China Negotiation Focus: Variable Compensation Plans in Down Markets

Let’s take a break from big-picture theory and focus on an actual China negotiation case:  Compensation.

Up until very recently, many international companies had been relying on performance-based compensation plans to encourage good performance.  Commissions, bonuses, profit sharing, stock ownership — all serve the same purpose, and they all work just great… in a growing market. In a down market, however, there’s a very good chance that most of your variable compensation programs will be varying towards the low end of the scale.  In other words, your key money-makers are going hungry now.  

Time to reset the targets?

If you are working with a compensation plan that is heavily dependent on individual or corporate performance then your people are feeling like they’ve suffered a real salary cut.  You might not see it that way, and you might be right.  But we both know that being right isn’t going to help you if people start quitting.  Is this a good time to re-structure your compensation plan?

Step 1   Goal Setting
What’s your goal right now –  retain or downsize?  If you want to start shedding staff, then there are worse ways than slow starvation — but there are also better ways.  2 dangers with the slow-bleed.  First, the people you want to hold most will be the first to find new jobs – possibly with your competitors, and second it can seriously poison morale forever.  Let’s say your goal is to RETAIN a large group of key people.

Step 2  Adjust it or scrap it.
You can offer to reset numbers and negotiate new targets, or you can shift to a salary + bonus system.  Resetting targets is OK for the guys who see this as a temporary downturn, but just make sure to make the new targets automatically convert back to the old ones at some point.  Don’t get stuck with low sales target if your sales are holding up.   This might also be a good time to re-examine and retool hastily drawn-up profit shares and performance bonuses that are now seriously far under water.  

Step 3  Negotiate 
This is one time when you may be negotiating from weakness with certain people.  Be very careful about trying to bluff this.  If you really are negotiating from strength then you have to decide on a time frame and get a good deal that doesn’t alienate anyone.  Is this going to be a short-term situation or do I need to figure out new ways to survive over the next 2 or 3 years? 

CHINESE NEGOTIATION TIP:  Chinese managers often consider it easier to talk to a different company about a new pay package than to go to their own.  That means that you will have to make the first move to negotiate a new deal that may be less favorable to you.  Yeah.  I know – it sounds a little counter-productive.  But in tough times, holding on to key people is worth the extra effort – and the extra money.

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