Team 10 Compensation June, 2002 Alejandra Padilla Pauliina Saresma Michael Sauer Evelyn Wee

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

Performance Based Rewards Individual Rewards: Piece Rate Comissions Merit Pay Royalties Team Rewards: Gainsharing Bonuses Organizational Rewards: Share Ownership Share Options Profit Sharing

Enterprise Incentive Plans Profit Sharing Plans Stock Options Employee Stock Ownership Programs.

Profit Sharing Plans Any procedure by which an employer pays, or makes available to all regualr employees, special current or deferred sums based on the organization´s profit. Intended to give employees the opportunity to increase their earnings by contributing to the growth of their organizations´profits. :Variations in Profit Sharing Plans: Profit distributions may be made to all emplyees on an equal basis, or may be based on regular salaries or some formula that takes into account seniority and/or merit.

Stock Options Prevalent method of motivating and compensating hourly employees, as well as salaried and executive personnel. Allowing employees to purchase stock. Grant employees the right to purchase a specific number of shares of the company´s stock at a guaranteed price during a designated time period.

Employee Stock Ownership Plans Two primary forms: Stock bonus plan and a levaraged plan. Stock bonus plan: the organizations gives stoc to ESOP or cash to the ESOP to buy ostanding stock. Leveraged plan: The ESOP borrows money from the bandk or other financial institution to purchase stock.

ESOPs Pros and Cons PROS: Encouraged bye favorable income tax provisions. Tax incentives provide a portion of earnings to be excluded from taxation. CONS: Potential inability to pay back the stock of employees when they retire. Gains are not guaranteed, unless managers are willing to involve employees in organizational decision making.

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

Job Ranking Scheme System of job evaluation (job ranking system and paired-comparison method) Job classification system -grouped according to predetermined grades -for salary raise: increased KSAs -predetermination: unions, TUPO, governmental regulations -widely used at the moment in Finnish public sector and companies

Point system Quantitative job evaluation system to be used in BP- CENTRO determining jobs value by counting total amount of gained points Point system based on KSAs and job conditions Pro’s and Con’s: + simple to use + simple to understand +valid results +difficult to manipulate -complicated to establish

Point System in Practise

What is meant by point system compensation Compensation varies country by country costs of living etc. Baltics and Russia - lower salary, more benefits Extra benefits provided education, free time activities, discounts Point system

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

Compensation Objectives 1.Foster corporate culture 2.Lower employee turnover and improve productivity 3.Match employees’ future performance with organizational goals 4.Reward employees past performance 5.To remain competitive in the labour market 6.Employ and retain most talented people 7.Maintain salary equity among employees

Compensation Policies 1.Rate of pay is to be above or at the prevailing industry rate 2.Pay at the rate that is fair to both the employer and the employee 3.Pay raises according to MBO and merit 4.Offer sound non-financial compensation program 5.Offer incentives on the basis of individual contributions to organizational success 6.Equal opportunities for compensation at each level

Salary schedule based on the Economist salary comparison 2002 Grade 1: Contract Employee Grade 2: Facility Managers Grade 3: Regional Managers Grade 4: Country Managers Grade 5: CEO

Compensation Policies - Model CEO COUNTRY MGR REGIONAL MGR FACILITY MGR BASE SALARY MERITBONUSESSTOCK OPTIONS INDIRECT COMPENSATION

Salary policy Expatriates are paid according to their home country’s salary range Premium paid to cover the host country’s cost of living Equal Salary policy as long-term objective

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

Country Factors Finland Finnish Factors Influencing Real Wage Rate -internal factors -external factors Finnish Unemployment Rate Influencing Compensation

Factors Influencing Real Wage Rate In Finland: –white-collar workers in BP-CENTRO Finland- salaried employees -exempt category Internal factors influencing wage rates: (what the job is worth) -compensation policy (corporate) -worth of a job -employee relative worth -employer ability to pay External factors influencing wage rates: (compared to other employees) -labor market conditions -area wage rates -cost of living -collective bargaining -legal requirements

Internal factors Compensation policy compensating required skills –training, commitment external competition rewarding performance overtime, incentives Employee’s Relative Worth promotion, incentive system merit raises –determined by appraisal system –often unclear “automatic” raises Employer Ability to Pay often problem in the public sector not a problem in BP-CENTRO –cost-efficiency issues Worth of a Job subjective opinions of people familiar with job labour market collective bargaining job evaluation –degree of control

External factors Labour market conditions supply and demand for labour recruiting unemployment rates government regulations impact of labour unions Collective bargaining labour union power governmental, general treaties impact of other unions to meet / exceed union rates Cost of living adjustments due to inflation consumer price index separate indexes due to regional differences escalator clauses Area wage rates wage competition in the area –also in competitive businesses wage surveys –indirect wages, benefits

Baltics and Russia former practises area rates, cost of living, competitor compensation policies government and legal regulations compensation equity - policies for employees coming from abroad - regional differences, cost of living etc.

Finland Factors typical to Finland government and legal regulations unemployment rate powerful unions general treaties made every two years, five years (TUPO - income policies, holistic treaty)

Finnish Laws and Regulations Equal rights : - women treated equally - age, religion, background, race Labour Law (§17, Työsopimuslaki): - no legislation for minimum wage: however, due to regulations employers must pay the minimum wage according to the TUPO (collective treaty) Vacation: - paid or compensated yearly vacation - possibility to parental leave (also to the father)

Finnish Laws and Regulations (cont.) Working hours: - 8 hours/day - 40 hours/week - overtime not permitted without employee agreement May not exceed 138 h/4 months, 250 h/year (+80 h) daily +50% /first 2 hours, +100%/ over 2 hours weekly +50% may be compensated as vacation due to employee’s will

Unemployment in Finland Labour market conditions and their impacts inflation rate (European Union) depression aging population “retirement bomb” (population demographics)

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

Compensation & Benefits Compensation: Base salary Bonus system Benefits: Cafeteria Plan Country based adaption child care relocation support summer cottage paid laptop sportsclub membership discuss differences

“Indirect” Compensation: USA vs. Finland Indirect Compensation USA: health: MD, dental, eye wear insurance: life, pension other benefits Finland benefits; health, dental etc supported by government (taxes) pensions paid by government possible: housing, car, IT equipment (optional pension plan as a benefit)

Compensation Policies – Benefits Core: Health care Day care Dental care Cellular phone Flexible working hours Cafeteria-Plan: Holiday packages Housing arrangements Discount on goods and services

Agenda Compensation Issues Point System Compensation Objectives & Policies Country Factors: Finland Benefits Comparison & Policies Conclusion

General guidelines for compensation equal in every region Wages adjusted based on the economic conditions Bonus system Flexible benefits package Create an “ownership culture”