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Hey Folks,

Let us do a recap of what we have talked about so far:

1) A Company (and by extension the bosses) will pay only enough to keep you on the job.
2) Globalization and Outsourcing gives a company alternative solutions to his manpower cost which can be significantly cheaper.
3) In the New Economy, you are paid a salary which is a function of what a company is willing pay to create/manufacture a service or product.

Now that I have given you a sense of what are the factors that could influence your bosses human resource policies (such as salary), it is time to take a look at how he is going to measure your performance.

Key Performance Indicators (KPI)
KPIs used to be the yardstick for measuring whether an organization has met it’s goals. It was later used as a yardstick for key employees and more recently, companies has adopted it for all employees in general.

It could come in various forms but it is generally a set of goals that would determine your performance for that year. Some call it goal setting exercise and others call it target setting. I just refer to it as KPI and it is usually an agreed target between boss and employee.

Since both party agreed on the KPI, there should not be any miscommunication right? Wrong! Both party only agree on the KPI, what most party failed to convey was what happens after KPI is met or not met.

The Employees Idea Of KPI
To an average employee, meeting the KPI means that they are entitled to the average pay increment and bonus. Exceeding the KPI means that they are entitled to better than average increment, better than average bonus and a good chance of promotion!

To some employee, if they were given a high standard of KPI, they may interpret as meeting the KPI means an automatic entitlement to a good increment, good bonus and a very good chance of promotion!

The Bosses Idea of KPI
Unfortunately for the employees, the standard interpretation of the situation for the average boss is this:

1) An employee is given a set of KPI that he should have no problem meeting for his given salary.
2) Meeting the KPI means that the employee is only good enough for the pay he is given.
3) Exceeding the KPI means the employee is good enough to be considered for pay adjustment and a bonus.
4) An employee will be considered for promotion when they consistently exceed their KPI and shows potential to handle more responsibilities.

As you can see there is a gap between expectations and that is where unhappiness usually begins.

So What Is Wrong?
Every company practices KPI and renumeration in a slightly different way but one thing I notice is that majority never say what happens if employees meet their KPI and the employees never ask! They usually quote “Your salary adjustments and bonus will depend on your KPI”. It doesn’t say exactly that “You will get your increment only if you exceed your KPI” but thats what usually happens.

So why don’t they say it out loud? I am not exactly sure but I have an idea.

It’s About Mindset
When the old economy model make way for the New Economy, the average employee either did not realize what has changed or they realized but do not know how to change or do not want to change. Maybe you can tell me your reason.

So why doesn’t the boss make it clear? I tend to believe that during the transition, it was abundantly clear for the companies with overpaid staffs. The signal was in the form of retrenchment and pay cuts. For the rest (such as new companies), I am not entirely sure. Maybe my readers who are also bosses can enlighten me in this aspect.

Cheers
James

PS: Next post is what everyone employee is waiting for! So stay tuned.

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Hey Folks,

In our last post, we mentioned that New Economy was born as a result of Globalization and Outsourcing. Here’s a recap of what a New Economy is in general:

Definition of New Economy
“The general idea is that a business should focus on those areas of its operation which are critical to its success and where it has a competitive advantage. Other areas of its operation should be outsourced, typically using technology as the facilitator.

In a developed economy, the critical success factors to a leading business are likely to be intellectual things such as brands, products specifications and technical capabilities. Many routine business functions (such as manufacturing and customer service
desks) may be outsourced.” - Wikipedia On New Economy

Salary In The Past
In the past (prior to 1990s in US, 2000s in Asia Pacific region, other developed countries somewhere in between), we get pay rise simply because we expect our boss to give one and we did do our job. Consequently, many companies ended up with clerical officers who worked for 30 year drawing a monthly salary of $5000 or more.

Although these people were very experience, the salary could not be justified due to the nature of their job. If the clerk process 20 application forms a day for 5 days a week. That would be a processing overhead of $10.41 per form (480 forms a month for $5000) which is ridiculous!

In this model, the companies either have to keep increasing the cost of their product/services or suffer a narrower profit margin each year. At some point, older staffs would be retrenched and younger staffs are recruited where the cycle will repeat yet again some years down the road. Hence, older employees usually suffers the Axe.

Salary In New Economy
In the New Economy, Companies used the cost of their goods and/or services to decide how much to pay for their labor.

Taking the same clerical officer example, the company can decide that they will not pay more then $1 per form as processing fee and with computerization, the clerk should process 60 forms a day. Hence the salary for that position should be capped at $1440.

If the same clerk wish to get a better pay, she will have to justify with a better work efficiency (processing 80 forms a day) or upgrading her skills to a higher value position (sales consultant, customer relations officer, etc).

In this model, the salary is tied to a job’s value and not an employees seniority and older employees tend to be able to keep their job.

