compensation management 8

7/28/2019 Compensation Management 8

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Piyoosh Bajoria



Compensation Management

Major components of compensation systems

•Basic Wage and salary plans.

•Incentives

•Employee benefits.

•Performance-based pay

“Compensation management is a strategic activitythat helps an organization improve the

effectiveness of its employee reward processes. “

Piyoosh Bajoria



Types of Compensation

Direct Compensation

• Wages

• Salaries

• Commissions, Bonuses, Gainsharing, Profit Sharing

Indirect Compensation

• Pay for Time Not Worked (vacation, sick leave, holidays,

etc.)• Insurance Coverage (medical, dental, life, etc.)

• Income Security (pensions and disability)

• Services(education assistance, child care, recreation,

discounts, etc.)

Piyoosh Bajoria



EVA compensation model for TCS

TCS adopted EVA aimed at creating economic value by

concentrating on long term continuous improvement.

This model measured operating and financial performance

of the organization.

Basis for giving compensation to employees.

To assess employees’ contribution, at the company.

Component of fixed and variable pay were determined

Fixed Pay- wages, pension.

Variable Pay- bonus, profit sharing and stock options.

Piyoosh Bajoria



TCS Employee Satisfaction(2003-04)

Parameter Industry

average

TCS

Company Image 9.3 9.6

Job Content Growth 9.1 9.9Training 8.7 10.0

Salary & Compensation 8.2 8.8

Appraisal System 8.8 9.7

People In company 9.1 9.5

Overall Satisfaction 9.2 9.8

Piyoosh Bajoria



Types of Organizational Rewards

Membership

& SeniorityTask

Performance Competency Job

Status

Organizational Rewards

Piyoosh Bajoria



Membership & Seniority Based Rewards

• Rewards depends upon the firm which he or she joins and the time spent in it.

– Attract job applicants

– Reduce turnover

– May not directly motivate job performance

– May fail to motivate achievers to perform

better

Piyoosh Bajoria



Job Status Based Rewards

• Depends upon the Status of the Job which is

determined with the help of job evaluation.

– Maintains the feeling of Equity

– Fail to motivate achievers to perform better

Piyoosh Bajoria



Competency Based Rewards

• Rewards are linked to the competencies of

employees.

• Also called Skill Based Reward System.

– Motivates employees to acquire additional

skills

– Master of All Trades – Improved Service Quality

– Expensive

Piyoosh Bajoria



Performance Based Rewards

• Linked to performance rather than seniority or

membership.

• Organizational Rewards

– Profit Sharing

– Stock Options• Team Rewards

– Gain Sharing

– Special Bonuses

• Individual Rewards

– Piece Rate

– Commission

Piyoosh Bajoria



Pay and Performance Relationship

Employeeexpects

Pay

Performanceis

evaluated

Employee

considers equityof performance,

pay

Employee

performs

job

Employee sets new

expectations

based on previous

experiences

Feedback to employee

Piyoosh Bajoria



• Incentives

– Financial rewards paid to workers whoseproduction exceeds a predetermined standard.

– “payment by results ”

• Objectives of incentives-better performance

-improve overall productivity

-better and more efficient utilization of manpower

• Importance of incentives

Piyoosh Bajoria



• But a lot of companies have incentive plans, they don’tseem to work. Why?

• Those who write the plans, don’t know how tocommunicate the plans to workers.

Or…they don’t understand that some people can

react differently to the plan.Or…the rewards aren’t suited to the situation.

Or…simply put, management doesn’t include thestaff in the design of the plan.

• It’s unwise to try to write a “one size fits all” incentiveplan.

• Don’t look at “what motivates employees”….instead

consider what motivates a employees.Piyoosh Bajoria



• Law of individual differences

– The fact that people differ in personality, abilities,values, and needs.

– Different people react to different incentives indifferent ways.

– KNOW YOUR EMPLOYEES!

– Fine-tune the incentives offered to meets theirneeds.

Piyoosh Bajoria


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Incentives Take Home

Doesn‟t always need to be “show me da money!”

