Sharing Wealth with Employees

I wrote recently that SMEs are experimenting and noted “My hope is stands on the experiments in some of the SMEs. Polyhydron sets the example. They have done pioneering work in this area in my opinion. But is it spreading? I searched for answer and I discovered it which I have captured in my latest blog post called ‘When HyTech meets HiTouch.’ HyTech is owned by Mr Mondkar and he implemented Toyota Production System.  
In the 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.
Mr Mondkar succeeded on all counts. That’s because he implemented the ‘Toyota Production System.’ 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! 
The workers 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? Watch this Video

I had recorded this 5 min video which shows Mr Mondkar, Chairman of HyTec Engineers P Ltd. explaining how his organisation shared wealth with employees. It is inspiring! 
Vivek S Patwardhan

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