Benefit to compensation ratio calculations

As an essential building block of the compensation formula, benefits ratios will differ among Engineering,
supervisors/staff and hourly wage earners such as production personnel. The basic formula for all three is:

(Averaged benefits + “perks” + bonuses) divided by (Averaged hourly wages for one year)

Getting started: First thing! Make a copy of the original spreadsheet in case you need to restore a deleted
formula.

Enter data in the gray cells only. Left-clink on cell E4 (on Line 1) and enter management personnel's average
yearly salary. Then enter the average yearly insurance costs in cell E5 (Line 2); enter average yearly
incentive and performance pay in Line 3 (cell E6); In Line 4, (cell E7) enter average yearly cost for retirement
plans, including company contributions and maintenance fees the company pays.

Repeat this process for supervisory/staff personnel, and other non-management personnel on yearly salary,
entering figures in Lines 6 - 9 (cells E10 - E13). Repeat the process again for hourly wage earners, entering
the average hourly wage in Line 11 (cell E16) and non-wage compensation costs in Lines 12 - 14
(cells E17 - E19).

Use the "BR" benefit ratio in Line 16 for worksheets computing absenteeism, employee turnover and
productivity costs. The peach colored results cells will automatically calculate and display the ratios. The
blue colored results cells in Lines 19, 22 and 25 will automatically calculate total compensation costs for
these groups. These figures can be used in Worksheet 2: Costs of poor quality.

Line
1 ES Average manager's salary, annual $ -
2 Insurance costs: Life, medical, dental, disability per year $ -
3 Bonuses, stock options, other incentives value per year $ -
4 Retirement plan: maintenance and contributions costs per year $ -
5 EB Management benefits ratio #DIV/0!

6 SS Average staff/supervisor salary, per year $ -

7 Insurance costs: Life, medical, dental, disability per year $ -
8 Bonuses, stock options, other incentives value per year $ -
9 Retirement plan: maintenance and contributions costs $ -
10 SB Staff/supervisor benefits ratio #DIV/0!

11 PS Average production personnel wage, per hour $ -

12 Insurance costs: Life, medical, dental, disability per year $ -
13 Bonuses, stock options, other incentives value per year $ -
14 Retirement plan: maintenance and contributions costs $ -
15 PB Production personnel benefits ratio #DIV/0!

16 BR Benefit ratio, averaged organization-wide #DIV/0!

Compensation cost calculations

Salaries, wages, benefits ratios and compensation costs per hour have been automatically entered into
lines 17-25 and calculated to hourly figures, using figures entered into lines 1-16.

Use the compensation costs EC, SC and PC (automatically calculated and shown in the yellow cells) when
calculating the cost of poor quality and its effects on profits in Worksheet 2.
17 ES Average manager's salary, hourly $ -
18 EB Engineer's benefits ratio, from line 5 #DIV/0!
19 EC Engineering staff compensation cost per hour, averaged #DIV/0!

20 SS Average staff member/supervisor salary, hourly $ -

21 SB Supervisor benefits ratio, from line 10 #DIV/0!
22 SC Supervisor compensation cost per hour, averaged #DIV/0!

23 PS Average production personnel wage, per hour $ -

24 PB Production personnel benefits ratio, from line 15 #DIV/0!
25 PC Production personnel compensation cost per hour, averaged #DIV/0!
 Charting effects of change in quality

This series of tables tracks time costs as they were defined in Worksheet 1, and adds them to the cost of Engineering Review,
rework, replacing items on warranty, retraining and various related material costs.

Getting started: First thing! Make a copy of the original spreadsheet in case you need to restore a deleted formula.

1. Print a copy of pages 1 and 2 to plan your approach and jot down figures for entering in the spreadsheet.

2. Take a baseline: a set of measurements, against which you will compare the results of change in process or policy. Keep
your methods for recording numbers of rework, scrap etc. consistent! This helps ensure the results convincingly represent the
effects of strategic change.

3. In a given cycle of time that you have chosen (a month, for example), the number of events--single items, lots or
batches, or other homogeneous groups--are counted and entered into cells as described below.

