Participants

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Agenda

1. How to create a salary structure: part 3. Presentation on ‘Bonus and Benefits’ (Ms Yue Zhu, BASF-YPC)
2. Questions
3. Presentation of each company’s bonus system
4. Further discussion

I. The Presentation

A: Bonus system

According to the current system in place at BASF, benefits are calculated according to three factors based on the average salary for the position. The formula is as follows:

 

       Average level of salary x (1) x (2) x (3) x Correction

 

1 = Level factor    

This figure is based on the level of the employee within the company. For management (level 4-5), this is 20% and for other employees (level 6-9), this is 10%.

 

2 = Company performance

This figure is based on the performance of the company as a whole varying between 0 and 150%. This will be set at 100% if all targets are met.

 

3 = Individual performance

This figure is based on the mark given to employees at their performance appraisal. A: 135% +/- 5% B: 120% +/- 8% C: 100% +/-10% D: 65% +/-25% E: 0%

 

4= Correction

The figure is corrected according to the average mark given to all employees. Those receiving the average mark will always receive 100%.

 

BASF-YPC faces several problems in their bonus system. It is difficult to decide which factors the company performance should be based on. The factors that have been considered for this are productivity and output, quality, safety, cost management, financial performance/profits, sales, customer service/satisfaction and team working. The company has as yet found no solution to this problem. A second problem that has been identified is that the current appraisal system is not effective enough in assessing individuals’ performance; all employees tend to receive the same mark. The third problem is that the bonus system does not reward the highest performers well enough. A possible solution to this could be to introduce a bonus fund to each department, which would give managers more power to recompense high-achievers.

 

B: Mandatory benefits

BASF-YPC offers the following mandatory benefits to its employees as stipulated by law: basic social pension insurance, unemployment insurance, medical insurance, work related injury insurance, maternity insurance, contributions to a housing accumulation fund and a housing allowance. For each form of insurance the maximum amount payable per month is 7,335RMB and for the two forms of housing aid the maximum amount is 5,000RMB. It is only employees who joined the company after 1 December 1998 who are eligible to receive the housing allowance.

C: Supplementary benefits
These benefits are a supplementary pension allowance, commercial medical insurance, employer’s liability insurance and overseas travel accident insurance. In addition, the company also offers transportation to and from work, a welfare contract between YPC and BYC as well as a working meal (9RMB paid by the company and 3RMB paid by workers). According to the company’s commercial medical scheme, 80%-90% of costs for outpatient services will be paid for, with the rest being paid by the employee. For inpatient services, 80%-100% of costs not paid for by the social fund will be paid for through the scheme.

D: Supplementary Benefits

A new plan is under consideration to help employees provide for their retirement which BASF-YPC hopes to implement in the near future.

 

II. Questions

 

Vivian Zhu (Celanese) asked if BASF-YPC set quotas of marks which had to be filled for each bracket in the performance appraisal.

Hans Marxen (BASF-YPC) replied that quotas were not set. He said, however, that there was little variation in the marks given to employees. He added that higher level people were not receiving bonuses proportional to their achievements. The measures to tackle this problem would be to set up individual budgets to make it easier to decide who should receive more. At present, the BASF-YPC personal appraisal is carried out by considering the employee’s main task and targets defined at the last appraisal session. In the future, they feel that this system should be changed with the introduction of a list of competencies that the employee should fulfill.

 

One attendee asked if all employees were given target agreements.

 

Mr. Marxen said that this was not the case. All leaders were given target agreements and also operators were given

them if it seemed as if the person in question had particular potential and could be developed further.

 

One attendee asked why BASF-YPC chose to use the average salary and not the best salary for each employee to

calculate the bonus.

 

Mr. Marxen replied that this was based on the philosophy that employee bonuses should be based on their actual

performance and not on their salary level. The amount paid to them should not have anything to do with the

employee’s age or status. He added that some companies used the average of the market for their target bonuses

as an alternative method. One member felt that employees on different average salary levels might have different

expectations as to the size of the bonus they should receive and that they might subsequently be dissatisfied if they

were to receive the same bonus. Mr. Marxen reiterated that bonuses should reflect performance and that this

philosophy needed to be conveyed to employees. At BASF-YPC, employees are used to this as this policy has been

used since the outset, since 2001 when the company was set up.

Mr. Marxen said that it was often difficult to give less than a C+ mark in the appraisal. He said that HR managers should concentrate mainly on the people at the top and at the bottom, without forgetting to motivate the people in the middle. Often employees are disappointed when they receive the C+ mark and are quick to compare themselves with others who get higher marks.

 

Jerel Bonner (Clark Morgan) asked how much pre-planning went into appraisal. He said that employees should be

taught how to self-assess themselves and how to track goals. He said that people always tended to compare

themselves with other people, but to prevent this they needed to be encouraged to focus on a set of goals.

Mr. Marxen said that self-assessment had been introduced in Germany. He said that BASF-YPC was a young company and that people were accepting of innovation and change. He reminded attendees that employees should only be given extra money if they exceed targets, not merely by meeting them. BASF believes that it is better to link performance appraisal with money, if not, everyone would achieve top marks in the appraisal. He stated that the performance appraisal should be a two-way discussion between a subordinate and his superior. He said that in Chinese companies people at the top tend to get the biggest share of bonuses, whereas in European companies this tends to be more evenly spread.

