compensation strategy of the organization

7/28/2019 Compensation Strategy of the Organization

1/19

Compensation Strategy is the organizations plan for howcompensation decisions on the types and amount of payare made, based on the interests of the employees andkeeping with the organizations mission and competitive

position in the market

INTRODUCTION

Bharti Airtel Limited is a leading integrated telecommunicationscompany with operations in 20 countries across Asia and Africa.Headquartered in New Delhi, India, the company ranks amongst

the top 5 mobile service providers globally in terms ofsubscribers. In India, the company's product offerings include 2G,3G and 4G services, fixed line, high speed broadband throughDSL, IPTV, DTH, enterprise services including national &international long distance services to carriers. In the rest of thegeographies, it offers 2G, 3G mobile services. Bharti Airtel hadover 246 million customers across its operations at the end ofFebruary 2012.

Compensation Strategy of the Organization

Compensation refers to all forms of financial returns & tangible

services & benefits employees receive. The Company believes in

a compensation strategy aimed at attracting competent

employees to the organization, motivating employees towards

superior performance and retaining talent.

The underlying principles of the compensation philosophy are:

External Equity- employees are getting salaries comparable

to employees who perform similar jobs in other organization.

Airtel is paying competitively as it follows market

benchmarking approach. It is critical to understand your

organizations competitive pay position relative to the


2/19

marketplace therefore it has a telecom forum wherein all the

telecom operators within India participate. A survey is being

conducted by external partners with all the participating

operators in which emphasis is on benchmarking and giving

complete comparative data about where our salary standvis--vis their salary.

Internal Equity ensuring that compensation of people doing

comparable jobs lie within a defined salary range. Employees

are paid according to the relative value of job within the

same organization. For this Airtel refers to compensation

ratio of all the employees, vis--vis market and then

implement corrective measure if required.

Flexibility to employees in structuring their salaries.

Tax compliant structure

The Compensation & Benefits system of AIRTEL stems on

four major strategies:

Positioning

We do positioning from Granular to Broader level that is the

philosophy we follow

Considering our business and its diverse functional compensation

need, we propose a functional level range

Positioning at Individual level- each individual is pegged at

different percentile basis his/her level, function and rating.

Positioning at Function level- Employee in the same function

and level are pegged at the same percentile.

Positioning at Industrial level- Employees in the same level

are pegged at same percentile.


3/19

Salary ranges are built around this target positioning for

hiring and increment purposes.

We benchmark with Yahoo!, Baxter, Vodafone and TATA at

functional level and at industrial level we have best playersHUL, Ranbaxy, GE, Pepsico.

Differentiation

AIRTEL believes in the ideology of clearly differentiating low,

average and top performers. There is marked differentiation in

the compensation offered to top performers (Superlative

Performance) versus highly valued performers.

PAY MIX it is the ratio between base salary and incentive

pay at target performance. Pay mix is done band wise and it

is dependent upon various band these are Band F& 1, Band

2, Band 3- GM, Band 3- VP/SVP)

*description of Bands for the table given below

Band 3- Senior Vice President, Vice President, and General

Manager

Band 2- Deputy General Manager, Senior Manager

Band 1 -Manager, Assistant Manager

Band F Senior Executive, Executive

STRUCTURE : following is an employee compensation sheet

to refer the detailed structure of compensation strategy ofthe organization

Employee Compensation Sheet (ECS) enables you to structure and maintain your compensation break-up. Compensation is referred to as Total

Cost to Company (TCC). The TCC comprises of Total Fixed Pay (TFP) and Total Variable Pay (TVP). The flexibility in TCC is to the extent

that you can structure the TFP components and not the TVP component(s) of your compensation.

PAY ELEMENTS BUSINESS RULES PERK VALUE APPLICABLE

Fixed Elements


4/19

Basic Effective 01-Jun-09 Basic has been fixed at 40% of TCC (or existing

Basic, whichever is higher).