4. Subsequent measurements are recorded in the Step 2 Table to compare with the baseline. Be consistent! Trends--gradual
change--are more valuable than short term measurements as they more accurately represent change. Five or six
of these trend measurements should be taken for assessment. The graphs will automatically visualize data as you enter it.

5. If you want to track the cost savings on solving one recurring problem or defect type, you can use the totals to assess
Return on Investment (ROI).

Worksheet 2. Step 1
Line Personnel time Code Value

1 Engineering compensation per hour EC $ -

2 Engineering hours lost per event E -

3 Supervisor compensation per hour SC $ -

4 Supervisor hours lost per event S -

Instructions for using this worksheet
5 Personnel compensation per hour PC $ -
Only enter data in the pastel colored cells (not the dark
red title or white cells)! The white Value cells
Monthly/cycle sales-to-profit ratio Value automatically calculate data as you enter it, and send the
calculated data to tables for automatically generating
charts and graphs. Follow the instructions in this yellow
6 Sales, per month or cycle $ - block to enter, line by line, the data needed to assess
results.
7 Profit, per month or cycle $ -
Line 1: Enter the figure from the blue cell EC on Line 19 in
Worksheet 1.
Material rework costs Value
Line 2: Enter the average amount of time, in decimals (.25
8 Scrap costs $ - equals 15 minutes) for each Engineering Review
(assessment of failed product).

9 Warranty item replacement costs $ - Line 3: Enter the figure from the blue cell SC on Line 22 in
Worksheet 1.
10 Shipping warranty product costs $ -
Line 4: Enter the average amount of time, in decimals, (.5
equals 30 minutes) for providing guidance and oversight in
11 Concessions costs to customers $ - rework to production personnel.

Line 5: Enter the figure from the blue cell PC on Line 25 in

Worksheet 1.
 Line 4: Enter the average amount of time, in decimals, (.5
equals 30 minutes) for providing guidance and oversight in
rework to production personnel.

Line 5: Enter the figure from the blue cell PC on Line 25 in

12 Waste: materials used to correct defects $ -
Worksheet 1.

13 $ - Line 6: Enter your organization's sales for the month or

cycle of measurement.
14 $ -
Line 7: Enter your organization's profit for the month or
cycle of measurement.
15 $ -
Line 8: Enter the cost for scrapped items where
defects were found in-facility.
16 Total material costs $ -
Line 9: Enter costs of items replaced for customers
Time costs for poor quality Hours Value through warranty claims.

Line 10: Enter costs of shipping for items replaced

17 Number of production hours for rework 0 $ - through warranty claims.

18 Number of rework events 0 Line 11: Enter costs of concessions to customers

to resolve quality issues.

19 Engineering time 0 $ - Line 12: Enter the amount of waste: parts and
materials used to rework products for refurbishment.
20 Supervisor time 0 $ -
Lines 13 to 15: Enter the name, and values of other
identified material costs of poor quality.
21 Total time costs $ -
Line 17: Enter the time, in decimals, that production
personnel spent in sorting, rework and reshipping.
Line
Line 18: Enter the number of rework events: single
Computing Return on Investment (ROI) items, lots/batches, in other homogeneous groups or
production runs.
Time spent on correcting causes Hours Value Line 22: Enter the number of hours engineers used
to resolve event-related poor quality problems, including
22 Engineering 0 $ - time spent to prepare, deliver and assess results of
corrective training.
23 Supervisors 0 $ - Line 23: Enter the number of hours supervisors
used to resolve production rework problems,
24 Production personnel 0 $ - including time preparing for and delivering corrective
training, and for assessments.
25 Total $ - Line 24: Enter the number of hours that production
personnel used to resolve production rework
Other costs of correcting causes Value problems, including time in corrective training, and for
assessments.

26 Equipment $ - Line 26: Enter the amount spent on buying replacement

equipment or components, and/or for repairs, to resolve
27 Materials $ - event-related poor quality problems.