 

III. Presentation of each company's bonus system

 

Irene Li (Dystar) said that her company experienced the problem of many people getting the same result for their evaluations. They wish to train managers to teach them about the importance of the appraisal.

 

Vicky Sheng (Kimberly Clark) said that their bonuses were delivered after four quarterly reviews in which key objectives were set. The review is divided into two parts: leadership quality and targets. Top performers receiving a mark of 9 are eligible for promotion, whilst measures will be taken to develop low performers achieving a mark under 3.

 

Mr. Marxen said they he didn’t agree with promoting people as a reward for doing their current job well. Employees should rather be promoted if they fit the skills criteria required in the vacancy. The fact that they can perform their current position very well does not mean that they will necessarily be able to do a new job well.

 

Cindy Liu (ZF Steering) said that her company shared a similar bonus system with that of BASF-YPC. The four factors relating to the bonus were basic salary, the company’s result, the individual’s performance and a correction factor. She said that the companies had had several problems with the bonus system in the last few years because high performers didn’t believe they were being awarded sufficient bonuses. The company failed to introduce a new bonus system as they had wished to do when they introduced a new salary system.

 

Lan Zhang (Valeo) said that her company was still in the project phase so had no operational results at present. She said that they wanted to introduce a collective bonus system in order to encourage team spirit.

 

Ms Zhang asked how BASF-YPC balanced salary review and individual performance review. Mr. Marxen said that the

result of good individual performance should be put into the bonus, not into the base salary. Then if performance is

subsequently good for over a year, this should be included in development plans and promotion opportunities should

be offered and the salary should also be raised.

 

Ms Zhang asked which factors were taken into consideration for salary review. This was said to be the market, personal experience and performance.

 

Coco Qiu (CIBA Specialty Chemicals) said that their bonus system was similar to that of BASF-YPC using the best salary as a capped base. To retain employees they give additional benefits for people that have worked for the company for over two years paid at the end of the second year. They plan to perhaps increase annual leave, pay employees bonus based on best salary as well as giving special gifts and certificates.

 

Lucy Liufan (Dyson) Their bonus system is very simple. The first factor depends on group profits and individual performance review. She has only a small team and would like to discuss designing extra benefits for her employees.

 

Maggie Huang (New Concept Mandarin) said that their bonus system was rather different to those in the manufacturing industry. Monthly bonuses and yearly bonuses are given to motivate employees.

 

Wilson Zhang (MPS) said that in his consulting business clients were given surveys to rate their satisfaction with the work of consultants on which bonuses were then based.

 

Joan Xiong (IVECO) said that their group’s policy was like BASF-YPC but that the payment criteria were based on the individual’s salary and not the average. All employees are divided into different levels based on their individual contribution to the company. She said that in their Chongqing office a new performance bonus was being designed which might provide a useful model for the working group.

 

Wenjun Jin (Nanjing Fiat) said that responsibility was given to each individual manager to appraise employees and then the HR department was in charge of deciding exactly how much of a bonus should be awarded. His company is changing and the scheme may change in the future.

 

IV. Further discussion

 

Mr. Marxen said that the ceiling of the Housing Accumulation fund had been raised to 8000RMB. Three companies indicated that they had increased their fund in accordance with this.

 

Housing Allowance is payable to employees who started working for the company after December 1998. Only three companies pay the housing allowance raising the question whether the allowance is really mandatory.

 

BASF-YPC has had many problems with this because people who started working for the company before December 1998 see it as unfair that they do not receive the money. The Nanjing government has brought in a guideline that people employed before December 1998 should also be given money to even out inequalities. However, this is just a guideline, not a mandatory ruling.

 

Joan Xiong said that once a company adopts the housing allowance it becomes mandatory, but that if it hasn’t already been implemented then it is not mandatory.

 

Mr. Marxen explained the Housing Accumulation fund and the Housing Allowance to all members:

 

The housing accumulation fund is an individual account designed to gather funds for buying a house or for retirement. This is currently 8-12% of base salary.

 

The housing allowance is for people who first started working after December 1998. This is currently 18% of base salary.

 

BASF-YPC also experiences the problem that its employees were given apartments from YPC when it was a state enterprise and that those employees who were not given one at the time now wish to have one. The fact that many of these people are also not eligible for the housing allowance further exacerbates the matter.

 

Mr. Marxen asked if there were companies that had company pension plans or saving plans. He explained that saving plans could be created individually. This is an account into which the company and the individual pay a percentage. They can then define what this money should be used for, possibly serious sickness, education or housing. The employee has to decide whether to take a high risk strategy or a low risk strategy when the money is put into the insurance company.

 

In China, he said that most people do not tend to think about retirement but rather think how to receive financial rewards straight away. Mr. Marxen thinks that it is a company’s responsibility to provide pensions. He predicted that this would be a future problem in China where government pensions would not be sufficient to survive on in retirement.

 

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