Sunday, May 22, 2016

The Dewey Plan, Part 1

Let’s say we have a fictional company called Gibralter Cups, Inc. This fictional small company, which produces custom printed cups, is fairly small, but they have had a profitable year. The company has 25 employees, and all have been at the company for at least one year, and have done well on their annual performance reviews. The monthly payroll at present is $100,000/month and works out as you see below.

Now, let’s say that, as the company has been profitable, the leadership decides to reward its staff by increasing the payroll by 3%. That is, the payroll in going to increase from $100,000.00 to $103,000.00. This is a raise not given on individual merit, but rather based on company-wide performance. Traditionally, such raises would be applied as you see below.

That’s the traditional breakdown, but is it the only way to divide the 3% payroll increase equitably and fairly?

The Dewey Plan

I want to describe an alternate concept; I call it “The Dewey Plan”, named after the guy from whom I heard the idea. I have no idea if he heard it from someone else or thought of it himself. For all I know, there is a formal name for the distribution I’m about to describe, but I don’t know it. I take no credit for this idea at all; I'm just putting the ideas out there.

First, a metaphor:
When an NFL team wins the Superbowl (e.g. the 2015 Denver Broncos), an MVP is chosen (e.g. Von Miller). The MVP gets an individual trophy and usually a car. (Von Miller didn’t get one.) This is an individual accolade for an individual who performed outstandingly.

The team members, however, each get a Superbowl ring. It doesn’t matter who the individual is; each player gets the same ring. Von Miller doesn’t get more or bigger diamonds because he was the MVP. The player who played one minute of the Superbowl gets the same ring as a player that played every minute of offense (or defense). The player on injured reserve who did not play in a single playoff game will get the same ring as the player that played every game. It's recognition that every player had a role to play in successfully getting the team through the season, the playoffs, and the Superbowl.

Back to our company:
If a company is going to reward the entire staff by increasing payroll by 3%, why does each person need to make 3% more? Couldn’t each member of the staff be rewarded with a raise of equal amount rather than an equal percentage? Why couldn’t the post-raise increase use this formula: $3000 / 25 = $120? Why couldn’t the new salary schedule look like this instead?

Is there anything objectionable about this? Are there any benefits to such a plan? I'll cover a few of those in the next post. For now, muse on the information as it is.

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