27 March 2005
INCENTIVE SCHEME FOR 2005/06 THRU 2008/09
· Please see enclosed calculations for the next 4 Years.
· From the graphs, it is clear that if the present trend/pattern of
- Net Collections
- Total Salaries
- Total of (Salaries + Incentives + Bonus)
Continues as they have during past 4 years, then our
Employee Cost / Net Collection = Ratio
Will keep getting worse & worse. It has already deteriorated
From 23.75% in 2001/02
To ……..? in 2004/05
If this trend continues 3P will close down in 2/3 years.
Hence this trend MUST be reversed and brought back to
20% by 2008-09
I realize that this figure cannot be achieved in one year. So, I am setting following targets
Year Employee cost/Net Collection=Ratio
These targets are NOT debatable.
How can we go about achieving these targets?
· Reduce Employee Cost alone - Not Possible
· Let Employee cost rise at a moderate rate but Raise Net collections
dramatically - Possible and most Workable thru, increased
Once, We limit/Restrict “Employee Cost” as a certain percentage of Net collection, we have following scenario:
Employee Coast (for a given year)
Fixed Component (Salaries) Variable Component
Obviously, the first “claimant” is
- Fixed component (i.e. Salaries)
If, after paying salaries, any surplus amount is left, that would go to pay the Bonus/Incentives.
So, if there is no “Surplus, then there is no Gonus/ Incentive.
This CARDINAL RULE must be made abundantly clear/transparent to all employees in writing
In case there is a “SURPLUS” then how that amount should get distributed amongst all employees (consultants + support staff), you may decide, using some formula which is
- Known in advance
- Equitable to all employees.
If you wish to make some more projection (of employee cost/Net collections/No. of employees etc etc.)
Feel free to do so, without violating “RATIOS mentioned earlier.