Is this pay system fair to my employees?

Question

I've been planning on changing the pay rate for my workers. The system my dad used was to over pay everybody, give everybody a job, and have little in profit to reinvest (%10 of revenue). Right now they make an average of $18 an hour. I.E.

$1000 in revenue, -$700 in wages, -$200 in expenses= $100 in profit (just an idea of how he ran it.)

My thought is to pay minimum wage then after the week. Take the total revenue, minus the wages and expenses. The remainder take 40 percent as profit and the remaining 60 percent divided to them as a bonus. I.E.

$1000 in revenue, -$320 in wages, -$200 in expenses= $480 x %40 for profit margin $192= $288 bonus pay.

Old System: $100 profit and $700 in wages
New System: $192 profit and $608 in wages

These are of course examples but I wanted to paint a picture of the idea I had. I figure the new system could allow me to invest in expansion of my business as well as provide an incentive. The less material they need and more efficiently they work the more we can make thus the bigger the bonus therefore paycheck.

I'm looking for feedback, any criticism will be greatly appreciated. :)

Steve D · Accepted Answer

While the idea is sound (profit sharing is usually a good system), a more than 50% cut in wages will cause you employees to walk out the door. Expect two things 0 an instant reduction in productivity (which could cause you to lose clients) and increased training costs from having to hire new people. Also expect continued high turnover (think McDonalds) from the really bad wages you will be offering - anyone talented enough to do the job well will go somewhere that has a decent wage. You would be better off dropping wages top $14 and create a system that will allow your employees to make up the $4 an hour pay cut plus some for working better and smarter. As your system stands now, you are screwing your employees. You would be better off setting it up so that if they make the same amount of revenue and profit as they are now, they will end up with the same pay, but if they are able to increase your profit, they get a slice of the additional profit, but not all.

Spend a bit of time searching trade/professional journals for articles on gainsharing plans, Scanlon plans, etc.

Anonymous · Answer

You will probably see quite a bit of turnover at first, as you are cutting their weekly pay by nearly $100.  Not many people living on 700 per week can tolerate a 100 per week pay cut.

You might first consider raising your rates to your customers a bit, and developing new business, as a way to increasing your profits and put that back into the business.

webjnke1 · Answer

You're going to cut them from $18 to minimum wage? Expect to do a lot of training. Cause they'll all quit.

Amy · Answer

Check the contracts that your dad signed. You can't just cut someone's pay out of nowhere.

Invictus · Answer

Wow, your motive is good but will you survive for the reduced income?

For more management and compensation tips, read posts from this blog from career and salary research site called PayScale, http://bitly.com/1yAeF8O .

Doug Freyburger · Answer

Not with any existing employees it is not.

Yo · Answer

It depends what the job involves.  But, yes, expect a lot of turnover initially.

Trending News

Is this pay system fair to my employees?

7 Answers