FastCat phase II.docx

FastCat phase II.docx

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FastCatphaseII

Part1.ExecutiveSummary:

WeproposethatFastCatimplementourpaysystemthatisdesignedtorewardgrowthofsales（productivity）withinthecompanybylinkingpaytoperformanceoftheorganization.Thissystemisdesignedtocontrolemploymentcostssoasnottogrowfasterthanthecompany’ssalesgrowthrate.Inordertoremainstrategicallycompetitive,FastCatmustensurethatitspaystructureisstrategicallydifferentiatedwithinthemarketplacesothatitcanretainemployeesandincreaseproductivitythroughmotivationincentivesrewardingperformanceandemployeeengagement.Aligningthecompetitivenessofemployees’payisimperativetoFastCat’ssuccessascontrollinglaborcostsisthelargestdeterminantonfirmprofitability;ultimately,FastCat’ssuccesswillbedeterminedbyitsabilitytobalanceitssalaryprogramwithfirmprofitability.

Asyoualreadyknow,FastCat’slaborexpensegrowthratehasoutpacedthatofthesalesgrowthrateoverthepastcoupleyears.Asaresult,firmprofitabilityhassufferedwiththelackofsalesproductivity.Inordertorewardproductivityofthefirmourpaysystemisdesignedtoattract,rewardandthenretainthebestsalesanddevelopmentstaffsthatthecompanycanobtainthroughacarefullydesignedsystemwhichalignscompensationgrowthwithincreasedproductivityforthecompany.Ontheotherhand,ourpaysystemisdesignedtotightlycontrolcostsinrolesthatarelessstrategicallyimpactfulandthusdonotaddsignificantmarginalvaluetothefirm’sperformance.Inordertodothiswehavesetforththefollowingprinciplesforestablishingasuperiorcompetitivepositioninthesoftwaremarketplace:

◆AlignFastCatemployees’compensationwithanexternallyverifiedlevelofcompensationsothatcompensationlevelsarestrategicallyandmethodicallydetermined.Asaresultemployees’compensationwillbetiedtothestrategicobjectivesofFastCat–namelyincreasingstaffproductivity.

◆CompensatetheSalesandDevelopmentDepartmentswithpotentialmarket-leadingwages,buthavethosewagesdeterminantontheirabilitytoproduceresultsforthecompany.Therevenuetolaborcostratiowillincreaseovertimeassalesgrowthwilloutpacelaborcostgrowth.

✧Market-leadingcompensationwillreducetheexpensesassociatedwithsearching,interviewing,training,on-boarding,andmotivatingemployees.

◆ControlthepaylevelsassociatedwiththeAdministrativeDepartmentbytargetingwages15%belowmarketlevelsothatwecandecreasetheoverallcostburdenofthedepartmentonFastCatasawhole.

Currently,FastCat’semployeeshaveasomewhatconfoundedviewofthecompanymanagement.While90%ofemployeessaytheywouldbewillingtogo‘aboveandbeyond’intheirjob,only70%feelastrongsenseofcommitmenttothecompany.Further,only40%oftheemployeessaythattheyunderstandhowtheirpayisdetermined.Therefore,FastCatmustclarifyandarticulateitspaystrategytoemployeesinordertoexplainmanagement’sdesiredbusinessobjectivesandhowemployeescanincreasetheircompensationbyaligningtheireffortwiththisstrategy.OursystemhelpsclarifyandarticulatehowFastCatwillbeabletomatchemployeesalarieswiththecompetitiveenvironment.

Part2.StrategyonExternalCompetitiveness

Whendesigninganexternalcompetitivenessstrategy,wedevelopedauniquestrategyforeachgroupofadministration,salesanddevelopment.Wedidthis,sothatwecouldmoreeasilyintegratetheexternalcompetivenesswiththeinternalalignmentstructurethatwedevelopedforeachgroupinphaseI.Whentheinternalalignmentandexternalcompetitivenessarecoordinatedandalign,thenFastCatwillbeabletomoreeffectiveachieveitsstrategyandgoalsaswellashaveacompensationstrategythatcompetitorscannoteasilycopy.

DevelopmentGroup

PayLevel-AswediscussedinphaseI,itisourinitialrecommendationthattoattractthebestsoftwareengineerstohelpdevelopandcreatetheproductsthatwilldriveFastCat’ssuccessinthefuture,werecommendthatthetotalcompensationpaylevelbeabovethemarketaverage.However,theindividualbasepay,meaningtheannualamountofcashthattheemployeeisguaranteed,willbeatthemarketlevelofcashbasepaytoallowforotherformsofcompensationandincentivestoincreasethetotalcompensationabovemarketlevel.

Thepaylevelfordevelopmentwillalsohavetwotiers,eachconsistingofitsownpaypolicyline.Thefirsttierwillconsistoftechnicianjobs;thesejobsareresponsibleforqualityassuranceandtestingpurposes.Thesecondtierwillconsistofengineeringjobs.ThesearethejobsthatarethecreativereservoirfordevelopingFastCat’sinnovativeproducts.Thereasonwhyestablishtwotiersisbecausethesalariesfitaquadraticfunctioninsteadoflinear.Thusitwasdifficulttohavearegressionlinewithareasonablefit.Furtherdifferentiatingthesejobsallowsustobetteraligncompensationwithouroverallobjectivesofinnovation,creativityandcooperation.

