What Do Your Cost Your Company?

Submitted by Japan Inc on April 12, 2007

What Do Your Cost Your Company?

Most of us have had the experience of having to go ask the boss for more money - be it for an unexpected addition to the family, a job promotion, or simply because you're getting great offers through a headhunter. However, at the same time, our current company has treated us well and trained us, so we'd like to give them a chance to offer a pay raise before we high-tail it off to a new employer of unknown quality.

The challenge is not just in gaining the courage to ask your favorite crusty bucho, but also how much to ask for.

Knowing how much to ask for is important. In asking for a pay raise out of turn you're already crossing the line, so if you don't ask for any number at all, you'll be low-balled to put you back in your place. Instead, give a fair number, and if the boss is have smart, they'll understand and try to match it. But again, how much is "fair"? If you ask for too much, your boss may feel that you're "waga mama" (selfish) and will be happy if you leave. Ask for too little and you'll be feeling bad every time you see that miniscule increase on your pay check.

There are several ways to figure out what you're worth. The easiest is to simply go check on the Internet (www.daijob.com of course) and see what similar jobs are paying and what conditions are being offered. Just be aware that in doing this, it's a sly old world out there. If you see jobs which pay significantly more (more than 30%) than you're getting now, it's probably either because the risk factors are higher (e.g., an engineer doing pre-sales or project management), the company is having retention problems, or they have a culture which chews people up if they don't perform at very high levels.

A more scientific and meaningful way of checking your worth is to first figure out what you cost and deduct that from the value of the business position your applying for. This is an easy task to do if you're a sales person or involved in the sales process, and somewhat more difficult if you're in the back office.

So what do you cost your company? You may be surprised.

When you get your pay check every month, the numbers you see on your pay slip are just the tip of the iceberg when it comes to figuring out what you cost the company. Let's say that you're getting a base salary of JPY450,000 and you're single. Out the base, you're paying social insurance (shakai hoken) premiums on health insurance, pension, unemployment insurance, and possibly nursing insurance (if you're over 40), so your deductions will be around JPY51,000/month. You may not know it but at the same time, your company is stumping up another JPY51,000 to cover their side of the social insurance program. So your cost to the firm is now JPY552,000.

After social insurance, there are the costs of your holidays, training, and moving you around (home-work transportation). Clearly this varies, but for our case study, 12 paid holidays/year means a loading of JPY21,000/month, training is about JPY10,000/month, and commutation is JPY20,000/month. Now the cost to the company is JPY614,000.

Next, is the cost of hiring you in the first place. If you are good at your job, chances are that you were headhunted. With a base salary of JPY5,400,000, the recruiters charged JPY1,620,000 to place you, being another JPY135,000/month if ammortized over 12 months. This brings your direct costs to JPY749,000/month.

Next comes the cost of keeping you in the office. Rent is usually calculated as about 3 tsubo per person (taking into account kitchens, toilets, meeting rooms, and rest areas) and thus in a mid-level building your personal space allocation is around JPY90,000/month, plus maybe JPY30,000 for gas, electricity, water, air conditioning, cleaning, etc. Now we're up to JPY869,000.

Lastly, there is the cost of the back office overheads, you know, HR, Accounting, corporate compliance, legal, etc. Clearly these are highly variable, depending on size, but in my experience they typically work out to be around JPY120,000/month.

Now we have a Grand Total of JPY989,000/month.

Without including the cost of managers and the CEO and all his/her perks, you can see that the grand total for keeping you in the company is more than double your base salary. These are the sorts of numbers that managers have in their minds whenever you ask for a pay raise - so it may be worth comparing them to your actual value, to make sure that you're in surplus.

FYI, a rule of thumb I use for sales people is that they have to earn a minimum 3x their base salary and ideally 4x-5x. For back office staff, they just need to be costing the same or less than outsourced services for the same or better quality service - and if they do profitable work helping other companies, then all the better when it comes to their performance review and offering bonuses.

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Comments

Brian (not verified)

October 22, 2007 - 14:49

You mentioned that your general rule of thumb is that sales people "earn" 3x their base salary or more. I assume the "earn" you are talking about is gross sales? At my company, we are planning to hire our first true sales person. We are considering having an incentive system that adjusts the salary based on total sales rather than pure commission. For example, putting the acceptable sales/salary ratio at 3/1- 4/1. If our sales person brings in more sales than 4/1 over a year's (or 6 mo) period, then we would raise his/her salary to 4/1. We also considered tying that system to a sort of "net" income to provide incentive for the sales person to sell at a high profit and bring back to the production table ideas for lowering costs. Any opinions on that idea versus a general commission system?

Selling in Tokyo (not verified)

October 22, 2007 - 21:28

I have several sales people and have seen a few systems over the years. The adjustment of base salary, especially for Japanese employees is very important and crucial to motivation in addition to commission. Raising base salary after a salesperson has performed well may make sense, except when they stop performing. One thing I have learnt is that base salaries are protected fiercely and motivation slumps dramatically if lowered. I have found raising base salaries when a salesperson is ready to move to a team leader position can be more effective and less risky.

Terrie Lloyd

October 28, 2007 - 21:44

I have been through this same conundrum, how to move a company from fixed salary tables to a performance basis. You're right that promotions is a good time to start the practice. But what if you have to wake an entire sales department from its slumber?

What I found has worked for me in the past is:

1. I offered some of the top performers a commission arrangement that they couldn't ignore, and kept them on the same base they were on before. Thus, although in the beginning, the compensation bill can get expensive, as the commission payments start to kick in, these few top sales people start to realize that the incentives really can be worthwhile and work flat-out to take advantage of the situation.

Their resulting success can provide you with a few high-level examples for everyone else to shoot for, and overall the whole team starts performing at levels you could have only imagined previously. As you get this state of "bliss in business", the cost of the base salary becomes less of a factor to everyone.

2. Another sure-fire way to move people on to performance payments is to set a switch-over date, and from that date onwards, all NEW employees are signed on to the new program. Since they haven't had a chance to become acquainted with any other system, they are usually willing to take the offer. Important that you tell them at the start that their remuneration will be on a new system -- so that if they compare notes with existing staff, they won't feel cheated.

3. In the past when I have been compelled to give a sleepy team a jolt, I have frozen all future automatic pay raises, and only given commissions as additional remuneration. People don't care for this type of medicine much, but they start to change after they see that they're getting paid the same or more for working in a different way.

4. Lastly, note that for some very Japanese teams, it helps to make two forms of commission compensation: something for the individual AND something for the team. That way, everyone in the team gets some benefit when things are going well.

Terrie