• Most simple and best option is have doable goals andagreement with them.

• Recognizing an employee‟s contribution is a simple tool.

• On a day-to-day basis, you can use:

Having fun part of work

Job rotation

Expression of appreciation in front of othersBigger desk

Note of thanks

Challenging work assignments

Piyoosh Bajoria

Ok S L ‟ B ild A Eff i



Okay, So Let‟s Build An EffectivePlan….

• Ask: Is effort clearly involved 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.

• 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.

Piyoosh Bajoria



EVA MODEL BY TCS

FIXED VARIABLE

COMPENSTION MANAGEMENT

Piyoosh Bajoria



Target based incentive s

Targets =revenues and profits +value

Targets to business level to individual level

Incentive on Improvement of Corporate

Level Corporate Business

Unit

Individual

performance

Ass. System Engineer 30% 20% 50%

IT Analyst 30% 20% 50%

Assistant Consultant 40% 20% 40%

Associate consultant 40% 20% 40%

Consultant 50% 30% 20%

Senior Consultant 50% 30% 20%

Sr Manager 50% 30% 20%

Vice President 50% 30% 20%Piyoosh Bajoria


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INCENTIVE

SYSTEM

-long term continuous improvement

-Rewards on basis of profitability

-value addition through evaluation

Piyoosh Bajoria



INCENTIVE SCHEMES

Earnings vary in the same proportion asoutput

Earnings vary less proportionately thanoutput

Earnings vary proportionately more thanoutput

Earnings differ at different levels of output

Piyoosh Bajoria



EARNINGS VARY SAME PROPORTION

AS OUTPUT

• STRAIGHT PIECE WORK

• STANDARD HOUR

Piyoosh Bajoria

S G C O



STRAIGHT PEACE WORK

Rate per unit = 10 paise

Total Output = 100 unit

Total Earning will be

100* 0.10 = Rs 10.00

Piyoosh Bajoria

STANDARD HOUR



STANDARD HOUR

Standard time = 10Hrs

Rate per hour = Re 1

Case (1)

Time taken = 8 Hrs

Earnings = 10*1 =10Case (2)

Time taken = 12 Hr

a. Earnings if time wages are not guaranteed

10*1 = Rs 10

b. Earnings if time wages are guaranteed12*1 =12

Piyoosh Bajoria



EARNINGS VARY LESS

PROPORTIONATELY THAN OUTPUT

• HASLEY PLAN

• ROWAN PLANS

• BARTH PLAN

• BEDOUX PLAN

Piyoosh Bajoria

HALSEY PLAN



HALSEY PLANStandard Time = 10 Hr


Case (1)Time taken =10 Hrs

Earnings 10* 1=Rs 10.00

Case(2)

Time taken =12 HrsEarnings = 12 * 1 = Rs 12.00

Case (3)

Time taken = 8 Hrs

Earnings:Time wages =8*1 = 8.00

Bonus wages = 1/2*2*1 = 1.00

Total = 9.00

Piyoosh Bajoria

ROWAN PLAN



ROWAN PLANStandard time = 10 Hrs


Case (1)time taken = 10 hr

Earnings = 10*1 = 10

Case (2)

time taken = 12 hrsEarnings 12*1 = Rs 12

Case (3)

time taken = 8hrs

Earnings = 8*1 = Rs 8.00Bonus = 2/10*8 = Rs 1.60

Total = Rs 9.60

Piyoosh Bajoria

BARTH PLAN



BARTH PLAN

Standard time = 10 hrs

Rate per hour = re1

Case(1)

Time taken = 12hrs

Earning = √12*10 = 10.95

Case(2)

Time taken = 10hrs

Earning = √10*10 = 10.00

Case(3)Time taken = 8hrs

Earnings = √ 8*10 = 8.94

Piyoosh Bajoria

BEDAUX PLAN



BEDAUX PLANStandard time = 10hrs

Rate per hour = re 1

Case(1)Actual time = 12 hrs

Earnings = 12 * 1= Rs 10.00

Case (2)