PayMix-Thebasepayfortheengineeringsub-groupwillaccountfor60%ofthetotalcashcompensation.Tohelpfostercommunicationandcooperation,therewillbeshort-termgroupincentivesthatcouldcomprise20%ofthetotalcashcompensation.However,webelievethatindividualinnovationandcontributionsarenecessary,sothereisalsoa20%individualshorttermbonuses.Forthetechniciansub-groupbasewillaccountfor80%,10%forindividualperformanceand10%ofteamcompensation.

Thedevelopmentemployeeswillalsobeeligiblefora401（k）theirfirstyearwithuptoa$2,500match.Employeeswillalsobeeligibleforprofitsharingatthemanagersdiscretion.Fortechniciansubgroup,FastCatwillpay50%oftheirhealthpremiumsandfortheengineeringgroup,itwillbe100%.Also,theseemployeeswillbeeligibleforstockinthecompany.

Thepaidtimeoffforthisgroupis10vacationdaysand5sick/personaldays,startingoff.Withmoreseniority,moredayswillbeadded.

IntegrationofExternalandInternal-Thequalityassurancetechniciansandanalystsbenchedmarkedverycloselytotheexternaljobs,asdidtheengineers.Appendix1showswhichjobswerematchedup.Laterinthepaperwewilldiscussthegradesandranges.However,itappearsnowthatbybenchmarking9jobs,therewillberoomtodevelopahierarchicalstructure.Thisisintendedtomotivateemployeestodeveloptheirskillsandincreaseproductivity.Additionally,itisintendedtohaveeachemployeeexcelintheirspecificsetofdevelopmenttasks,whilealsotyingpartoftheircompensationtoassistinggroupproductivity.

PreliminaryIdeas-Webelievethatthetotalcompensationpackageisattractiveandleadingthemarketfortechniciansandengineersinthesoftwaremarket.Wechoseourrelevantcompetitorstobeallsoftwarecompaniesandourpaypolicyisbasedonthis.ThiswaschosenbecausewebelieveFastCatshouldaimtorecruitandretainthebestintheindustryandindoingso,willneedtocompetewitheventhelargestsoftwarecompanies.However,ourpercentagesmayneedtobealteredasweinvestigatethecostinthenextphaseoftheproject.WewillalsohavetoseeifproductivityofcreatingnewproductsthatFastCat’scustomerswanthasincreasedduetothefocusonteamworkandcollaborationwiththemarketingteam.

SalesGroup

PayLevel-ThesalesgroupplaysthepivotalroleofmaintainingexistingclientsaswellasacquiringnewclientsforFastCat.Theyarethegroupthatcanmostdirectlyaffectthetotalrevenue.Therefore,theirtotalcompensationwillleadthemarketbyabout5%.

Ourrelevantcompetitorsarethesoftwaremarketasawhole.WebelievethatthesalesforcemustbeveryknowledgeableaboutFastCat’sproductsaswellashaveageneralknowledgeofcomputersandsoftware-specificallyasitrelatestomedicalpractices.Webelievethatthisknowledgeisuniquetothisindustryandsalesrepsinotherindustrieshaveadifferentsetofskillsandknowledge.

PayMix-Withthegoalofreducingtotallaborexpenseswhencomparedtorevenue,thesalesgroupwillhaveacashcompensationstructureof25%basepay,60%commissionpayand15%groupcompensationthatwillbesharedwithdevelopment.Byhaving60%ofthetotalcashcompensationdirectlyrelatedtobringinginadditionalrevenue,therevenuetolaborcostratiowillbeincreased.

Theteamsthattheseemployeeswillworkwitharethedevelopmentgroup.Ifasalesmemberclearlyrelayscustomer’sneedsandwantsforfutureproductstothedevelopmentteamandthedevelopmentteamcorrectlymakesaproductthatthesalesgroupcansell,thentheentireteamwillbeeligibleforaperformancebonus.

Also,FastCatwilloffertopay50%ofthehealthpremiumforthesalesemployee.A401（k）retirementplanwithupto3%oftotalcashcompensationmatchannuallywillbeavailableondayone.Bymakingthisavailableatdayone,wearemakingagreaterefforttoretainemployeesforalongerperiodoftime.Forpaidtimeoff,themarketing/salesgroupwillhave10vacationdaysand5sick/personaldaysstartingoffwithachancetoearnmoreeachyeartheystaywiththecompany.Theseemployeesarealsoeligibleforprofitsharingasdeterminedbymanagers.Managersinthesalesgroup,asdeterminedbytheirpaylevelwillalsobeeligibleforequitypurchasesinFastCat.

AfinalperkthatwillallowFastCattoattractthebestsalespeopleanddrivethecorporatestrategy,istoallowtheseemployeestohavetravelclubs,thatFastCatwouldpayfor,inhis/herownname.Thesejobsarerequiredattimestotraveltoclients,andallowingtheseemployeestogainfrequentfliermilesandothertravelperksthattheycould