Line 27: Enter the amount of materials used for

28 $ - resolving event-related poor quality problems, including
training materials, visuals, mechanical aids, and others.
29 $ -
Lines 28 and 29: Name and enter other costs you have
identified for resolving event-related poor quality problems.
30 Total $ -
 Worksheet 2. Step 2
Enter data in the colored cells within this table at the end of each month or cycle. Begin by naming the month or cycle
in the top row. Then enter the totals from the corresponding lines from the worksheet above: the left column lines
numbers match. Graphs and charts will automatically express the data as it is being entered.

NOTE: It is not necessary to enter all the individual data in the pink and gray cells unless you want to track monthly
itemized quality costs. For non-itemized ratios, enter data in this table's Lines 6,7,16,21,25 and 30 only.
Line

Factors Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6 Average

6 Sales $ - $ - $ - $ - $ - $ - $ -
7 Profit $ - $ - $ - $ - $ - $ - $ -
Sales-to-profit ratio #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

8 Scrap $ - $ - $ - $ - $ - $ - $ -
9 Warranty $ - $ - $ - $ - $ - $ - $ -
10 Shipping $ - $ - $ - $ - $ - $ - $ -
11 Concessions $ - $ - $ - $ - $ - $ - $ -
12 Waste $ - $ - $ - $ - $ - $ - $ -
13 0 $ - $ - $ - $ - $ - $ - $ -
14 0 $ - $ - $ - $ - $ - $ - $ -
15 0 $ - $ - $ - $ - $ - $ - $ -
16 Total material costs $ - $ - $ - $ - $ - $ - $ -
17 Production time $ - $ - $ - $ - $ - $ - $ -
19 Engineering time $ - $ - $ - $ - $ - $ - $ -
20 Supervisor time $ - $ - $ - $ - $ - $ - $ -
21 Total time costs $ - $ - $ - $ - $ - $ - $ -
Total cost of poor quality $ - $ - $ - $ - $ - $ - $ -

25 Time spent on correcting causes $ - $ - $ - $ - $ - $ - $ -

30 Other costs of correcting causes $ - $ - $ - $ - $ - $ - $ -
Total costs to correct quality problems $ - $ - $ - $ - $ - $ - $ -

Return on investment: ### to 1 Days to return investment: #DIV/0!

Do not enter data in these cells! They automatically calculate, and send to the chart below, data
that has been entered in the table above.
Cost of
Month/cycle Poor Quality Sales Profit Profit ratio
Cycle 1 $ - $ - $ - #DIV/0!
Cycle 2 $ - $ - $ - #DIV/0!
Cycle 3 $ - $ - $ - #DIV/0!
Cycle 4 $ - $ - $ - #DIV/0!
Cycle 5 $ - $ - $ - #DIV/0!
Cycle 6 $ - $ - $ - #DIV/0!
Cost of
Month/cycle Poor Quality Sales Profit Profit ratio
 Cycle 1 #DIV/0! $ - $ - #DIV/0!
Cycle 2 #DIV/0! $ - $ - #DIV/0!
Cycle 3 #DIV/0! $ - $ - #DIV/0!
Cycle 4 #DIV/0! $ - $ - #DIV/0!
Cycle 5 #DIV/0! $ - $ - #DIV/0!
Cycle 6 #DIV/0! $ - $ - #DIV/0!

COPQ and profit on ____________

$1

Cost of
Poor Qual-
$1 ity

Profit

$-
Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6

COPQ and profit as percent of sales

100%
90%
80%
70%
Percent of sales

Cost of
60% Poor
50% Quality
40%
30% Profit ra-
20% tio

10%
0%
Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6

Itemized material costs of poor quality

$1

Scrap
Warranty
Shipping
Actual costs

$1
Concessions
Waste
0
0
 Shipping

Actual cost
$1
Concessions
Waste
0
0
0
$-
Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6

Costs of poor quality in personnel time

$1
Actual compensation costs

Production
time

$1 Engineering
time

Supervisor
time

$-
Cycle 1 Cycle 2 Cycle 3 Cycle 4 Cycle 5 Cycle 6