Actual time = 8 hrsEarnings time wages = 8*1

Bonus:

Standard Bs = 10*60= 600

Actual Bs 8*60 = 480Bs saved = 120

Bonus = 75/100*120*1/60 = 1.50

Total earnings = 8+1.50 = 9.50

Piyoosh Bajoria



EARNINGS VARY PROPORTIONATELY

MORE THAN OUTPUT

• HIGH PIECE RATE

• HIGH STANDARD HOUR

Piyoosh Bajoria



EARNING DIFFER AT DIFFERENT

LEVELS OF OUTPUT

• TAYLOR‟S DIFFERENTIAL PIECERATE

• MERRICK DIFFERENTIAL PIECERATE

• GANTT TASK SYSTEM

• EMERSON‟S EFFICIENCY PLAN

Piyoosh Bajoria

TAYLOR‟S DIFFERENTIAL PIECE RATE



TAYLOR‟S DIFFERENTIAL PIECE RATESYSTEM

Standard output = 100 units

Rate per unit = 10 paise

Differentials to be applied

120 % of the piece-rate at or above the standard

80% of piecerate when above the standardcase(1)

Output = 120 units

Earnings =120*120/120* 0.10 = Rs14.40

Case (2)Output = 90 units

Earning = 90* 80/100* 0.10 = Rs 7.20

Piyoosh Bajoria



Merrick differential piece rate system

Output = 80 unitsEfficiency = 80/100*100 = 80%

Efficiency less than 83 % base piece rate applies so

Earnings = 80* 0.10 =Rs 8.00

Case (2)

Output = 90 unitsEfficiency =90/100*90 = 90%

Efficiency more than 83 % but less than 100%

Earning = 90* 110/100*0.10 = Rs 9.90

Case (3)

Output = 110 unitsEfficiency = 110/100*100 =110

Efficiency exceeds 100%,

110*120/100*0.10 =13.20

Piyoosh Bajoria

GANTT TASK SYSTEM



GANTT TASK SYSTEMRate per hour = Re 0.50

High piece rate = Re 0.10

Standard output = 80 units

Time taken = 8hr

Case(1)

Output =70 unitsOutput < standard, time wages are paid

Earnings = 8*0.50 = Rs 4.00

Case (2)

Output = 80 units

Output = standard, time wages + 20% of timewages

Time wages = 8*0.50= 4.00

Piyoosh Bajoria



bonus = 20/100*4 = Re 0.80

Total earning = Rs 4.80case(3)

output earnings = 110units

output> standard, high price

rate

110* 0.10 = Rs 11.00

Piyoosh Bajoria

EMERSON‟S PLAN



EMERSON‟S PLAN Standard output in 10 hrs = 100 units

Rate per hours = Re1

Case (1)Output in 10 hrs = 50 units

Earnings

Efficiency = 50%

Efficiency < 67%, entitled to time wages10*1 = Rs 10.00

Case (2)

Output in 10hrs = 100 units

Efficiency = 100 % , time wages +20% of timewages

Time wages = 10*1 = Rs 10.00

Bonus = 20/100*10 = Rs

Piyoosh Bajoria



Bonus = 20/100*10 = Rs 2.00earnings = Rs 12.00

case (3)

output in 10 hrs = 130 units

efficiency = 130 %

Piyoosh Bajoria

Incentive Plans



Incentive Plans

1. Individual-In this plan output of each worker can be accurately measured.

2. Group- In this plan output is calculated in group.Ex-electrical industry.

Advantages of group Incentives are-

1.Better co-operation among workers.2.Less supervision.

3.Reduced incidence of absenteeism.

4.Reduced clerical work.

5.Shorter training time.

Disadvantages are

1.An efficient worker may be penalised for the inefficiency of the

other members in the group.

2.Rivalry among the members of the group defeats the very purpose

of team work and co-operation.Piyoosh Bajoria



Incentive Schemes In Indian Industry

1.In 1946 incentives plans were introduced in our country.

2.Incentive scheme differ from industry to industry and

plant to plant within an industry.