Note:For F-Band(40% of TCC or Rs.44400/- or existingBasic,whichever is higher).

NA

Employer Provident Fund 12% of Basic - Mandatory, if covered under PF. NA

Gratuity 4.81% of Basic Salary. NA

FLEXIBLE ELEMENTS

Flexible ElementsCar Hiring Charges/ Car Lease

Rental

Available to Band-1 and above only. Hiring amount may be calculated

based on the current value of the car.This can be max Rs.3000 per lakh

per month. Value of the car has to be determined from the currentinsurance value of the vehicle. Car must be in third party name - No

self hire allowed. Car hiring amount should not be less than

Rs.36000.0 per annum.

Perk Value: As per income tax

rules. In addition, if hiring

amount is more thanRs.180000/- p.a. TDS on rental

value will be calculated as per

current rates, which will be

deducted while making the

payment to third party.

Fuel and Maintenance Expenses Available to Band-1 and above only. Can be opted only if car hiring is

availed. If opted, the value should not be less than Rs. 12000/- per

annum. Maximum allowed value is Rs.180000/- per annum.


rules

Driver Wages Reimbursement Available to Band-1 and above only. Can be opted only if car hiring is

availed. If opted, the minimum allowed value is Rs.24000/- and

maximum allowed value for Sr. VP employees is Rs.96000/- , for

Band 2 and Band 3 maximum allowed value is Rs. 84000/- and for

others maximum allowed value is Rs. 60000/-.


rules

Medical Reimbursement Up to a maximum of Rs.15000/- per annum. NA

Superannuation Superannuation Policy has been withdrawn w.e.f . 01-Apr-08. Perk Value: As per income tax

rules

Medical Premium Company also provides an option to enroll in the corporate mediclaimpolicy, which is more beneficial than an individual mediclaim policy.

Premium amount as per the mediclaim policy finalized with the

insurance company at different coverage slabs.

Sum Insured Amount per Employee

Insurance For 200000 300000 400000 500000

Self 2424 3324 4362 5540

Self + Spouse + 2 Children 4768 6540 8583 10900

Self + 1 Parent 11022 15117 19841 25196

Self + 2 Parents 14932 20478 26877 34130

Self + Dependants + 1 Parent 13369 18334 24062 30556

Self + Dependants + 2 Parents 17276 23694 31099 39490

However, it does not provide any tax exemption under section 80D.

NA

Club Membership Any amount. Available to GM's (B3) & above only on self

membership. Company does not provide any Club Membership.


rules

HRA Any Amount. If HRA is opted for then CLA can't be opted for. Any amount beyond 50% of basic salary and 40% of basic

salary in Metro and non-metro

respectively is fully taxable.

HRA rent receipt in original

need to be submitted, otherwisecomplete amount will be fully

taxable.

Company Lease Accommodation

- Rent

CLA Rent amount as per CLA agreement. If this is opted then HRA

can't be opted.

Perk value: As per Income Tax

rules.Company Lease Accommodation

- Equipment Hiring Charges/

Furnitures and Fixtures

Hiring Charges/ Furnitures and Fixtures amount as per CLA

agreement. If this is opted then HRA can't be opted.


rules.

Conveyance Can be availed if "Car Hiring","Fuel and Maintenance Expenses" and

"Driver Wages reimbursement" component is not opted for. Maximum

allowed value is Rs. 36000/- per annum.

Up to Rs 800/- per month is non

taxable.

Special Allowance Any Amount.Note:

Not Applicable for F-Band.

NA

Professional Body Membership Professional Body Membership Fee has been withdrawn w.e.f. 01-

Apr-08.

NA


5/19

LTA Any Amount. Can be claimed twice in a block of 4 years (current

block is 2010-13).

Twice in a block of 4 years can

be claimed against original travel

tickets/bills only. Claimable taxfree based upon proof of travel

(As per policy), otherwise

taxable.

