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Direct compensation for employees' ideas

Give employees a cut of profits generated from their ideas.
  (+4, -9)(+4, -9)
(+4, -9)
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I've noticed from my own job experiences that pay increases only seem to occur from promotions or when the company becomes more profitable.

But what about when you come up with a great idea that saves the company large sums of money? If you're lucky you get a pat on the back or an "award of achievement" from the boss.

I think companies would be more profitable if they would encourage employees to bring forth their ideas on how to make the company more efficient and productive.

In return, the employees would be given a percentage of profits generated directly from the implementation of their ideas. It seems like a "win-win".

vector, Nov 24 2005

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       If the invention has anything to do with the business or industry of your employer just make sure you aren't employed by the company at the time you create the invention.   

       The direct compensation is a wage.
bristolz, Nov 24 2005
  

       In my temping work days at work, this week, I'm involved in a publication that, this issue, has focused on exactly this domain - that of suggestion schemes and their consequent reward structures (if any). Can't say too much, obviously, as it's someone elses editorial property, but suffice to say that such schemes exist and clearly they differ across companies and situations.
Ian Tindale, Nov 24 2005
  

       You can say it, [Ian]...we won't tell.   

       I bet there are some companies out there that are great at rewarding ideas. I wish I knew where they were - and that I was qualified to work there.
sleeka, Nov 24 2005
  

       Companies that derive their profits from innovation typically do reward their employees for innovation -- it's in their best interests to do so.   

       Driving employees to be shareholders, beyond just dropping some stuff into their 401K as a takeover defense, seems like a very good idea.   

       But, the problem you have here is that this is a let's all -- I mean you can't legislate this stuff
theircompetitor, Nov 24 2005
  

       Indeed. [mfd], a lets all non-invention. [later: I've held off on the mfd.
bristolz, Nov 24 2005
  

       Agreed *widely* baked. If your ideas are really that good, your employer will want to keep you offering; raise, bonus, stock, other. If you do indeed have the skills and your employer does not offer appropriate compensation, then this is not a good company for you and you should look elsewhere.   

       The real problem from my viewpoint is the number of employees who will "drop" an idea that is theoretically good, yet they provide; no research, no solutions to implement, no financials, and no initiative to move it forward. i.e. "We could make a gazillion dollars in this market. I think we should do that." ..."Uh, yeah great. You want a bonus for that? Um, sorry no."
Zuzu, Nov 24 2005
  

       But that's not their fault. Most people have no real idea of what's involved in innovation development - and equally have no idea of the ratio of workable to unworkable ideas that exist. However, if you make it difficult to progress idea seeds by requiring a lot of formalised work before submission, you'll end up with no ideas at all at the input to the funnel. Why bother?
Ian Tindale, Nov 24 2005
  

       I agree [Ian] I am all for rewarding good ideas. However, there is a big difference between encouraging input and alluding that your ideas will ensure you a cut of the profits. The latter can cause poor morale from people who think their ideas are more valuable than they are because they lack the experience to know the difference. It can cause needless frustration and fragment an otherwise well functioning team. In some cases, it can even discourage professional growth.   

       My basic point is that compensation should be in some way proportional to the effort. In a good company, the more accurate a person is regarding the viability of their ideas, AND the better they are at illustrating their value--the more likely they are to be well compensated for the results.
Zuzu, Nov 24 2005
  

       actually, I know that this already happens in some companies. However, given that I can't remember their names and you lot don't know either, I can't really mark this for deletion. However, prior art exists.
jonthegeologist, Nov 24 2005
  

       Seems like 3M would be good at this.   

       Several online sites have articles suggesting that "employees will be happy just knowing they are being listened to, and their ideas are being implemented." So I am now e-mailing them and telling them "that suggestion is pure idiocy". I'll tell you how it goes.
sleeka, Nov 24 2005
  

       This may not be a physical invention but it's not a "let's all" either. It's a management stategy, and from my experience, a very under-utilized strategy. If this is "widely baked" how come no one can name one company that employs this?   

       And stock options don't cut it because they reward everyone including employees who only "toe-the-line" and have no intention of adding anything "over-and-above" to the team effort. Raises and bonuses are only a drop in the bucket compared to what you've saved the company. This is no motivation for employees to spend extra time on a project.   

       The employer doesn't have to go for the idea if they don't want to. Implementation can also be negotiated. For example, the employeer could say "we think this a great idea but we'll only fund it up to a max of $X and you have to set it up and make it work on your own time". Many innovative employees would take up that offer if they receive a cut of the profits rather than a slightly higher raise or a few more shares.   

       I just think that corporations could tap into further innovation, productivity and efficiency gains if they offered a more appropriate and direct compensation.
vector, Nov 25 2005
  

       A company I used to work for (WH Smith in the UK) did this about ten years ago, and it was a huge success. It tended to make people think through their ideas a bit more throughly and get them down on paper. They gave away 5% of any quantifiable improvement (over 3 years even if you left the company) or just prizes for the less quantitative.
neilp, Nov 25 2005
  

       Whats wrong with a promotion being the reward? It entails a pay raise and emphasizes the perceived value of the employee.
bungston, Nov 25 2005
  

       Promotions are usually a move upward on the corporate ladder like ->group leader->manager->director->VP.   