3.The schemes in public sector plants have an extremelyvaried coverage.

4.Inflation has reduced the motivational effect of

incentives.

5.In many industry incentives have achieved their

objectives ,i.e. increased productivity and enhanced

earnings.

Piyoosh Bajoria

Example Siemens



Example-Siemens

•Incentive scheme for shopfloor workers.

•Two bonuses – performance and productivity.

•Calculation of performance on the basis of Index.

•Performance Index=SMH/(AMH-(idle time +learning))

•Productivity Index=SMH/(AMH-learning)

Source-Business Today,Jan.7-21,1996Piyoosh Bajoria



Effective Incentive Plans

1.Incentive plan should be linked to employee performance.

2.It should be communicated to the employees clearly .

3.Employee suggestions and inputs should be valued and

rewarded.

4.The incentive plan should include both monetary and non-

monetary incentives for employees.

5. The incentive plan should be minimally affected byexternal factors.

Piyoosh Bajoria

Employee Benefits and Services



Employee Benefits and Services

• Fringes, service programmes, service programmes,

employee benefits or hidden payroll.

• Embrace a wide range of benefits and services

• Part of total compensation message

• Benefit – Direct monetary value to an individual can be

ascertained

• Service –Direct money value cannot be readily

established.

Piyoosh Bajoria

E l ti f b fit



Evolution of benefit programs

• Ahemdabad – based Calico Mills started medical services – 1915

• Tata‟s are regarded as pioneers in the field of employeebenefits – 1918

• Parliament Laws like Payment of Gratuity Act, Payment of

Bonus Act during mid 1900‟s

• Emergence of trade unions

• Benefit schemes to attract and retain talent in a competetiveworld – IT boom in 1990‟s

• Flexibility in the benefit programmes

• Employees choose the schemes that suit them best

Piyoosh Bajoria

Objectives of employees benefit



Objectives of employees benefitprogram

• To ensure the employee's commitment to organization

through social and personal security and comfort

• To provide employee special allowances social security

& improve quality of their work life

• To reward employee and grant them with special

privileges

Piyoosh Bajoria

Example



Example

Tata Elxsi says, “Elxsians are an inspired group of

people who love to accept and accomplish

challenging tasks. An array of benefits is made

available to the employees so that they successfullymeet their responsibilities on their personal and career

front. The benefits serve to motivate them and

acknowledge their efforts. All of it adds to much more

than just monetary gain.”

Piyoosh Bajoria





programTata Elxsi the benefits that company offers to its

Employee are:

1. Common benefits: Like Hospitalization insurance,

Parivar Raksha Yojna, Employee Referrals, Car lease,

Transport etc

2. Performance incentives: Like project completion

incentives, Best project award, Outstanding

performance bonus & Spot awards

3. Special benefits: Tax planning consultancy, Retrial

benefits, Special young genius award for dependentchildren

Piyoosh Bajoria





program• Satisfying union demand

• Attract and retain talent and enhance

organizational commitment of the

employees

• Both employers and employees candrive some special benefit such as

tax benefits

Piyoosh Bajoria





programExample: Benefits to Googlers

• Three week long vacation other than sick time

• Massage & weekly hockey games, with kitssubsidized by the company

• Free gourmet lunches

Objective of these benefits• Place which encourages extra-curricular

activities

• Fabulous work environment

• Do not see as retention benefit but a goodemployee relation

• Bridges communication gap between techiesand non-techies

Piyoosh Bajoria

What are the preferences of the




employees?

• Greater security Insurance cover

Sanjay Aggrawal managing director of HR Minds

Consulting says, “Employee now consider insurance cover as significant benefit.

He also adds that high attrition rate will in due

course become a part of past. Employee will stick to

a company if it takes care of their basic requirement,provides for a stable family life and for social

security.”

Piyoosh Bajoria



employees?

• Greater stability and social statusWith down turn and closure of many start-ups and

small companies, people are looking for stable

and safe jobs

Long term benefits like transport, round-the-clock

cafeteria and medical facilities at office premises

Piyoosh Bajoria





employees?

