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Article on achieving a win-win situation through intelligence and courage: Several salary systems in survey and design companies http://www.myla.com.cn/?26183 As numerous survey and design companies undergo structural transformations, changes in internal management are emerging gradually. Among these, adjustments to salary distribution patterns, as an important aspect, are receiving increasing attention from these companies. Based on the current situation, many survey and design companies adopt an income distribution model that combines a salary system typical of public institutions with bonuses tied to output, which can be simply referred to as the \"salary plus bonus\" model. Some companies are trying to implement an annual salary system, while others have started using a structured salary system that includes a basic salary along with wages based on position and performance. Based on our interactions with many design firms, regardless of the distribution model used, a common issue is that these firms have unclear understanding of the purposes and functions of salary distribution. Some companies have carried out changes in their salary distribution systems through third-party consulting firms, but due to a lack of clear understanding on their part, they knew what to do without truly understanding why it was necessary; as a result, the implementation did not yield good outcomes, and in some cases it even exacerbated internal conflicts within the company. This article attempts to analyze these distribution models for reference by the leaders of survey and design enterprises. 1 The “salary plus bonus” model is currently the commonly adopted approach in survey and design firms; it represents the traditional salary distribution system in such organizations. 1.1 Method of determining salaries: The term “salary” in “salary plus bonuses” here still refers to the salary calculation and payment system commonly used in public institutions. The “bonuses” are generally in the form of commissions linked closely to production volume or average bonuses; for frontline production and technical positions, the bonus is calculated as a certain percentage of their own production volume. For management and logistics positions, ranging from senior management to ordinary logistics staff, bonuses are allocated based on either the average bonus for frontline employees or the average production volume per person in those frontline departments, with different percentages assigned according to rank. In some organizations, a fixed-amount system is used to determine the income of frontline departments: payments are made on a regular basis in accordance with the standard salary structure, and at the end of the year, the total output value of that department is used as the department’s overall income. This amount is then distributed among the employees based on their individual contributions; sometimes departmental expenses are deducted first. The salary amounts paid during the regular period are subtracted from an employee’s total income, with the remaining amount serving as their bonus as a production or technical worker. Therefore, this approach is essentially also a form of “salary plus bonus,” except that the authority to distribute bonuses to production staff is delegated to departments, namely what is known as “secondary distribution.” Under this model, the wage component is generally linked in a relatively static manner to an employee’s professional title, length of service, and level of administrative position; it also includes various subsidies and allowances provided by public institutions. On the other hand, it is quite fixed and does not change much over time. Even if there are changes, they usually involve simultaneous increases, which means it has little incentive effect on employees. Additionally, its proportion of an employee’s total income is low, so its impact on overall income is minimal. Therefore, it is bonuses that truly guide and motivate employees. 1.2 Existing problems: This traditional income distribution system, having been in use to date, has revealed many problems. For example: Overemphasizing output value while ignoring technical quality and management improvement ； The management department fails to identify its own role, is unable to fulfill and demonstrate its functions, and is often mistaken for being supported by the production department ； There should not be an unreasonable gap in salaries among employees at different levels, positions, or with varying capabilities; in some cases, the situation might even be reversed ； The compensation of managers does not match the responsibilities and risks associated with their positions ； The problem of equalitarianism is hard to eradicate ； Employees lack motivation and pathways for advancement... and so on. This gives rise to a peculiar phenomenon: on the one hand, employees’ salaries are significantly higher than the local wage levels, while on the other hand, they generally feel dissatisfied and perceive the situation as unfair; as a result, team cohesion is weak and key employees leave one after another. Why this is the case, companies cannot find an answer. 1.3 The root of the problem: The reason why this traditional approach to income distribution has so many flaws is that it fails to fulfill the role that salaries should play in the operation and development of a company. As mentioned earlier, this allocation model exerts a strong influence on output generation within a unit, but it ignores the differences in the value of human resources and job responsibilities among those in production and management roles as well as technical management positions. As a result, the management departments fail to find their proper role and cannot assume their appropriate position or fulfill their duties. Even the top executives are preoccupied with day-to-day production tasks and lack the energy – and to some extent, the awareness – to consider broader strategic aspects and focus on overall management. Under market conditions, survey and design enterprises are no longer the workshop-style organizations that \"received orders and carried out production\" under the previous planned economy system; rather, they are independent market entities that need to achieve systematic goals in order to establish a foothold in the market and achieve sustainable development. Relying solely on output value as a guide leads companies to focus excessively on achieving these output targets, while neglecting the attainment of comprehensive goals such as technology, quality, and management. It weakens market competitiveness, making sustainable development difficult. At the same time, such guidance also overlooks the individual differences