Compensation is the process of providing adequate, equitable and fair remuneration to the employees. It is what employees receive in exchange for their contribution to the organization. It is a comprehensive term which includes pay, incentives and benefits offered to the employees. PURPOSEOF COMPENSATION THE PAY MODEL STRATEGIC COMPENSATION PLANNING COMPENSATION POLICY ISSUES

1. COMPENSATION PRACTICES

4. THE PAY MODEL Business Goals Compensation Philosophy/ activities serve Business Objectives CEO Business Strategy Business Strategy : This defines the direction in which organization is going in relation to its environment in order to achieve its objectives. Compensation Philosophy : Consists of a set of beliefs which underpin the reward/compensation strategy of the organization and govern the reward policies that determine how reward processes operate 4

5. THE PAY MODEL Business Goals Compensation activities serve Business Objectives CEO Business Strategy Compensation strategy is periodically reevaluated and the Compensation plan periodically developed Compensation Strategy HR Head Org.Structure Non-Financial Rewards Compensation Plan Compensation Strategy defines the intentions of the organization on reward policies, processes and practices required to ensure that it has the skilled, competent and well-motivated workforce it needs to achieve its business goals

9. Links the compensation of employees to the mission, objectives, philosophies, and culture of the organization.

10. Serves to identify the net monetary payments made to employees with specific functions of the HR program in establishing a pay-for performance standard.

12. COMPENSATION ADMINISTRATION PROCESS

13. CLASSIFICATION OF REWARDS

14. COMPONETS OF FINANCIAL COMPENSATION

16. Hourly/wage: payment for the number of hours worked.

17. Salaried : receive consistent payments at the end of specific period regardless of number of hours worked Nature.

18. generally market driven ( D>S=increase in pay)

19. Job Evaluation

20. The formal systematic means used to identify the relative worth of jobs within anorganization.

22. Any plan that ties pay to productivity or profitability. (i.e)The standard by which managers tie compensation to employee effort and performance.

23. It is linked to individual, group, or organizational performance and not to time worked

24. Incentive Pay Programs

25. Establish a performance “threshold” to qualify for incentive payments.

26. Emphasize a shared focus on organizational objectives.

31. An incentive plan that sets pay rates based on the completion of a job in a predetermined “standard time.”

33. Easily understandable, equitable, and powerful incentives

34. Employee resistance to changes in standards or work processes affecting output

35. Quality problems caused by an overriding output focus

36. Possibility of violating minimum wage standards

37. Employee dissatisfaction when incentives either cannot be earned due to external factors or are withdrawn due to a lack of need for output Merit pay

40. Compensation plans where all team members receive an incentive bonus payment when production or service standards are met or exceeded.

41. Establishing Team Incentive Payments

42. Set performance measures upon which incentive payments are based

43. Determine the size of the incentive bonus.

44. Create a payout formula and fully explain to employees how payouts will be distributed.

45. Gainsharing Plans

49. Any procedure by which an employer pays, or makes available to all regular employees, in addition to their base pay, current or deferred sums based upon the profits of the enterprise.

50. Paid once in a year or deferred sums until retirementChallenges: • Agreement over division of profits between company and employees. • Possibility of no payout due to financial condition of company.

52. Granting employees the right to purchase as pecific number of shares of the company’s stock at a guaranteed price (the option price) during a designated time period.

53. The value of an option is subject to stock market conditions at the time that option is exercised.

54. Apple , yahoo, coca cola, nike

55. Employee Stock Ownership Plans (ESOPs)

56. Stock plans in which an organization contributes shares of its stock to an established trust for the purpose of stock purchases by its employees.( UK,USA and several other industrialized countries). This provide tax concessions to corporate orgns. And to trusts established for employee stock options. (i.e (difference between acceptance price and market value)

57. The employer establishes an ESOP trust that qualifies as a tax exemptemployee trust under Section 401(a) of the Internal Revenue Code

58. WHY INCENTIVE PLAN FAIL • Performance pay can’t replace good management. • You get what you pay for. • “Pay is not a motivator.” • Rewards punish. • Rewards rupture relationships. • Rewards can have unintended consequences. • Rewards may undermine responsiveness. • Rewards undermine intrinsic motivation.