• Simplified compensation packagesBecause of amendment in the Income Tax Act

Deepak Dhawan, vice president of HR at EXLService says that in future companies will move

towards providing some amount of money to their employees with prestructuring

Arun Bhagat, general manager of HR and logistics atAcer India says that increasingly benefits will go the

„cost-to-company‟ way and the way the salary isstructured will become more of a personal choice

with employees preferring to choose their ownbenefit program

Piyoosh Bajoria



Criteria for Fringes

• It should be computable in terms of

money.

• The amount of benefit is not

generally predetermined.

• No Contract, indicating when the sumis payable, should exist.

Piyoosh Bajoria

Principles of fringes



Principles of fringes• Benefits and services must be provided on the

basis of genuine interest in the protection and

prevention of their well being.• It must satisfy real needs.

• It must be cost effective.

• It should be as broad as possible.

• Sound Planning is needed by the administration.

• Wishes of the employees must be considered.

• Employees should be educated to make use of the

benefits.

Piyoosh Bajoria

Example of Fringes



Example of Fringes

1. Legally required payments

i. Old age, survivors, disability, and health insurance

(commonly known as social security)ii. Workers‟ compensation

iii. Unemployment compensation

2. Contingent and deferred benefits

i. Pension plans

ii. Group Life Insurance

iii. Group medical Insurance

• Medical Expense (hospitalisation and surgerical)

• Disability income (short term and long term)

iv. Guaranteed annual wages

v. Prepaid legal Plans

vi. Millitary leave and pay.

Piyoosh Bajoria



vii. Jury duty and bereavement paid leave

viii. Maternity leave

ix. Child Care leave

x. Sick leavexi. Dental benefits

xii. Tuition aid benefits

xiii. Suggestion awards

xiv. Service awards

3. Pay for time not worked

i. Vacations

ii. Holiday

iii. Voting pay allowances

Piyoosh Bajoria



4. Other benefits

i. Travel allowances

ii. Company car and subsidies

iii. Moving expenses

iv. Uniform and tool expenses

v. Employee meal allowances

vi. Discounts on employer‟s goods and services

vii. Child care facilities.

Piyoosh Bajoria



Treats

•Freelunches

•Festive

bashes

•Coffee

breaks

•Picnics•Dinner

with boss

•Dinner

for the

family

•Birthday

treats

Knick-Knacks•Desk

Accessories

•Company

watches

•Tie Pins

•Broaches

•Diaries/Planner s

•Calendars

•Wallets

•T-shirts

Awards

•Trophies•Plaques

•Citations

•Certificates

•Letters of

appreciation

Office

Environment

•Redecoratio

n

•Office with a

window

•Piped music•Flexible

hoursSocial

Acknowled

gement

•Informal

Recognition

•Recognitio

n at office

On the job

•More

responsibility

•Job rotation

•Special

assignments

•Training•Representing

the company at

public fora

Tokens

•Movie ticket

•Vacation

Trips

•Coupons

redeemable

at stores•Early time-

offs

• Anniversary,

dating and

birthday

allowances/pr esentsPiyoosh Bajoria

gn can ene an serv ce



gprogrammes• Payment for not worked – on job and off job time.

• Insurance benefits

• Compensation Benefits

• Pension Plans

Piyoosh Bajoria

I t f B fit



Importance of Benefits

Increased earnings

to employees.

Non taxable

Economic reasons

Social responsibility

Aid recruitment

Reduce turnover

Mitigate fatigue

Satisfy employee

objectivesPiyoosh Bajoria



…TCS

•Employee satisfaction

•Won best employer award by CNBC

•Lowest attrition rate

•Performance Improvement Plans was employed

•EVA increased transparency

Piyoosh Bajoria

Demerits



• Fail in their motivational effect

• Unhealthy competition• Conservative salary structure

• Reduced variable salaries (monthly

performance – linked bonus)• Costly implementation

• Short & long term salary

components.

