No More Ass-Kissing: An Alternative Salary Model
No more ass-kissing for a pay raise! When we asked fellow rebels what they wanted to know about Haier, the number one request was: “How do they do salary?” Or, maybe you’ve never heard of Haier, and you are just sick and tired of kissing your manager’s ass for more money? Either way, read this blog and learn about Haier's Customer Paid Salary System.
First things first: What’s salary?
Sometimes we forget why salaries exist. In their simplest form, salaries exist to motivate people to do things they wouldn’t normally do for free. Whether those people are soldiers paid so they could buy salt , or Paper Pushers in a big corporate, doesn't really matter.
Today, organizations commonly use a ‘position-based’ or a ‘competency-based’ salary system. In the position-based system, the salary reflects the value attached to a position in the company. In the competency-based system, salary reflects how highly the skills or experience of a person are valued.
In both, the person who decides on how that value is translated to salary is mostly in top management, HR, or finance. These are the people who set your salary.
The Customer Paid Salary
Haier has adopted an alternative. Salary is based on how much customer value an entrepreneur creates, irrespective of position or experience. The more value you add for the customer, the bigger your reward will be.
Customer value is highly subjective. A glass of water is very valuable out in the desert, and less valuable when you’re near a well. Haier reasons that customers are willing to buy or spend more if a product adds more value for them. By rewarding its entrepreneurs for creating more customer value, Haier attempts to make all parties benefit.
The good thing about this is it moves decision-making about salaries from top-management to the customer. This reduces politics, nepotism and the kissing of managers’ asses. Compare that with traditional organizations.
At Haier, customers, indirectly, decide the salary a Haier entrepreneur gets. It doesn't matter if those customers are inside or outside of Haier's boundaries.
No More Ass-Kissing: Check Out This Alternative Salary Model
How it works
All Haier staff receive a basic income, as required by law. So even if a Haier entrepreneur fails to find customers, he/she still receives a (minimum) income. This amount is low and isn’t their main source of money. There is a dynamic aspect to their salary as well.
Any entrepreneur can see and “bid” on work targets. Those targets, created by other Micro Enterprises in Haier, describe what job/product/task they wish to outsource.
These targets are clearly described. Background and market information is provided. How ‘value for the customer’ is measured is set out. And there’s a statement of what needs to be achieved. Plus, potential rewards for different levels of performance are specified. Each entrepreneur can apply for the target and, if accepted, become responsible for it.
The targets are always directly linked to how much user value is created. So, targets are not like: “Produce 1,000 washing machines and receive a fixed price/item.” They are more like: “Help us produce and sell 1,000 washing machines, and earn a part of the profit”. Entrepreneurs are bidding for potential rewards, not a fixed salary.
Different levels of performance
It cannot be stressed enough that Haier is dynamic, big and culturally diverse. You’d struggle to find ten Micro-Enterprises that use exactly the same method for creating performance levels and the related rewards.
However, from our research, we know that, mostly, the different levels come from comparisons with market data. They take averages as a base, and adjust for what Haier calls ‘Added Value’, to define the levels and thresholds of performance. Added value is ‘what is created above market average’. If the market average is 1,000 and you create 1,100, the Added Value is 100.
Added value is where things get interesting for entrepreneurs, it’s where they start to earn big bucks. In the image below you can see how that works. Each row shows a different level of performance.
In the 'Performance' column, a full gear wheel stands for 'market average production', if it's more than one gear wheel it means that the entrepreneur performed above market average. In the 'Reward' columna full coin stands for 'market average salary'. The coin in the 'Added Value Sharing' shows how much added value was created, and how much profit, in red, the entrepreneurs receive over the created added value.
For example, row three shows that if an entrepreneur produces 25% above market average, they'll receive a market average salary and 10% of the profits over the 25% they produced extra.
If an entrepreneur performs well consistently, they can also share in the total value created by the Ecosystem they are part of. (Find out more about Haier’s Ecosystems here!)