59. IMPLEMENTING EFFECTIVE INCENTIVE PLAN • Ask: Is effort clearly instrumental in obtaining the reward? • Link the incentive with your strategy. • Make sure effort and rewards are directly related. • Make the plan easy for employees to understand. • Set effective standards. • View the standard as a contract with your employees. • Get employees’ support for the plan. • Use good measurement systems. • Emphasize long-term as well as short-term success. • Adopt a comprehensive, commitment-oriented approach.

61. legally binding

62. Voluntary Benefits

64. Employee’s spouse education assistance( Motorola on international assignments ).

65. ONGC,NIIT ,ADITYA BIRLA GROUP, HLL sabbaticals (paid/ non-paid) are provided to employees who wish to study.

67. Paternity leave in HLL, HCL Tech, Yes Bank, Genpact etc.,

68. Wedding anniversary allowance in NIIT, SPIC etc.,

69. “Joyful Working Team” and “ Happy Moments Board”- LG Electronics

72. Often used to recognize productivity gains, special contributions or achievements, and service to the organization.

73. Employees feel appreciated when employers tie awards to performance and deliver awards in a timely, sincere and specific way.

74. Recognition awards

76. Best performer of the month awards in Blue Dart, ALACTEL,XANSA etc.,

77. Service awards

78. Award for the length of service and exactly not on performance

79. IBM: thanks award

81. An employee’s perception that compensation received is equal to the value of the work performed.

82. A motivation theory that explains how people respond to situations in which they feel they have received less (or more) than they deserve.

86. DETERMINANTS OF COMPENSATION

89. Availability and quality of potential employees is affected by economic conditions, government regulations and policies, and the presence of unions.

90. Area Wage Rates

91. A firm’s formal wage structure of rates is influenced by those being paid by other area employers for comparable jobs.

92. Cost of Living

93. Local housing and environmental conditions can cause wide variations in the cost of living for employees.

94. Inflation can require that compensation rates be adjusted upward periodically to help employees maintain their purchasing power.

95. Collective BargainingThe term extends to all negotiations that take place between an employer, group of employers or one or more employers’ organizations on the one hand, and one or more workers’ organizations on the other to (a) Determine the working conditions and terms of employment and / or (b) Regulate relations between employer and employee/workers and / or (c) regulate relations between employer organization or employee/workers organization

97. Competencies

100. Higher quality

101. Lower absenteeism and fewer accidents

102. Cons

103. implementation problems

104. Cost implications of paying for unused knowledge, skills and behaviors

105. Complexity of program

106. Uncertainty that the program improves productivity Broadbanding

108. Base salary

109. Short-term incentives or bonuses

110. Long-term incentives or stock plans

112. SWEETNESS OF EXECUTIVE PERKS • Company car • Company plane • Executive eating facilities • Financial consulting • Company-paid parking • Personal liability insurance • Estate planning • First-class air travel • Home computers • Chauffeur service • Children’s education • Spouse travel • Physical exams • Mobile phones • Large insurance policies • Income tax preparation • Country club membership • Luncheon club membership • Personal home repairs • Loans • Legal counseling • Vacation cabins

113. LEGAL FRAMEWORK FOR PAYMENT OF SALARY- INDIA • Payment of wages Act, 1936 • The minimum wages Act, 1948 • The payment of Bonus Act, 1965 • Equal remuneration Act, 1976

114. COMPENSATION PACKAGE ASHOK LEYLAND

115. DIRECT COMPENSATION Fixed Pay Variable Pay : depending on no of optional days attended Variable Pay : depending on last year’s performance Mandatory ( Indirect )

116. CLASSIFICATION OF REWARDS TOTAL Compensation Non - Financial Financial Praise / Rewards Direct Indirect Job Satisfaction Provident Fund Gratuity Travel allowance Mobile expense Sales Promotional Expense Monthly Salary Annual Incentives Bonus

117. CLASSIFICATION OF REWARDS TOTAL Compensation Non - Financial Financial Praise / Rewards Direct Indirect Job Satisfaction Future Leadership Program (FLP): Executives earmarked and declared future leader based on their competency Development based Career Plan (DLCP): Competent executives committing 5 years service to company in the form of bond will be given minimum 2 elevation during the bond period. Executive of the year Award Company Jeep at individual level Foreign Tour with family for the team achieving their yearly target Major medical claim for self and dependant