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Decoding Total Rewards
The document discusses various topics related to compensation including factors that determine pay, components of total rewards, motivation and pay, executive compensation, job evaluation, and establishing compensation philosophies. It provides details on approaches for determining pay levels, designing incentive plans, and addressing ethical issues related to rising CEO compensation. The presentation aims to provide a comprehensive overview of compensation practices and considerations for organizations.
Decoding Total Rewards
- 1. An evening withTIM Date – Friday, 23rd Oct 2020 Time – 7:30 PM Human Resource Professionals Society (HRPS) presents –
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- 3. 3 Why Pay ? FactorsDetermining Pay The Pay Mix What about Motivation ? Executive Compensation
- 4. 4 a ring sideview
- 5. 5 What is equity? A company of 100 employees and a wage bill of $10 million. Each gets $100,000 as pay Components of Pay Which components make up Total Rewards and based on which factors are these components determined? What about Motivation? Under which conditions does money impact motivation for performance?
- 6. 6 Distributive Equity –What one gets compared to his/her peers Procedural Equity – The rational behind what is paid. Fairness is key. A B Reward Performance
- 7. 7 Responsibility Strategic PositionPerformance Qualification Market Company Success Cost of Living Civil Status Tenure
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- 9. 9 Total Rewards Total Compensation Base Pay Salary Wages Variable Pay Individual/ Group Piece Rate One Time Bonus Target Bonus Organisation Profit Sharing Stock Ownership Stock Options Benefits Insurance Pension Services Non – Financial Rewards Appreciation Contacts Privileges Titles
- 10. 10 Job Analysis Job Evaluation Pay Survey PayStructure Individual Pay Implementation Communication Monitoring Pay Policies Job Appointment
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- 12. 12 Functional Expertise 8> 6 Knowledge Managerial Skills 5 > 4 Human Relations 5 > 4 Environment 7 > 6 Problem Solving Challenges 7 > 6 Freedom to Act 8 > 7 Accountability Impact on End Result 9 > 8 Compensable Factors Benchmark Scores
- 13. 13 180 430 680 930 1180 1430 1680 0 1 23 4 5 6 7 8 9 10 11 12 13 Relative worth of Job Com.1 Com.2 Com.3 Com.4 Com.5 Com.6 Com.7 Com.8 Com.9 Com.10 Com.11 Linear (Com.11) MarketPay(Avg.SalaryintheMkt). Benchmark Jobs / Job Value
- 14. 14 Jobs Com.1 Com.2Com.3 Com.4 Com.5 Com.6 Com.7 Com.8 Com.9 Com.10 Com.11 P10 P25 P50 P66 P75 P90 J1 407 374 339 358 337 311 333 307 363 372 311 311 322 339 361 368 374 J2 565 460 421 533 416 434 566 495 567 483 489 421 447 489 518 549 566 J3 590 601 581 579 568 532 538 534 587 548 581 534 543 579 581 584 590 J4 739 764 652 784 668 638 647 658 708 615 636 636 643 658 692 724 764 J5 737 740 722 743 706 754 724 776 743 800 743 722 731 743 743 749 776 J6 968 872 803 853 741 870 842 893 957 904 961 803 848 872 900 931 961 J7 886 933 885 969 899 965 995 934 962 915 928 886 907 933 951 964 969 J8 970 1,035 1,111 1,053 1,003 1,003 1,081 983 970 1,052 931 970 977 1,003 1,045 1,053 1,081 J9 1,116 1,189 1,204 1,146 1,152 1,108 1,177 1,160 1,164 1,198 1,157 1,116 1,149 1,160 1,172 1,183 1,198 J10 1,257 1,193 1,256 1,248 1,297 1,211 1,247 1,204 1,232 1,214 1,201 1,201 1,208 1,232 1,248 1,252 1,257 J11 1,414 1,328 1,377 1,403 1,386 1,320 1,392 1,381 1,350 1,398 1,370 1,328 1,360 1,381 1,390 1,395 1,403 J12 1,483 1,467 1,393 1,486 1,421 1,473 1,461 1,495 1,460 1,443 1,473 1,421 1,452 1,467 1,473 1,478 1,486 J13 1,585 1,638 1,595 1,423 1,527 1,678 1,571 1,641 1,648 1,400 1,418 1,418 1,475 1,585 1,621 1,640 1,648 Salary Range What does it helps in – a) Identify the market positioning b) Distance from a determined percentile point c) Create pay bands d) Make meaningful hiring and promotion decisions
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- 16. 16 The kickers &dampeners
- 17. 17 150 100 80 60 60 80 100150 A B Target Bonus % Piece Rate Pay Program Target Based System – a) Employee and Supervisor agree on both individual target and relation between target achievement and target bonus b) Employee can choose from different options reflecting different risk performance c) Primarily used for managers and senior management employees
- 18. 18 The role CompensationPhilosophy
- 19. 19 Author and motivationalexpert, Daniel Pink at TEDGlobal 2009 explained the “Puzzle of Motivation” Through the following illustrative experiment.
- 20. 20 What do weneed to decide ? • How different should the reward program be to meet the need of different groups segmentation • What is the purpose of each reward vehicle (e.g. base salary, incentives, benefits, etc. Role of each element • What is the competitive labor market for talent Comparator group(s) • Where should pay be positioned to the market? Competitive positioning • How should rewards aligned to individual and/or organizational performance Performance orientation • What is the importance of the relative internal value of work Internal equity • Who makes decisions regarding rewards; management responsibility? Governance • How and with whom rewards information be shared? communication • How will you administer programs and ensure regulatory compliances? Administration
- 21. 21 Inappropriate jobs: “I talkto the customers. That’s selling.” “I sit near a sales person and help them in releasing invoices.” “I am in touch with clients regularly and take feedback on services.” Establishing clear eligibility criteria such as: Customer facing Impacts the customer by persuading them to buy Responsible for a sales target as a primary goal Document and communicate both the… What? Why?
- 22. 22 How much shouldbe at Risk ? 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100 Minimal to none Performance reminder Directional Highly Directional Independent action
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- 24. 24 Salary Short term incentives(STI) Long term incentives (LTI) Guaranteed Severance Package Perquisites – like club memberships, private planes Insurance – health insurance for self and dependents
- 25. 25 Incentive Plan Stretch– a) Threshold in incentive plan should be achievable in 85% of the time b) Target should be achievable in 50 – 60% of the time c) Max about 15 – 20% of the time Viewing Ex-Compensation through the Compensation Committee’s lens – a) Internal Absolute Lens – Performance related to the operating plan or budget b) Internal Relative Lens – Look at the performance of last 5 years. How is the target achievement c) External Relative Lens – Mapping with the industry growth standards and projections d) External Absolute Lens – Meeting market expectation
- 26. 26 Total Shareholder Return(TSR) TSR = Current Price - Purchase Price + Dividend Purchase Price Incentive Matrix – a) Revenue b) Operating Expenditure c) Profitability d) Efficient use of capita (Return on Investor Capital)
- 27. 27 The exponential riseof CEO Compensation – a) The rise is attributed to the incentive components b) Linkage to equity based compensation c) In the 80’s CEO compensation was 1.5 time higher. It zoomed to 3 times in 2000’s d) Pay inequality by size of organisation The ethical dilemma – a) The rise in CEO compensation; is it driven by powerful CEOs b) Are the shareholders happy to pay for more ROCE
- 28. 28 Eat, drink andbe merry. For tomorrow you may diet !!!
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