There are two
types of entrepreneurs – [a] those who are successful and make tons of money,
and [b] those who are successful and help others [also] make good money. The
former variety is the most talked about in seminars and written about in
magazines. The latter variety makes a huge impact on the lives of people – they
are not just the techies who understand technology well, but they are also transformational
leaders, they positively impact the way people think and behave; in that sense they
You guessed it
right, I am going to write here about the latter type.
My quest for
hi-tech and hi-touch people began when I heard about Polyhydron. Just in case
you have not read about it here is what their website says about their belief
should earn wages, not be paid’
system of wealth generation and a link of compensation to employees ensures
that the employees earn their wages and need not be paid. This system makes the
employees responsible for their returns and in turn improves wealth generated
per employee. It promotes multiple skill, reduces total manpower requirement.
Polyhydron has established wealth-sharing scheme. It ensures 30% of the wealth
generated gets distributed (100% Bonus is the limit.)
I wanted to meet
the Mr. Suresh Hundre, the entrepreneur par excellence who moulded Polyhydron
in an exceptional and ethical organisation. I had spoken to him for an appointment
too, but fate intervened. Mr. Hundre passed away before we could meet.
value-added with employees. I always wondered if there was anybody else who had
implemented sharing value-added with all employees. My search began and
ended quickly. I discovered that my friend Mr Hemant Mondkar, Chairman of HyTech
Engineers Group, Thane had done it.
mid-nineties, an important customer of Mr Mondkar’s company met him and set three
seemingly impossible conditions for future business: [a] practice ‘just in time’,
[b] no quality checks at the customer’s end, meaning that quality standards must
be upgraded very substantially at Mondkar’s factory, and [c] reduction in cost
by 10%. The customer allowed just one year to make this happen. There was no
option for Mr Mondkar but to accept if he had to be in business.
succeeded on all counts. That’s because he implemented the ‘Toyota Production
System.’ We will talk about it some other day, today we are discussing how he
pays his employees.
Mr Mondkar camped
for three days at Belgaum and met Suresh Hundre. He understood how Polyhydron
employees received their share of value-added.
Returning to his factory he
decided that he will share 25% of value-added with his employees. The formula
is simple, Value added is defined as the sum of Profit before Tax, Depreciation,
Interest and Employee Cost. This is divided in three parts: Retained within the
organisation 50%, Paid to Shareholders and Bankers 25% and shared with employees
25%. The employees’ share works out to approximately 8% [of the PBT] after
deducting employee cost. This is shared equally with all employees!
calculate VA every month, and enthusiastically remove non-value adding activities. The
result: They get their share of VA which is equivalent to about 30-35% of their fixed pay including a guaranteed 12% bonus on actual salary [this is very substantially more
than the statutory bonus]. How many organisations do you know which share Value-Added even with their managers?
That was a stupendous
result. More benefits ensued. Decision making moved to lowest level in their
company, and they found themselves making it far more democratically. The attention
of employees moved from ‘results’ to ‘processes.’ And they experienced a higher
level of trust among employees and across the organisation levels [which crashed
to just a few]. This was initiated by the Toyota Production system and
substantially catalysed by the ‘share-the-value-added’ way of compensation.
tremendous courage to take such a decision. The trouble is that many
entrepreneurs [and managers too] view employees as people who personify all
assumptions of Theory X – lazy, responsibility shirkers, negative in their
attitude. The fallout is that all decisions in people management arena are
based on fear and extra-caution. Add to that the fact that in every
organisation almost all decisions in people management arena are practically
decisions affecting employees, the one that generates tremendous passion and
controversy is about wages and salaries. It was not just another way to pay
employees, it also signified trust, responsibility and a way of life. Nobody
was paying them salaries, they were earning them. That is
precisely why Mondkar’s courage must be appreciated. What he did was not easy,
and it was unprecedented.
In this country
where it is common for the CEO to earn more than 400 times the salary of his lowest
paid employee, this initiative is welcome. It is also welcome because it helps
build success through higher customer satisfaction, and it helps build a ‘great
place to work’. Success stands on the spirit of co-operation, passion for
excellence and sensitivity to customers and employees – surveys of business
magazines have no place in Mondkar’s scheme of building organisation. They are
Mr Mondkar’s organisation
is called HyTech Engineers. We can readily see that it is half-truth, they are so
obviously a Hi-Touch organisation. Thanks Mr Mondkar for being the role model and
Labels: Human Resource Management, Reward and Recognition, Value Added