Finding the right balance
In practice, rewards differ for each target. This allows an entrepreneur to find a target that fits their skills, and a reward that fits their needs. And they decide if their needs are for higher base income and lower profit sharing, or lower base income and high profit sharing. It is up to the entrepreneur.
In our interviews we asked entrepreneurs if they felt working at Haier gave them more stress than working elsewhere. Some said yes, some said no. But none seemed to mind. For me this was hard to understand. Before visiting Qingdao, I shared the concerns of some readers that salaries based on performance and market-driven contracting could create “the worst of competitive capitalism”.
But the more I probed, the more I was reassured. I asked: “What do you like about Haier? And why do you still work here?” The common answer? “Because it’s fair and I am rewarded based on my capabilities”.
Don’t reward entrepreneurs as employees
Haier’s customer-paid salary system seems is an important part of its entrepreneurial culture. Haier isn’t giving employees a job: they are giving them a chance to be entrepreneurs. To encourage that behavior Haier doesn’t force employees to attend courses, workshops or whatever. They simply ensure that entrepreneurs are rewarded well when they do well.
In a country where being an entrepreneur is really hard, they’ve given many, young & old, men & women, the chance to be entrepreneurs. All have influence on the targets they work on. Each can decide if the reward is worth the effort; or if they’ll look elsewhere.
No need for ass-kissing to get a pay raise here!
Interested in learning more from Haier? Join us on the 29th of April during this free webinar all about Haier. Check out more in this link.
FYI; This blog is part of a series and is the result of a research collaboration between Haier & Corporate Rebels.
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I shared the concerns of some readers that salaries based on performance and market-driven contracting could create “the worst of competitive capitalism”.
I guess the real danger here would have arisen when all the compensation was purely performance-driven. But - there is the (minimal) income they provide even if nothing works out. This eliminates much of the stress involved with the "bonus"-Program.
I even think one could view this as a mini-model of how a country with an unconditional basic income could work out....
Indeed, having some kind of safety net will take away some of the stress related to not succeeding. However I'm not sure if that equals a UBI. Within Haier there a conditions around how long one can not have a target for example. So not sure about the UBI, perhaps it's more as if they receive a short unemployment benefit. Thoughts?
OK, didn't know about the time limit - anyhow it was a rather far-fetched comparison.
What I was aiming at was that some sense of security does not necessarily lead to bad results but can motivate people to try bold things - and grow with that. Haier seems to be taking advantage of this effect as the best 'paid' projects will be the toughest to do - and daring to do them only betters their ability to successfully complete similar tasks in the future.
In a whole the company will grow more and more capable of solving the problems at hand - which in turn benefits all. Great concept.
You couldn't have known! So don't worry about that!
Unfortunately there isn't enough space in the blogs to be writing all info in it, the Corporate Rebels Haier book will have much more details.
I agree, they've found a nice mechanism to enable people to feel comfortable taking a risk in such a way that if some of those projects become a big success, the organization and entrepreneurs both benefit.
Unsure about the "salt" part (but the article still is worth its salt), but then what is probably a myth is everywhere :)
Read that a Roman pound of salt (ca. 330 grams) cost one twentieth of a foot-soldier’s daily wages here https://kiwihellenist.blogspot.com/2017/01/salt-and-salary.html
Love your work and appreciate the bold, fresh ideas you share.
Intrigued how the compensation opportunities are defined, measured and distributed for functions that might have limited direct impact on "perceived/derived customer value" or functions that are shared services across many different projects.
I can appreciate how an invoicing clerk might have a client impact if they invoiced "accurately, efficiently and quickly" but there are other functions whose efforts benefit the organization and not necessarily the customer/client.
Intriguing and it certainly ensures that, if you can define "value added" in a way that all people believe it equitable and attainable, then it really will drive a level of intriguing behaviour.
Thank you again for raising the bar on these conversations.
Social capital and social networks are becoming increasingly important in today’s economy at large, and for individuals within organisations. For my MSc dissertation in Organisational Psychology, I researched how newcomers transition into a self-managing organisation (Lee & Edmondson, 2017), an organisation where authority is decentralised and classic manager-subordinate relationships are absent.
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