INCENTIVE SCHEME FOR 2005/06 THRU 2008/09

27 March 2005

Nirmit/Raju,

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

2005/06                 29%

2006/07                 26%

2007/08                 23%

2008/09                 20%

These targets are NOT debatable.

Now,

How can we go about achieving these targets?

We can

·     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

                              employee productivity. 

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

                                                (Bonus +Incentive)

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

-    Transparent

-    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.

I await your proposal.