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SHRM India - Archived Webinar - Designing a Rewards Strategy to Compete in a Talent scarce Market
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SHRM India - Archived Webinar - Designing a Rewards Strategy to Compete in a Talent scarce Market

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  • 1. The Society for Human Resource Management (SHRM) 16th February 2011All materials are Copyrighted 2010 by Strategic Human Resources Management India, Pvt. Ltd. or Society for Human ResourceManagement unless otherwise expressly noted. All rights expressly reserved. ©SHRM 2010 1
  • 2. Structure1. Designing a competitive rewards strategy – Key elements » Zubin Mulla2. Reward challenges and implications » Suman Shankar3. Question and Answer Session ©SHRM 2010 2
  • 3. Elements of a reward strategy• Pay level• Pay structure• Pay mix: cash-benefits vs. variable• Equity-based pay ©SHRM 2010 3
  • 4. $5/day 1913 1914 introduced 1915 Average workforce 13,623 Total leaving 50,448 Turnover rate 370 % ? ? Henry Absenteeism 10 % ? ? FordRaff, M. G., & Summers, L. H. (1987). Did Henry Ford pay efficiency wages?Journal of Labor Economics, 5(4): S57-S86. ©SHRM 2010 4
  • 5. $5/day introduced 1913 1914 1915 Average workforce 13,623 12,115 18,028 Total leaving 50,448 6,508 2,931 Turnover rate 370 % 54 % 16 % Henry Ford Absenteeism 10 % - 2.5 %Raff, M. G., & Summers, L. H. (1987). Did Henry Ford pay efficiency wages?Journal of Labor Economics, 5(4): S57-S86. ©SHRM 2010 5
  • 6. Are better employees worth the additional cost? Average wages $ 10 / hr $ 17 / hr Health care 47% get $3500/annum 85% get $5735/annum Retirement plan 64% get $747/annum 91% get $1330/annum Employee turnover 44% 17% Shrinkage 1.7% of sales 0.2% of salesCascio, W. F. (2006). Decency means more than "Always low prices": A comparison of Costco to Wal-Marts Sams Club. Academy of ManagementPerspectives, August, 26-37. ©SHRM 2010 6
  • 7. Total employee costs must include direct & indirect employee costs Total Employee Cost Total Employee Cost = 10.23% of revenue = 7.26% of revenue Indirect costs Direct costs All figures are in percent of annual sales for 2005Cascio, W. F. (2006). Decency means more than "Always low prices": A comparison of Costco to Wal-Marts Sams Club. Academy of ManagementPerspectives, August, 26-37. ©SHRM 2010 7
  • 8. Efficiency wages work best when…1. Employees are “pivotal” to business success2. The organization has a differentiation strategy and serves premium customers3. Other HR practices are aligned to compensation4. Benefits from enhanced selectivity & higher performance outweigh increased costs of higher pay ©SHRM 2010 8
  • 9. Elements of a reward strategy• Pay level• Pay structure• Pay mix: cash-benefits vs. variable• Equity-based pay ©SHRM 2010 9
  • 10. Pay (Rs. Lac/annum)  Pay (Rs. Lac/annum) ©SHRM 2010 10 “Tournament” Pay System10
  • 11. Seniors are overpaid & juniors are underpaid The Twisted Pay Scale Income & Productivity  Overpayment Underpayment Years of service McKenzie, R. B., & Lee, D. R. (1998). Managing through incentives: How to develop a more collaborative, productive, and profitable organization.New York: Oxford University Press. ©SHRM 2010 11
  • 12. A hierarchical structure works best when..…1. Performance can be measured only on a relative basis or over a period of time2. The organization relies largely on promotion from within3. There are fewer opportunities for sabotage by team members4. It is coupled with higher than market pay ©SHRM 2010 12
  • 13. Elements of a reward strategy• Pay level• Pay structure• Pay mix: cash-benefits vs. variable• Equity-based pay ©SHRM 2010 13
  • 14. Benefits work best when…1. Benefits are valued by employees more than what they cost to the employers2. Benefits as a cluster support an employer branding strategy of care and concern for the employees3. They enable sorting (attracting desired employees)4. They enhance employee performance and productivity ©SHRM 2010 14