Piyoosh Bajoria



Effective Steps



p

• Establishing benefit objectives

• Assessing environmental factors• Assessing competitiveness

• Communicating benefit information

• Controlling benefit costs andevaluation

Piyoosh Bajoria

Establishing Benefit objectives



g j

• Factors to be considered

• Employee performance• Personal/HR outcomes

• Attendance

• Length of service• Performance

Piyoosh Bajoria

Assessing Environment



g

• External factors

• Government policies and regulations• Unions

• Economic factors

• Internal Factors• Organizational strategies &

objectives

• Employee preferences

Piyoosh Bajoria

Assessing Competitiveness



• Organizations offer benefits to match

those offered by competitors

• Communicating the Benefits

• Benefit programmes – communicated

to employees through booklets,brochures, slide

presentations etc.

• Use of calenders is a very effectivetechnique.

Piyoosh Bajoria

F t f F i B fit



Future of Fringe Benefits

Enhanced flexibility

Tailored to meet individual needs

Employees are more educated and more demanding

New benefit plans to attract and retain competentpersonnel while controlling benefit costs

Involve workers in planning & implementation

Piyoosh Bajoria

Cafeteria Benefit Plan



Cafeteria Benefit Plan

Employees are given the choice to select the benefit schemes

Customize benefit programme after assessing employeeneeds and preferences

Potential choices : cash, retirement plan contributions,

vacation days, and insurance.

Example one employee may wish to take health careinsurance, while another employee may wish to take life

insurance. Piyoosh Bajoria

Benefits at Oracle



Benefits at Oracle

1. Oracle Flex

• Employees design their own package

• Flex credits are awarded

• Extensive options

2. Oracle 401 (k)

• Savings & Investment to plan retirement

• Freedom to choose the investment

3. Goal Planner

• Directly invest in Fidelity Mutual Funds

Piyoosh Bajoria



Piyoosh Bajoria



4. Employee Assistance Program

• Address problems faced at work or home

5. Lifeworks Family Resources and Referral

Program

• Help employees balance work, family andresponsibilities

• Practical advice & useful material

Continued

Piyoosh Bajoria

Golden Parachute



Golden Parachute• A clause in an executive's employment contract that

they will receive certain significant benefits if their employment is terminated.

• Helps in minimizing conflict of interest betweenshareholders & mangers in the event of change of control.

• Continuation of salary• Bonus and perquisites

• Retirement benefits

• Accelerated vesting of stock incentives

• According to a 2006 study by a human resourcemanagement firm, the French executives' goldenparachutes are the highest in Europe, and equivalentto the funds received by 50% of the Americanexecutives.

Piyoosh Bajoria

VLSI Technology



• Adopted Golden Parachute for top executives in

case of a takeover attempt by Royal Philips

Electronics

• To prevent shift in loyalty

Benefits :

• Lump sum payments twice of base salary

• Continued medical benefits

• Personal computers

Piyoosh Bajoria

Balanced Scorecard



Financial Customer

Businessprocess

Learning& growth

Balanced Scorecard helped TCS evaluate its progress in

achieving its goals and facilitated integration of functional

and individual goals with organizational goals

Performance ManagementSystem that enables

organizations to translate a

company’s vision & strategy

into implementation

Piyoosh Bajoria

People Capability Maturity Model



People Capability Maturity Model

• Designed by Carnegie Mellon University to implement

workforce practices that improve the capability of theorganization.

• TCS was first to implement.

Piyoosh Bajoria



Phiroz Vandrevala Executive Vice President

at TCS said,”When we looked up at PCMM

the whole issue was that people are thekey in our business.Previously,the

subjectivity in terms of how you deal with

people was simply based on one

criterion: how well you pay the people.Therewas no basis of evaluating how well you

treat them.I personally think that PCMM is more

about how you treat people and do you have a

fair method of compensating people.it tries toaddress that based on a person‟s performance. ”

Piyoosh Bajoria



Piyoosh Bajoria



ESOP’s and EVA

ESOPs' was offered to only few employees

According to TCS ,objective of

Valuecreation

EVALong Termrewards

Commitment

ESOP

compensation management 8

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