Hill Allowance This has been withdrawn w.e.f 01-Jun-2008. NA

Winter Allowance This has been withdrawn w.e.f 01-Jun-2008. NA

Hard Furnishings Hard Furnishing Policy has been withdrawn w.e.f. 01-Apr-08.Accordingly, the amount allocated under this head needs to be

restructured by the employees in other head(s).

NA

Soft Furnishings Any amount. Applicable to UC Band as per entitlement. NA

Other General Business Rules

Any Flexi-kitty amount unclaimed during a financial year will be paid as a taxable component in the last month's salary of that Financial year.

LTA balance will also be paid as taxable in the last month's salary of the Financial year effective 2008-09.

Should an employee's TCC increase during the year on account of promotion / fitment / job evaluation / mid-term review / transfer etc. theemployee will be given an option to change his / her compensation structure.

Other than the increment in TCC, the employee will only have option to change his/her structure of fixed compensation, if he/she opts for or

opts out of elements such as CLA (including revision / hike or termination of existing CLA), Car hiring (owner/car) change or goes for a

housing loan and therefore wants to opt out for HRA element. However, the decision to approve any such restructuring lies with the HRHead/Compensation Manager of your BU, which needs to be supported by relevant documents as well.

An employee can change his/her structure of fixed compensation from any effective date starting from 1st of last month to the 10th of next

month. Any effective date beyond this cap can be processed by only by the Unit HR Manager.

What is the degree of emphasis on compensation vis-

-vis other HR systems in attracting and retainingemployees?

The degree of emphasis is on providing effective compensation.


6/19

HR system emphasizes on providing Benefits:

Income Protection

Work life Focus

Allowances

Relational Returns

Recognition and status

Employment Security

Challenging work

Learning Opportunities

Efficiency ( labor costs + improving performance across

various parameters)

Fairness

Compliance


7/19

What is the degree of emphasis on compensation vis--vis other HR systems in attracting and retainingemployees?

To survive in the turbulent, global business environment,Organization is applying strategies to increase their

competitiveness. Thus, the organization considers compensation

strategy as an important tool to attract and retain employees.

AIRTEL considers compensation to be one half of the contributing

factor in attracting & retaining employees and the other half used

to attract & retain employees through growth or leadership

opportunities, skill & knowledge development, training &

development, flexibility etc. Since Airtel is a leader it is not the

highest paying brand. But it tries to maintain a balance by

framing mark to market approach, which means we should be at

par of what market is paying.

Why is there such an emphasis/or not such anemphasis on compensation?

Organization has a compensation strategy where employees can

remain attracted and retain in the organization. Employees are

the most important asset and hence compensation becomes the

most important factor. There is a fair amount of emphasis on

compensation. Hence factors of motivation such as Progression,Reward, and Participation are incorporated into the system to

balance the overall structure. Furthermore career enhancementthrough leadership and development programs are the key

elements that fill in for the absence of compensation being the

sole component in attracting & retaining employees.

How does the strategy impact the pay structure?


8/19

Organizations Pay Level

Given the strategy of the organization is the pay levelin line with the strategy?

Does it follow a uniform pay level compared to themarket across all functions or does it discriminateagainst specific functions or/and levels; explain why?

Organizations Job and Pay Grades

The no. of job grade and pay grade

If broad banded, the bands and the sub-bands

Managements Bands and Levels

BAND

LEVELS

BAND 3 Senior Vice President, Vice President, and

General Manager

BAND 2 Deputy General Manager, Senior

Manager

BAND 1 Manager, Assistant Manager

BAND F Senior Executive, Executive


9/19

The Ratio of TFP and TVP for various levels / Bands are as follows:

BAND NON SALES SALES

Variable Fixed

Variable Fixed

BAND F & 1 10 90

15 85

BAND 2 12 88 20

80

BAND 3- GM 15 85

25 75

Band 3- VP/ SVP 20 80

30 70

Do you think the organization is internallyaligned? Can you explain?

