Compensation

Cooks Industries Explain the following terms: Compensation, Grade Structure, managerial compensation, cost to company, salary benchmarking, pay structure, internal parity of salaries, capacity to pay. Why did designating Saxena as General Manager upset the other GMs? Does designation also form part of pay structure or compensation strategy? What, in your opinion, are the reasons for increased employee turnover at Cooks Industries? What are the issues in front of Cooks Industries? How should Cooks Industries tackle: – Parity of salary between technocrats and non-technical staff? – Reward the engineers/managers for performance rather than grades or years in the grades? – What is ‘pay for performance’ Which should Cooks Industries follow, and why: – Cooks should offer the highest pay packages in the industry and create a high wage island so that people would find it difficult to leave the company? – Or, should Cooks continue to peg Cooks’ salary structure as slightly below average, attracting and retaining people on the basis of the excellent business processes that the company was already known for?

Compensation = All forms of financial returns + Tangible Benefits + Tangible Services As a part of employment relationship Total Returns Relational Returns Total Compensation Benefits Cash Compensation Recognition & Status Employment Security Challenging Work Base Pay Long Term Incentive Cost of Living/DA Short Term Incentive Terminal Benefits Allowances Medical Coverage

For Employers  Powerful tool for furthering objectives  Impact on employee attitudes and behavior  Determines the kind of employees who are attracted to, and retained  Aligning current employees’ interests with those of organizations  A major cost requiring close scrutiny For Employees  Income and Standard of living  Sign of status and success  Equity  Internal  External  Individual  Procedural

Pay DecisionPay StructurePay LevelJob Structure Individual Pay Competence, Performance Pay Levels and Job Structure are characteristics of the organization Why Pay Structure? Too many jobs Acceptability in terms of: Equity Costs

InternalHow the outcomes of this job compare with others Job Evaluation and Job Structure ExternalHow do this job compares with similar jobs in the market Job Survey, Market Line, Pay Levels IndividualHow do my O/I compare with others doing same/similar jobs Incentives, Pay for individual performance ProceduralAre the pay decisions fair, transparent and humane? Communication Systems Op/Ip < = or < Oc/Ic If Op/Ip < Oc/Ic, then,  Decrease Input  Increase Outcome  Leave

Market Pressures Product Market Competition  Compete in market on multiple dimensions – quality, service, innovative product, price  Product Market competition places an upper bound on labour costs and compensation CompanyCost of Wages & Benefits per small car (USD) – Early 1990s Ford1700 Chrysler1800 General Motors2400

Market Pressures Labour Market Competition  Concerns where other product market employers compete to get employees  Even other sector employers who require similar employees  Labour market competition puts a lower bound on compensation  Employees are not just ‘cost’ but a resource too  Talent and productivity concerns are important, not just ‘costs’

Compliance Minimum Wages Payment of Wages Equal Remuneration Act Company’s Act Overtime Bonus, Gratuity, PF, ESI Taxation

Pay Structure Design Strategic Equity – Job Analysis Market (Product and Labour) – Job Survey Compliance

StrategyBusiness Response HR AlignmentCompensation System Innovator: Increase Product Complexity Shorten Product Life Cycle Product Leadership Shift to Mass Customization Cycle Time Committed to Agile, Risk-Taking, Innovative People Reward Innovation in Products and Processes Market Based Pay Flexible-Generic Job Descriptions Cost Cutter: Focus on Efficiency Operational Excellence Pursue Cost Effective Solutions Do more with less  Focus on Competitor’s Labor Cost  Increase Variable Pay  Emphasize Productivity  System Control Customer Focused: Increase Customer Expectations Delivery Solutions to Customers Speed to Market Delight Customers Exceed Expectations  Customer Satisfaction Incentives  Value of Job and Skills based on Customer Contact

StepActivityRemarks 1Salary SurveyBenchmark Jobs 2Job EvaluationCompensable Factors ; JE Methods - 1. Ranking 2. Classification 3. Points 4. Factor Comparison 3Group Jobs into Grades Optional 4Pricing the Grades Market Driven or Internal 5Fine Tune Pay Rates Develop Pay Ranges, Correct Out of Line Rates Establishing Pay Rates

Business and Work Related Internal Structure Job Based Person Based Skill Competencies Job Analysis / Job Description Job Evaluation (Classes or Compensable Factors) Factor Degrees & Weighting Job Based Structure Purpose Collect, Summarize Work Information Determine What to Value Assess Value Translate into Structure

OptionsCompensable Factors 1Skills, Effort, Responsibility, Working Conditions 2Know-how, Problem Solving, Accountability 3Mental Requirement, Physical Requirement, Decision Making, Skill JE MethodDescription RankingGenerally, ranking done on one factor alone Classification (or, Grading)Create different ‘classes’ or ‘grades’, write ‘class’ or ‘grade’ description, slot jobs into them Point MethodQuantitative, Compensable Factors, Degree to which each factor is present, A composite Point Value, Most Popular Factor ComparisonSimilar to Ranking, Multiple Ranking on each Compensable Factor

Job Key Job? Job Title Job Evaluation S1S2 Survey Composite (2/3*s1+1/2*S2) Ay Computer Operator ByEngineer I Cy Computer Programmer DnEngineer II 165 En Compensation Analyst 170 FyAccountant GySystems Analyst Hn Sr Computer Programmer 225 IyDirector (HR) JySe Accountant KySr Systems Analyst LyIndustrial Engineer MnChief Accountant 315 NySenior Engineer OnSenior Acientist 330

Job Evaluation (x) Survey + Policy (y) Y = x Job Evaluation ( x ) Monthly Salary ( y )

Plotting a Wage Curve

Wage Structure

Pricing Managerial & Professional Jobs  JE can be applied here too – but plays a secondary role  Harder to quantify factors – Judgment, Problem Solving  To compensate for performance or competence  Bonuses, Incentives, Market Rates, Benefits – more important  CEO’s Pay – no benchmarks, a Board decision  CEO’s Pay – Job Complexity, Capacity to Pay, Human Capital

JE for Managerial Jobs  Below top Executive Levels  Similar approach  Compensable factors are different  Trend is towards performance based pay (variable)  Indian CEO data – 50% Base Pay, 20% short term, 30% long term

Compensating Executives and Managers Base Pay Executive Benefits and Perks Short-term Incentives Long-Term Incentives Compensating Executives and Managers