COMPENSATION PRACTICES 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 COMPENSATION ADMINISTRATION PROCESS CLASSIFICATION OF REWARDS COMPONETS OF FINANCIAL COMPENSATION BASE PAY VARIABLE PAY/PAY FOR PERFORMANCE : INCENTIVES TYPES OF INCENTIVES

1. COMPENSATION PRACTICES Indian Institute of Foreign Trade BY: SURYA SRIVASTAVA

3. Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. compensation may achieve several purposes assisting in recruitment, job performed and job satisfaction.Indian Institute of Foreign Trade

4. PURPOSEOF COMPENSATION Effective Compensation Contribution based Remuneration Ensure Equity Legal Compliance Reward Valued Behavior Attract talent Administratively Efficient Motivate & Retain Staff Indian Institute of Foreign Trade

5. 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 Indian Institute of Foreign Trade

6. 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 Indian Institute of Foreign Trade

8. Compensation takes the position that how employees are compensated can be a source of sustainable competitive advantageIndian Institute of Foreign Trade

9. 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 Market Surveys Job Evaluation Performance Management C & B/S M Unit Inputs Compensation Manager, along with team is responsible for carrying out compensation related activities Pay levels / structures Contribution /outputs Total remuneration Employee Performance linked Pay Individual Pay Internal Equity External Equity Indian Institute of Foreign Trade

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

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

13. Seeks to motivate employees through compensation.Indian Institute of Foreign Trade

14. COMPENSATION POLICY ISSUES • Pay for performance • Pay for seniority • Salary increases and promotions • Overtime and shift pay • Probationary pay • Paid and unpaid leaves • Paid holidays • Salary compression (A salary inequity problem, generally caused by inflation, resulting in longer-term employees in a position earning less than workers entering the firm today) • Geographic costs of living differences Indian Institute of Foreign Trade

15. COMPENSATION ADMINISTRATION PROCESS Indian Institute of Foreign Trade

16. CLASSIFICATION OF REWARDS Indian Institute of Foreign Trade

17. COMPONETS OF FINANCIAL COMPENSATION Indian Institute of Foreign Trade

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

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

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

22. Job Evaluation

23. The formal systematic means used to identify the relative worth of jobs within anorganization. Indian Institute of Foreign Trade

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

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

27. Incentive Pay Programs

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

29. Emphasize a shared focus on organizational objectives.

30. Create shared commitment in that every individual contributes to organizational performance and success.Indian Institute of Foreign Trade

31. TYPES OF INCENTIVES Indian Institute of Foreign Trade

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

36. If employees finish the work in less than the expected time, their pay is still based on the standard time for the job multiplied by their hourly rate.Indian Institute of Foreign Trade

38. Easily understandable, equitable, and powerful incentives

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

40. Quality problems caused by an overriding output focus

41. Possibility of violating minimum wage standards

42. 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

43. A permanent cumulative salary increase the firm awards to an individual employee based on his or her individual performance.Indian Institute of Foreign Trade

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

47. Establishing Team Incentive Payments

48. Set performance measures upon which incentive payments are based

49. Determine the size of the incentive bonus.

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

51. Gainsharing Plans

52. Programs under which both employees and the organization share the financial gains according to a predetermined formula that reflects improved productivity and profitability.Indian Institute of Foreign Trade

53. EMPLOYEE BONUS AND GAINSHARING PLAN Indian Institute of Foreign Trade

56. 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.

57. 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. Indian Institute of Foreign Trade

59. 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.

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

61. Apple , yahoo, coca cola, nike

62. Employee Stock Ownership Plans (ESOPs)

63. 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)

64. The employer establishes an ESOP trust that qualifies as a tax exemptemployee trust under Section 401(a) of the Internal Revenue Code Indian Institute of Foreign Trade

65. 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. Indian Institute of Foreign Trade

66. 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. Indian Institute of Foreign Trade

68. legally binding

69. Voluntary Benefits

70. provided at the discretion of the employerIndian Institute of Foreign Trade

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

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

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

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

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

78. Family day at office- Bharti telecom.Indian Institute of Foreign Trade

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

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

83. Recognition awards

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

86. Service awards

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

88. IBM: thanks award

89. IDEA: appreciation cardIndian Institute of Foreign Trade

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

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

93. Individuals form a ratio of their inputs to outcomes in their job and then compare the value of that ratio with the value of the ratio for other individuals in similar jobs.Indian Institute of Foreign Trade

94. RELATIONSHIP BETWEEN PAY EQUITY AND MOTIVATION Indian Institute of Foreign Trade

97. DETERMINANTS OF COMPENSATION Indian Institute of Foreign Trade

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

102. Area Wage Rates

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

104. Cost of Living

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

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

107. 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 Indian Institute of Foreign Trade

109. Competencies

110. Demonstrable characteristics of a person, including knowledge, skills, and behaviors, that enable performance.Indian Institute of Foreign Trade

111. WHY COMPETENCY BASED PAY ? • Pay plans that aim for high-performance work system. • Paying for skills, knowledge, and competencies is more strategic. • Measurable skills, knowledge, and competencies are the heart of any company’s performance management process. Indian Institute of Foreign Trade

113. Higher quality

114. Lower absenteeism and fewer accidents

115. Cons

116. implementation problems

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

118. Complexity of program

119. Uncertainty that the program improves productivity Broadbanding

120. Consolidating salary grades and ranges into just a few wide levels or “bands,” each of which contains a relatively wide range of jobs and salary levels.Indian Institute of Foreign Trade

122. Base salary

123. Short-term incentives or bonuses

124. Long-term incentives or stock plans

125. Perquisites (perks)Indian Institute of Foreign Trade

126. EXECUTIVE COMPENSATION-EHICS & ACCOUNTABILITY • Incentive payments are excessive compared with return to stockholders. • Time periods for judging and rewarding performance are too short. • Subjective in nature • Emphasis is placed upon equaling or exceeding executive salary survey averages. • Benefits do not relate closely to individual performance. Indian Institute of Foreign Trade

127. 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 Indian Institute of Foreign Trade

128. 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 Indian Institute of Foreign Trade

129. COMPENSATION PACKAGE ASHOK LEYLAND Indian Institute of Foreign Trade

130. DIRECT COMPENSATION Fixed Pay Variable Pay : depending on no of optional days attended Variable Pay : depending on last year’s performance Mandatory ( Indirect ) Indian Institute of Foreign Trade

131. 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 Indian Institute of Foreign Trade

132. 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 Indian Institute of Foreign Trade