Yes, the organization is internally aligned since it emphasizes onthe internal equity by developing a relationship that form a pay

structure which support the work flow and also ensures that their

behavior is directed towards the organization objectives.Bandingtakes care of the compensation structure to be unbiased and

uniform across functions & departments. If at any point the


10/19

compensation is high or low for a certain band it gets leveled

during an appraisal & potential appraisals.

Do you think the no. of pay grades are enough ormore or less?The numbers of pay grades are more as compared to otherindustries. Airtel has a more granular framework because intelecom industry overall this is the patent structure and it also tryto benchmark it with other telecom industries.

If the organization is broad banded, can youexplain the rationale in the banding?

As a consequence of the no. of grades, do you

think the organizations pay differentials are inline with the market?Yes, the organizations pay differentials are in line with themarket because Airtel benchmark with other telecom players inthe market like Aircel, Vodafone, Idea etc.

Pay Mix

Constituents of the Cost to Company

The compensation structure of the Company is divided into two

parts

Total Fixed Pay ( TFP)

Total Variable Pay (TVP)

*Therefore Total Cost to Company = TFP + TVP

Total Fixed Pay- It is the salary which is committed to an

employee for payment on monthly basis. It further comprises of

two parts:

Fixed Pay


11/19

Flexible Pay

The compensation elements under Fixed Pay and Flexible Pay are

as follows:

Fixed Pay

Flexible Pay

Basic Pay House Rent Allowance

Provident Fund Car Hire Charges

Gratuity Fuel & Maintenance

ESI (wherever applicable) Drivers Salary

Reimbursement

Conveyance allowance

Medical Reimbursement

Med claim

Leave Travel Allowance

CompanyLeased Accommodation

Club Membership

Total Variable Pay The Company, in line with its

compensation philosophy of paying for performance, pays annual

performance bonus to its employees which is directly related to

the performance of the individual employee, his or her respectiveBusiness Unit and the overall Company at large. ( as shown

below)

Parameter Band 3 Band 2

Band 1 Band F


12/19

Individual Performance 40% 50% 60%

70%

Unit Performance 40% 50%

40% 30%Business Performance 20% Nil Nil

Nil

An Employee has one or more of the following salary components

in his/her Compensation Structure. The max limit in each

component is mentioned below:

Salary Component Limit

Basic Pay Fixed limit of 40% of TCC or Rs 3700

(whichever is higher)

Provident Fund 12% of Basic pay per month

ESI 1.75 % of Salary pay per month

HRA 50% of basic salary for employeesstaying in metros , Actual HRA received, Amt of

actual rent paid in excess of 10% whichever is least

*Car Hire Charges Rs 3000/- per month lakh value (IDV) of

the Car

*Fuel & Maintenance Rs 15000/- per month

*Drivers Salary Rs 5000/- per month

Conveyance Allowance Rs 3000/- per month

Medical Reimbursement Rs 1250/- per month

Mediclaim Premium As per the chosen floater sum


13/19

Leave travel Allowance Any amount within Flexible pay

*CLA Any amount less than basic pays

**Club Membership Fee NONE

*Special Allowances Not fixed Component

* denotes Band 1 and above eligibility

** denotes Employee in Band 3

Anything unusual about the items that are includedwithin the cost to the company -The compensationstructure is based on industry norms & practices and

compliance of statutory requirements. Hence there is nounusual item within the CTC.

Does your organization weigh guaranteed pay morethan benefits?

What do you opine about the emphasis on thecontingent rewards in the organization?

Contingent Rewards- The organization has a definite awardsand rewards policy for every financial year. Additional financial

rewards are provided that are related to performance,

competence, contribution, skill or service in the grade.

The company in line with its compensation philosophy of paying

for performance pays annual performance bonus to its employees

which is directly linked to the performance of the individual

employees, his/her respective Business Unit and the overall

Company at large.