among human resources in the role of production technicians; it ignores the variations in skills, capabilities, and experience among these technicians. For consulting and design firms that provide technical services, such differences often lead to variations in the quality and value of the services offered, and these cannot be measured solely based on output values. Moreover, an income distribution system based on a single measurement standard has also largely lost its ability to adjust salaries flexibly. The various subsidies and allowances provided by some companies in order to balance incomes and ease tensions often end up becoming forms of welfare, thus turning into a burden for those companies. Furthermore, when adopting a fixed-income system, some organizations include the social security costs associated with front-line employees in the departmental or individual earnings, handling everything in one go. This approach can weaken employees’ sense of belonging to the company and reduce team cohesion. It is precisely because income distribution fails to take into account corporate characteristics and does not fulfill the function that salaries should serve, that although it is often higher than the local social average, it fails to truly motivate employees. 2 Annual Salary System 2.1 Implementation Status In their efforts to reform the distribution system, and in light of the excessive egalitarian tendencies in the existing distribution methods as well as the weak incentive effects for management staff and key employees, some design firms have adopted an annual salary system. Different organizations adopt different systems: some implement an annual salary system for all employees, while others use it for key positions. Still, some organizations adopt this system for certain special positions in order to attract talent. In terms of the composition of annual salary, it usually consists of a fixed base amount plus a variable component based on performance evaluations. Looking at the implementation, there have been some successful cases, but also ones that were not satisfactory. From what we understand, the problems that have arisen are mainly reflected in the following aspects: 1. The annual salary system does not truly motivate employees or increase their satisfaction. The purpose of implementing this system is simply to provide better motivation for the relevant employees. In practice, the total annual salary is often determined at the beginning of the relevant target period (such as the start of the year). The advantage of this approach is that it provides employees with a sense of stability and reduces their uncertainty regarding future prospects. However, the other side of this sense of stability is that it inadvertently creates higher psychological expectations among employees. Although companies set certain conditions for the actual fulfillment of these expectations, the concept of an annual salary figure sets a preset standard. If that amount can be fully paid out by the end of the year, that’s fine; but if it cannot be fully fulfilled, even if it’s due to reasons on the part of the employees themselves, their expectations will still be disappointed. Moreover, many companies have various discrepancies in how they assess whether goals have been met. As a result, even a high set amount for the annual salary may not improve employee satisfaction and could instead lead to resentment, failing to serve as the desired incentive. 2. The annual salary system has not led to the expected improvement in performance; on the contrary, it has had negative effects. A common observation in companies that have implemented this system in their production departments or among all employees is that the workers have become \"lazier\". To some extent, this is related to an increase in employees’ sense of stability regarding their income expectations. This sense of stability leads some employees who do not have a proper understanding of the annual salary system to think that they will receive the same amount regardless of circumstances, which in turn affects their motivation. Additionally, the overly vague and general nature of the performance evaluation criteria in some companies reduces the restraining effect of the annual salary system, further reinforcing employees’ belief that they will always earn the same amount. As a result, employees’ incomes remain fixed, while the company’s business performance does not improve significantly, or even declines. Some companies turn to cutting salaries at this point, but if done poorly, it often leads to the loss of key employees and a decline in the company’s cohesion. 3. The improper implementation of the annual salary system objectively isolates some employees and creates new internal conflicts. Many companies adopt this system in order to attract top talent; as a result, they often set annual salary amounts for these recruits that are higher than those allocated to regular employees. Coupled with imperfect evaluation mechanisms, this can lead to psychological imbalance among other employees. If the company culture lacks openness and inclusivity, it may result in rejection of these new hires, thereby isolating them and increasing conflicts among employees. Many companies experience the problem of losing talent they have acquired, and this is due to such reasons. 2.2 Reflection and Discussion: The annual salary system is essentially designed to align the goals of those who are subject to it with those of the company, to reduce the costs associated with delegating tasks and overseeing responsibilities, and to provide effective incentives. However, when many companies try to implement it, they encounter various difficulties. Why? The author believes that it is necessary to consider and discuss the following issues: 1. Implementation conditions. Many companies adopt an annual salary system, often focusing on its international background and considering it inherently suitable, while ignoring the conditions required for its implementation. We believe that for survey and design firms in a transition period, several conditions should be considered before implementing an annual salary system: 1) a stable business environment, that is, the ability to withstand the business pressures that may arise if employees’ mindsets fail to keep up after the introduction of this system. 2) A sound performance management system that ensures employees’ performance is evaluated in a scientific, appropriate, and fair manner. 3) Proper guidance in terms of mindset, that is, helping employees to have a correct understanding of the responsibilities, pressures, and risks associated with their annual salary; 4) A positive cultural atmosphere, characterized by openness and a healthy level of internal competition. 