       These promotions reward employees who have strong abilities to organize, lead and delegate. All valuable traits. But there are other employees who may not possess these traits yet have other abilities of value to the organization.   

       Abilities such as:   

       - weeding out inefficiencies - automating a process - finding a better price or supplier - doing anything that improves the company's bottom line   

       Direct compensation gives employees incentive to do more than is expected of them. And the company wins from this because they don't pay out to the employee until the company gets paid.
vector, Nov 26 2005
  

       // And the company wins from this because they don't pay out to the employee until the company gets paid.// In my opinion, this is a bit of an oversimplification.   

       For a broad "rank and file" level implementation, your idea might overlook some of the risk companies shield employees from by paying steady salary.   

       For example, what do you tell your unpaid, high risk-taking shareholders? "Sorry folks, while our revenue indicates we should have been prepared for this downturn, we've pissed away our margins to well paid, low risk taking employees. Don't worry though, we're going to cut our labor force by 40%. So, um, in the meantime, can you give us some more cash to get us through this?"   

       Granted this can happen even without a direct compensation plan, but the savings-to-profit link you've indicated is not always straightforward. If *you* work really hard will your company's stock rise? If so, buy, buy, buy.   

       Or looking at it another way, maybe the employer can dock an employee a % of the loss when they inevitably make a mistake, or cause some other cost? In this case, I tend to think that resultant loss-aversion would produce a super-conservative stagnant corporate culture. (hmmm...not to mention a serious reduction in office supply use.)   

       Besides, if a person really wants direct compensation, they can always accept all of the risk and go into business for themselves.
Zuzu, Nov 26 2005
  

       //If *you* work really hard will your company's stock rise? If so, buy, buy, buy. // -Zuzu I've already covered this in a previous posting: // And stock options don't cut it because they reward everyone including employees who only "toe-the-line" and have no intention of adding anything "over-and-above" to the team effort // -vector   

       //For a broad "rank and file" level implementation, your idea might overlook some of the risk companies shield employees from by paying steady salary.// -Zuzu Everything is negotiable. People in sales work for a mutually agreeable base salary with commission paid for results. This method could work for other employees, too.   

       // Besides, if a person really wants direct compensation, they can always accept all of the risk and go into business for themselves. // -Zuzu You're right. Corporations lose many excellent employees to self-employment because they're productivity is not adequately compensated for. My idea is not to drain money out of corporations - it's to create a more dynamic and profitable relationship between employer and employee. One that benefits both parties.
vector, Nov 26 2005
  

       I reluctantly voted against this one.   

       First, it's already been MFD'd for being a "let's all" non-invention.   

       Second, plenty of companies /do/ reward their employees for inventions, although it's almost never with a direct share of the profits from the invention.   

       Thirdly, because when you work for someone else, you trade off the (possible) rewards of going it on your own for the (relative) security of employment.   

       Finally, because employment agreements often spell out the kind of rewards that one can expect for inventions: maybe a bonus if the idea is patentable. Furthermore, employment agreements sometimes specifically preclude taking that great idea elsewhere, including into your own company.   

       Sorry, but [-].
land, Nov 29 2005
  

       Many years ago, the pharmaceutical company I worked for had a rule that any discovery or development that an employee made was entirely the property of the company. However, they also had a system whereby if they implemented an employee's money-saving suggestion, that employee would be rewarded (I think the figure was 10% of the first year's saving).
angel, Nov 30 2005
  

       The problem with this can be in dertermining how much of any change in profit is directly due to the employee suggestion. Some things will be fairly obvious but if a revenue generating suggestion and a cost saving suggestion are implemented at the same time, the cost of working out who gets what may exceed the net gain.
oneoffdave, Nov 30 2005
  

       Implementing ideas, "baking them" is the hard part that deserves the most pay. As you can see from the halfbakery, ideas without any implementation are just free for the asking.   

       Also, this is not a new or novel scheme. It's been done & thought about, so I agree with MFD.
sophocles, Nov 30 2005
  

       Numerous Japanese companies do this. Any accepted idea gets you a nominal sum (£25-50 or the such like) or 2% of the amount made/saved by the company for implementing it.
Germanicus, Nov 30 2005
  

       I hope that at some point it will become a more prevalent business strategy to mathematically quantify the value of individual employees and link that value to a ratio of compensation.   

       I.E. (simplified) Joe produces 300 widgets a day, for which the company sells for $5 a piece. Jack produces 100 widgets a day. Shouldn't Joe be payed 3 times as much as Jack?   

       I think the above is not common & pay rate is driven more by the aggregate supply & demand of experienced workers. Sure, Joe will eventually get payed more than Jack, But it will likely not be 3 times as much. I'm not even sure that many companies really track quantity & quality of product by individual.   

       What is more, is that when Joe shows Jack that he can triple his output by pre-stacking the widget pieces in a certain manner, Joe & Jack are viewed as equals again, but Joe is mostly responsible for both of them tripling their production.   

       If there were individual production tracking, it might be deducible that Joe had something to do with increased production.   

       But since I'm the only manager I've met that did the above, I've decided to do what [ZuZu] said & go into business for myself. At least that way I'll directly benefit from my own time saving ideas.
Zimmy, Dec 01 2005
  
      
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