Case Overview

The case talks about Visionary Design System (VDS), a company that sells CAD and provides
system integration services. Computer-aided design (CAD) is the use of computers to aid in the
creation, modification, analysis, or optimization of a design. CAD software is used to increase
the productivity of the designer, improve the quality of design, improve communications through
documentation, and to create a database for manufacturing. CAD output is often in the form of
electronic files for print, machining, or other manufacturing operations. In addition to this, they
also provide customization and training services. VDS follows performance based compensation
strategy where they value team building and positive work environment. By aligning employee
interests with organizational goals and giving employees the autonomy to make decisions, the
company believes that they will be successful and profitable. Although VDS was a market leader
in CAD software and hardware, a critical market for PDM was struggling division within the
company. PDM, being a relatively new development, was responsible for storing CAD
documents in an organized manner and improving the company’s ability to manage data. The
issue was that this within the department was slow and unable to support itself financially. The
structure of the compensation and incentive plans did not match employee interests with those of
the firm’s. Here, the problems with PDM was analyzed, solutions were discussed, and policy
changing recommendations were provided.

There are three categories of compensation in play at VDS. These are as follows:

Base salary

Commissions

Bonuses

VDS puts a lot of emphasis on commissions which has created a culture of competition. It falls
in line with performance based compensation philosophy. This increases sales and revenue. This
is why compensation varies wildly periodically. This attracts employees who are willing to take
risk. This paired with performance reviews helps employees take control and motivates them to
perform better.
1. Company Overview

Visionary Design Systems (VDS) was a small, high-tech full service systems integration firm
based in Silicon Valley with eleven offices throughout the country. It sold high end CAD
systems alongside customization, integration and training services. All employees received a
significant portion of their income from commissions and bonuses, and all were shareholders.
The company believed in empowering their employees and went to great efforts to do so. All
employees were given substantial decision-making authority, and were expected to act in the
interests of the firm. VDS was a market leader in computer Aided Design (CAD) software and
hardware but PDM (Product data Management) was critical market for it. So VDS hired two
experts in the field. Management offered attractive incentives for growing the PDM business but
unfortunately they could not drive VDS forward in this industry. Things were not progressing
quickly and top management did not know what to do next. VDS had more than a few
philosophies and values of thought that everyone is a partner and people should earn according
to what they produced, and that empowerment made people knowledgeable and more involved in
decisions. Also it encouraged an atmosphere of friendliness and respect as well as cooperative
spirit.

2. Introduction
2.1 Operations of the company:
Founding Beliefs
• Partnership approach: everyone to share profits, and be responsible for company success
• Family sense, ethical, moral
• Teamwork and cooperative spirit reinforced through hiring practices, like new recruits
interviewed by all members of the regional office

Empowerment
Developing a knowledge base in each employee of company, mission, goals and tactics, and
plans that enables them to take action and make decisions consistent with the company strategy
and values.
• Decision-maker is the person with most knowledge about the issue
• Keeps company closer to customers
• Keeps employees happy

Factors for success

• Align employee incentives with the company – i.e. make them stockholders
• Commissions and bonuses linked directly to performance goals
• Atmosphere of friendliness and respect
• Training for all new employees: business fundamentals, products, industry overview. The
continued in educational lectures, group discussions week long sessions 3 x per year. Sales Reps
and Engineers have 2 additional training sessions on specific topics

• Decentralize decision-making to empower employees – make them not want to leave

2.2 Compensation system:

VDS has compensation guides that are based on philosophy that pay is to be in line with output
rather than position or seniority. Thus, everyone within a job type earned almost the same base
salary. Consequently, compensations such as commissions and bonus would vary fairly.
Commissions which account for 50% and 30% of their income for sales representatives and
application engineers each are paid on the basis of output. When it comes to stock options,
management team believed that it was an effective motivator, but it seems like that most of
employees may not fully understand their stock shares and meaning of stock options.

Base Salary

 All full-time employees got base salary, commission, annual bonus. Commission/bonus
significant – in a good year employees would earn more than industry average; in a bad year they
would earn less, but were less likely to be laid off.
• Base usually the same for each job type. Admin base salaries had been raised over 4 years,
others had not
• Total commission on any sale spread across the job types. Commission customized by job type
to provide link between revenue flows an employee worked with and his/her tasks
• Sales Reps received a percentage of the revenue brought by their activities.

Sales reps had a 40% of base salary while the rest of the categories varied from 60 to 85%. It’s
enough to give security of income to employees and to achieve stability in employee’s
performance.

Commissions

Every full time employee earns commissions as part of his compensation and the total
commission payment on any sale is spread across a number of job types giving each person invol
ved in the process the incentive to contribute. Commissions were customized by job type to provi
de link between revenue flows an employee worked with and his tasks.

Sales Reps: They received a percentage of sales revenues. Commissions were steppedaccording
to sales band and they could normally go up to 10%. A new plan in 1994 split sales into
bookings, hardware sales and software sales with the aim of Sales Reps focusing on higher
margin products. In addition, Sales Reps received a 4% of the total training
andconsulting revenue from the office, commission’s benchmark did not change and total
commissions payable were not capped.

Applications Engineers: Commissions were earned on consulting training revenue (8%)

and product sales (1-4%)

Office Administrators: Commissions were paid to them according to how they supported the
firm and contributed to sales.

Specialists: They had customized commission plans which were established at the beginning of
the year. The system was flexible and, for instance, the commission schedule for the PDM
specialists were changed to reward only consulting and training activities.

This seems a good method as it gives salespeople incentives to sale, and its unique to the
company’s products and services. Furthermore, the
1994 redesign shows that the company’s commission scheme was flexible as it was able to
change its compensation system when necessary. Commissions were very good defined and they
went from a 50% for sales reps to a 5% for administrative staff and the company kept
commission’s scheme simple.