  • 15. An variable pay system divides value created among value creators depending on their efforts Returns of A Returns of B Efforts of A Efforts of B Value Value Creator Creator A BAgency Theory Reinforcement Equity Theory Expectancy Theory Goal Setting Theory ©SHRM 2010 15
  • 16. Which firm will attract high performers? Firm BIncome  Firm A P Productivity  ©SHRM 2010 16
  • 17. Variable pay works best, when…1. Organizational outcomes are not too volatile2. Some attrition (sorting) can be tolerated3. Employees have prior work experience4. Individual/group outcomes are easily measurable5. Tangible measures are combined with subjective assessments6. There is controllability and alignment ©SHRM 2010 17
  • 18. Elements of a reward strategy• Pay level• Pay structure• Pay mix: Fixed-Variable-Benefits• Equity-based pay ©SHRM 2010 18
  • 19. Accounting or Market (equity) measures? Accounting Measures Market (Equity) (historical) Measures (futuristic)Organizational Cost Leadership DifferentiationStrategyFirm resource Slow cycle Fast cycleprofileDiversification Unrelated diversification Related diversificationprofileCapital structure Highly leveraged Low leverageGrossman & Hoskisson, (1998). CEO pay at the crossroads of Wall Street & Main: Toward the strategic design of executive compensation. Academyof Management Executive, 12(1). ©SHRM 2010 19
  • 20. Stock options work best when…1. The company is following a differentiation strategy, is in a fast cycle business, and has diversified in related businesses2. The company is a start up or is short on free cash3. In a mature and stable (or rising) stock market4. They are given in moderate amounts and balanced with stock grants5. When firm performance is poor6. When the employee is new ©SHRM 2010 20
  • 21. All elements of the reward strategy must be well integrated with other elements of HR strategy as well as the firm strategyOrganization StrategyCompensation HR Strategy Strategy • Recruitment• Pay level • Selection• Pay structure • Training• Pay mix • Succession planning• Equity-based pay ©SHRM 2010 21
  • 22. ©SHRM 2010 22
  • 23. Workforce Trends… Multi-generational Workforce Younger age profile and aspiration for better lifestyles Growth of new industries – IT, BPO ©SHRM 2010 23
  • 24. Employment models… Multiple employment models Compensation strategies aligned to different types and employment models ©SHRM 2010 24
  • 25. Focus is more on Cash…paidtoday….• Employees emphasize more on Fixed pay Difficult to get them interested in Performance Pay plans or Stock Plans ©SHRM 2010 25
  • 26. Inflation a concern…• Inflation touching Compensation budgets in several ways Higher salary increases Fuel costs increasing Food costs higher ©SHRM 2010 26
  • 27. Performance Management• Managing differentiation through compensation remains an issue• Attention on performance management as never before – Need to have a more transparent system – Identification of high potentials and managing their development and careers ©SHRM 2010 27
  • 28. Hiring and Premium Skills Intensifying competition for talent Niche skills Internal equity of existing hires vs new hires ©SHRM 2010 28
  • 29. Diverse Markets – Local and Global Diverse markets Growth of economy outside the Metros into 2 tier and 3 tier cities Pressure on hiring quality talent at middle and senior levels Global workforce Pay competitively Compliance ©SHRM 2010 29
  • 30. Benefit Trends…Long hours leading to stress…. Increased focus on employee health and well being ©SHRM 2010 30
  • 31. Manufacturing Sector….• Non management staff a major area of concern Inflation causing pressure Employee relations a concern area• Issue of contract staff salaries and parity with regular employees ©SHRM 2010 31
  • 32. ©SHRM 2010 32