Who Is The Boss
The following quote from Henry Ford rings more truth today then it rang almost a century ago:

“It is not the employer who pays the wages.
Employers only handle the money.
It is the customer who pays the wages.” - Henry Ford

The customer decides what is a fair price to pay and companies will decide what is a fair labor cost to them based on the amount the customer is willing to part with. Doesn’t it give a new meaning to the phrase “The Customer Is Always Right?“.

So What Is Your Situation Now
Now that you understand our current economy better, you probably could appreciate why you were getting your current pay. No one get overpaid in the New Economy, you are always paid what the company thinks you are worth. If you want more pay, you will have to fight for it. It will never drop from the sky if you are not willing to put in the effort to get it.

Oh, if you think you are overpaid by your company or that your company is still adopting to the old model, you better make some plans or raise your value right now before bosses realized the situation.

Love,
James

Disclaimer: I’m not an expert in human resource or pay and I am not attempting to provide an interpretation of historical salary trends. This article is providing a perspective on why salaries are paid the way it is paid in our economy today (2007) in order to encourage employees to understand the situation, adjust their mindset, adapt and improve their current standing with their company and bosses.

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Hey Folks,

Today lets look at how Globalization and Outsourcing can influence a companies human resource policies.

What Is Globalization
Globalization is a huge topic. But for our purpose, we will just talk about the Social aspect of it.

In our highly globalized economy today, our bosses actually have a choice of whether he wants to hire a local or foreign talent for each job position he has in his company. The deciding factor usually comes down to who offers a better value and if there are any laws/policies limiting his choices. As such, the following example is a common situation found in most developed countries:

Case Study: An IT specialist from Singapore draws a salary of S$3000. His boss could decide that hiring an IT specialist from India or China of equivalent skill set for S$2000 looks more attractive. So now, the IT specialist from Singapore has to justify to his boss why he is of better value then his foreign counterpart!

This phenomenal is happening across the full spectrum of jobs from road sweeper to office clerk to executives, managers, professionals and even CEO’s. And it is by no fault of theirs that they are in such situation. The world just gotten smaller, well, at least more inter-connected.

What Is Outsourcing
Outsourcing is utilizing experts from outside the entity to perform specific tasks that the entity once perform itself.

In the past, companies used to outsourcing only non-core operation where the cost of installing, manning and running the operation does not justify the undertaking. Help desk, IT support, Data Centre Operations, housekeeping are some famous operations that companies regularly outsourced.

In recent year, companies have started to outsource their finance, logistics and even staffs (via staff augmentation, also known as contract staffs). Any department that does not add value to the company and could be supplied by an entity specializing in the management of that operation/function could be outsourced.

What Is The Impact
The child that was born from Globalization and Outsourcing is called “New Economy“.

“The general idea is that a business should focus on those areas of its operation which are critical to its success and where it has a competitive advantage. Other areas of its operation should be outsourced, typically using technology as the facilitator.

In a developed economy, the critical success factors to a leading business are likely to be intellectual things such as brands, products specifications and technical capabilities. Many routine business functions (such as manufacturing and customer service desks) may be outsourced.” - Wikipedia On New Economy

What these means is that in today’s economy, anyone can be replaced if you do not have a skill or value unique to yourself that is beneficial to your company. Sounds scary but it is the truth.

What you need to understand here is that these are forces beyond your bosses ability to control, they can either flow with it or drown in it. Given those 2 options (flow or drown), what would you do?

Let’s Play Boss
“A small-medium enterprise (SME) has a finance department of 3 local accounts clerks and an Accountant. The boss knows that the clerks are demanding increments every year and their salary is already beyond market rate at $2500.

He finds out that foreign accounts clerk working locally are only asking for $1700 each with equivalent skill set and experience. If you were the boss, what would you do?

Then comes along a outsourcing company that offers him a book-keeping package that replaces the 3 clerks, closes his accounts faster, includes additional reports, no worries of staff turn-overs and guaranteed safe backup of all data at the equivalent of $1000 per accounts clerk. If you were the boss, what would you do?”

Summary
I know todays topic is on the serious side and a bitter pill to swallow but it is fact and it is the truth. The earlier you realized it, the less you will complain. The less you complain, the more likely you will find a solution to better your value in the company and in your bosses eyes.

Lastly, I would love to hear what you would do and what you opinion is on the “Let’s Play Boss” scenario. The floor is yours.

Love,
James

PS1: I left out a lot of details linking Globalization and Outsourcing to New economy. To include all the detail, I would need at least a couple of 2000 word post just on Globalization alone.

PS2: I am dying to jump right to the last post where I can share how you can be an asset to your company but without the first few post painting the real world situation, I am quite certain many reader won’t take those suggestions seriously. So bare with me, 2 more post and the golden nuggets will be out.

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