, early shareholders have recouped their initial investments, and the value of their shares has multiplied several times. Moreover, key positions are held by shareholders, saving the boss a lot of management effort. When a boss gives away more than 50% of shares to employees, he certainly feels the burden on his shoulders lighten by more than 50%. Actually, a boss doesn't need to hold more than 50% to maintain control. If each small shareholder holds less than 5%, then holding 20% to 30% makes the boss the absolute largest shareholder—after all, you wouldn't let all small shareholders unite against you, would you? Another tip: previously, year-end dividends and bonuses were treated as expenses amortized monthly over the following year, which was not very scientific. Now we accrue them monthly in the current year, setting aside this portion from profits each month. This way, we know exactly how much we have when distributing bonuses at year-end, and departments have a basis for calculating their total year-end bonuses. I once overheard a shareholder telling others: a competing company tried to poach him with a much higher monthly salary, but he didn't switch because he had shares in our company. Hearing that, I felt gratified: being a shareholder really makes a difference. According to the Pareto principle, 80% of a company's profits come from 20% of its key employees. Therefore, the primary task is to retain that 20%. For the other 80% of ordinary employees, adjust salaries appropriately based on years of service, do more ideological work, and if that fails, let fate take its course. In recent years, our company has seen relatively stable staff and no major operational setbacks. Incentive Policies Need Foresight Ultimately, the boss is the maker of reward policies. He can use people's nature to seek benefit and avoid harm to align employee interests with company interests. Then there's no need for ideological work; employees will naturally work in the direction the boss wants. But I once suffered a painful lesson. For one product, due to a relatively high profit margin, the commission policy was set at 30% of profit. Years later, circumstances changed. Due to intense competition and rising costs, achieving the same profit required more manpower and resources. Besides commissions, the company also paid base salaries, quarterly bonuses, year-end bonuses, and various increasing allowances. So paying 30% of profit as commission became very difficult. When the company explained this to employees and proposed lowering the commission ratio, we met strong resistance. Many employees found it hard to understand. On one hand, they felt annual wage increases were justified because the price index kept rising and living costs were higher. On the other hand, they thought it unreasonable for the company to demand ever-increasing profits from employees, given fierce market competition and the limits of individual capability. So according to most employees, if they generated the same profit as the previous year, wages should rise or at least stay the same—how could they be cut? Although the company eventually forced through the change in the sales commission policy, everyone was dissatisfied. Some resigned over it. Years later, many still harbor resentment and occasionally bring up the old high commission rates, leaving me speechless. Therefore, when formulating reward policies, bosses must consider all factors and have foresight. They should not only consider the current situation but also future scenarios: calculate in detail whether the company can still afford the current reward standards once the department or business grows. Because it's easy for employees to accept upward adjustments in reward amounts and percentages, but downward adjustments often cause widespread complaints. If reward policies lack foresight, as the company grows, it may eventually have to replace the entire team to implement new policies, at a great cost. In fact, no school or training program in the world is designed to cultivate bosses. Even MBA courses can only produce professional managers. Bosses are made through practice, not training. Knowing how others fail is more important than knowing how they succeed. But even after reading this, you might still make the same mistakes. I just hope your mistakes are smaller and the process shorter. After all, you have to swallow some water before you learn to swim. (This article is reprinted from Sales and Market, original author: Pan Wenfu) -------------------------------------- Like this article? Feel free to share it on your Moments by clicking the top right corner; About us: WeChat ID: 快销品经销商专业咨询管理 Account intro: 20 years of internal management experience in FMCG distribution, specializing in dealer internal enterprise database establishment, financial sorting, organizational system construction, marketing team training, company management planning, performance evaluation system setup, etc. Senior marketing teachers help your business grow. Learning and exchange QQ group: 344257092 -----------------------------------------