2. Scope of application: The annual salary system originated from the principal-agent relationship between enterprise owners and managers. It aims to link the interests of managers with those of enterprise owners, aligning their goals and thereby providing effective incentives and constraints for managers. Accordingly, the positions for which the annual salary system is applied should be of significant importance, and the responsibilities associated with them should be commensurate; therefore, its primary targets are mid-to-senior level management personnel in enterprises, as well as key employees who play a vital role in enhancing the company’s core capabilities. Generally speaking, it is not applicable to all employees; especially for some frontline positions measured by business performance and output, its suitability is even lower. 3 A structured salary model that reflects the characteristics of the position – currently, some survey and design companies are beginning to adopt this type of distribution model. Although the architecture of the systems varies. But overall, it consists of several components such as the basic security portion, the performance assessment portion, and the portion linked to efficiency or output value; all of these emphasize job value, responsibilities, and contributions. Therefore, it can be collectively referred to as a structured salary model that reflects job characteristics. 3.1 Analysis of the Setup of Salary Components The table below provides a brief analysis of the functions and determination criteria for each component of the salary under this distribution model; by clarifying the functions of each component, it helps companies understand the necessity and rationality behind the setup of various elements in the salary structure. Functional characteristics of components, criteria for determination, standard forms: Basic support component 1: Ensuring employees’ basic living and working conditions; 2: Reflecting statically an employee’s job position and experience. This constitutes the basic salary, with generally small differences among individuals. It is determined based on the local minimum income level, taking into account factors such as the employee’s rank and experience. The performance assessment component takes into account the duties and responsibilities associated with an employee’s position, as well as its importance in achieving the company’s overall goals, thereby focusing on the value of the position and the performance of the employee. There are significant differences: 1. It uses job level and the implied value assessment as the main criteria; 2. It takes the social market price of the job as a reference point; 3. Employee performance evaluations serve as the basis for determining the amount of variable bonuses, which reflect employees’ contributions to the company’s financial performance. Attention is paid to financial contributions, and there are notable differences. Objective indicators such as business volume, output, profits, and growth rates are used as criteria for evaluation. The variable components of the compensation system can fall into three categories: some serve as welfare benefits, some compensate for working conditions, and others are intended as incentives or compensation for special situations. The characteristics of this model are as follows: 3.2.1 Salary distribution takes into account job specifics. This model takes into account the differences in responsibilities, the nature and scope of duties, as well as the value contributed to the company by different types of jobs, and it reflects these differences in the criteria and amounts used for setting and distributing salaries. It resolves the confusion and embarrassment faced by the management of survey and design firms, especially key executives, in determining their own salaries; at the same time, it addresses the issues related to the dimensions and criteria for determining salaries in management positions. 3.2 Setting salary ranges can effectively create disparities: on one hand, it creates differences among the management level, key personnel, and regular employees; on the other hand, even within the same level, there are differences between different departments and positions, which allows for a true reflection of the value of each position. At the same time, the determination of salary amounts takes into account the individual differences among production and technical personnel, thereby reflecting more comprehensively the value differences among human resources and motivating employees to improve themselves. 3.2 The salary flexibility varies across different job categories; for example, some positions have a salary structure with high variability and low fixed components, while others require a structure with low variability and high fixed components – there is no one-size-fits-all approach. The advantage of this approach is that it reflects more appropriately the differences in risks associated with various positions, which helps to provide positive guidance for employees in fulfilling their duties. 3.2 4 Expanding career advancement pathways for employees: This approach focuses on an analysis of the nature of various positions, and transforms the diversity of job types existing within a company as well as the different ways in which employees can demonstrate their value into multiple career pathways. These pathways include those in the executive level, management and logistics roles, technical fields, and production operations, among others. By doing so, it is possible to overcome many of the barriers to employee advancement and development that exist in companies. Employees with different skill sets can then have career paths suitable for them, along with opportunities for increased earnings, which helps them to utilize their abilities to the fullest and promotes more efficient allocation of human resources within the company. 3.2 The 5-model has strong adaptability and facilitates smoother transitions; compared to the annual salary system, it is easier for companies to shift from traditional distribution models to structured salary systems. Employees are also more open to changing their mindset. More importantly, this model is suitable for companies of different sizes and at various stages of development; the risks associated with its implementation are relatively low. Additionally, the differences in organizational structures and job assignments create the conditions for companies to adopt an annual salary system on a case-by-case basis once the circumstances permit. Given these characteristics, and based on current practices, this structured salary system generally yields good results, and an increasing number of survey and design companies are adopting this model.