#18 - Profit linked salary package

Profit linked salary package

We must constantly search for business opportunities and improve profits of the organization. Searching for business opportunities and making the organization 'profit' is like breathing. It should happen in every second. Is this happens in Kerala PSU's?

One of the draw back of  Kerala PSU's is that they are comfortable with the business that they currently have, but are not satisfied with the salary they are getting. This is not a good statement, but this is a fact in all Kerala PSU's.

The business of a PSU is set by the Government. So if someone is selected as a staff they will do the 'Job' assigned to them. It is not the purview of anyone to find business or do business improvement for the organization. Those are all the duties of higher management.

This is the attitude of most of the employees in PSU but in contradictory to that in a private firm atleast the owner will constantly search for business opportunities. In a PSU, however, no one clearly assumes this responsibility—not even the Managing Director.

The Managing Director is also appointed by the Government, and his or her tenure is limited. Consequently, the focus is often on managing the organization to the extent possible during that tenure—primarily to avoid getting any comment that the organization has deteriorated under their leadership, rather than to ensure that it has been taken to great heights. As a result, the long-term future of the organization may not always be a primary objective.

What is the best thing that can be done for this?

Each employee should have the responsibility to run the organization. Beyond performing day-to-day duties, each employee should be aware of the organization's business, identify areas for improvement, and contribute to cost reduction wherever possible. The management staff of the organization, who are expected to become the future leaders of various departments, must be well aware of the business. They should understand the existing and potential business areas of the organization, as well as the improvements that can be implemented to enhance performance and efficiency.

There should be a financially linked salary structure for employees, in which a significant portion of the compensation is tied to the organization's profits. This would make the entire staff more financially aware of each process within the organization and encourage greater accountability and efficiency. This should at least be included in the salary structure of the management staff, who can directly contribute to the turn over and profit of the organization. A small portion of the workers compensation package should also be linked to profit. 

If an organization records a profit in a particular financial year, 25 percent of the increase of profit (from the previous financial year) should be distributed to employees as salary-linked compensation. This amount would be shared among the entire staff based on their salary scales, following a predetermined and approved framework. As profits increase, employee compensation would correspondingly rise, and the overall salary package can also be structured on this basis.

Such a system would create financial awareness and healthy competition within the organization, promote cost consciousness, and improve alertness in project and job execution. This model is effectively implemented in private firms, where the annual bonus package is declared alongside the audited profits for the financial year.

The contradictory aspect in Kerala PSUs is that a profit-linked bonus system already exists. Trade unions and management staff hold meetings to finalise this bonus, in addition to the regular salary. However, this system does not create sufficient pressure to actively focus on generating profits.

Under the proposed approach, the annual salary increase should be a flat increment of 0.1% for all employees. If the organization records a profit increase—for example, 10%—then 30% of that incremental profit should be distributed as an employee bonus, following a structured and approved framework, as a one-time annual package.

Making aware of profit and the work that we have to execute in the organization level will only improve the organization.

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