Parameter Band 3 Band 2 Band 1 Band F

Individual Performance 40% 50% 60% 70%


14/19

Unit Performance 40% 50% 40% 30%

Business/Company

Performance

20% Nil Nil Nil

Reward policies address the following broad issues: the level

of rewards taking into account market scenario how

internal rates of pay should compare with market rates.

The basic aim might be to achieve an appropriate balance

between financial and non financial rewards. A further aim

could be to use other approaches to the development of the

employment relationship and the work environment which

will enhance commitment and engagement and provide

more opportunities for the contribution of people to be

valued and recognized.


15/19

Achieving equal pay

The relative importance attached to external competitiveness

and internal equity

The approach to total reward

The scope for the use of contingent rewards related to

performance, competence, contribution or skill

Transparency the publication of information on reward

structures and processes to employees.

Reward people according to what the organization values

and wants to pay for. Reward people for the value they create.

Reward the right things to convey the right message about

what is important in terms of behaviors and outcomes.

Develop a performance culture.

Motivate people and obtain their commitment and

engagement. Help to attract and retain the high quality people the

organization needs.

Develop a positive employment relationship and

psychological contract

Can you comment on the non-monetary rewards inyour organization?

Non-monetary rewards in your organizationNon monetary rewards are as important to an organization as its

compensation structure. Since money not the only motivator, non

monitory rewards are a way of recognizing employees


16/19

outstanding contribution towards work over and above their pay.

Non monetary compensation is equally important to retain and

attract employees.

Bharti airtel, believe in rewarding talent whenever and whereverit's due. Through a "Total Rewards Approach", organization offerdeserving employees, performance bonuses, guaranteed cash,short term and long term benefits as well as stock options.

A fine blend of the aforementioned benefits as well as tremendousgrowth opportunities in career growth makes life at airtel excitingas well as encouraging. By combining on-the-job learning,involvement in key projects, mentoring programs and exposureacross various businesses, airtel offers all its employees,

guaranteed job satisfaction resulting in a Total EmployeeProposition.


17/19

Is there a rationale for the weights of the variouscomponents of the CTC? If so, do you agree with therationale?

Incentive system

Identify the incentive (contingent reward systems)system in the organizationIncentive system is designed with a desire to reward anddifferentiate top performers from others. Following are theobjectives of Airtels SIP Plan:

SIP should be used as an effective tool for performancemanagement.

SIP targets are quarterly while circles/sales team aremost aligned on monthly targets therefore, month vs.quarter can improve effectiveness.

Threshold level of achievement under Sales IncentivePlan has been kept at 80% of the target set for themonth. Thus, the employee needs to achieve 80% ofhis set target in any parameter to be eligible for sales

incentive

The new SIP multiplier works simply to calculate the payouts

against parameters by applying Hockey Stick Approach.

According to this approach:

The contingent reward system is a key contributor to the

earnings of an employee.Modular structure ensures that employee get awardedparameter wise. So he/she will be eligible for SIP payout forparameters when achievement should be greater than orequal to 80% of SIP target.


18/19

Above 100%: the over achievement is tripled by the multiplier

means the over achievement is tripled for multiplier for

example105% is 5% over achievement therefore, 5%x3=15%

added to multiplier i.e. 115%.

Below 100%: the under achievement is doubled by the multiplier

i.e. the under achievement is doubled for negative multiplier for

say 95% is 5% under achievement. Hence, 5%x2=-10% added to

multiplier i.e. 90%. Below 80% no payout

Examine its advantages and disadvantages and

recommend alternativesWe have retained the multiplier on over achievement that

ensures more payout. Multiplier of 3 on over-achievement gives

an opportunity to earn up-to 250% of annual variable.


19/19

Over Achievement Pays More:

With new SIP policy Airtel has introduced is a modular structure

that helps in enabling independent SIP payout for individual

parameter. So all team members would now be awarded on

percentage achievement, it is eligible for mobility, tele-media &

dth individually.

compensation strategy of the organization

Documents