162868216 Compensation Amp Benefits
Transcript of 162868216 Compensation Amp Benefits
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Compensation and BenefitsThe compensation and benefits processes belong to most important HR Processes, which are
critical for the organization and modern HR organization. The compensation and benefits isabout managing the personnel expenses budget, setting the performance standards, setting the
transparent compensation policies and introducing the competitive benefits for emploees. The
organization with effective compensation and benefits drives its personnel costs, manages the
performance of emploees and rewards the extraordinar performance.
Compensation and Benefits Role
The compensation and benefits processes introduce the transparency into
Human Resourcesand rewarding emploees for the achieved performance. The
compensation and benefits provides the managers with the compensation toolsto
build a difference among emploees as the high performance corporate culture can be
built in the organization.
The compensation and benefits department monitors the external !ob mar"et and
optimizes the personnel expenses budget of the organization. The compensation and
benefits defines the compensation strateg, sets the transparent and simple
compensation polic and defines the general rules for the extraordinar paments,
bonus schemes applied in the organization and introduces general other compensation
policies li"e the Relocation Polic, #hort$Term %ssignment Policies, Benefit Car Policies
and other.
Compensation and Benefits Responsibilities
The compensation and benefits department is usuall responsible for
thetransparency in the compensation practicesin the organization and
"eeping the internal fairness of the total cash. The compensation and benefits has to
supervise the development of new compensation components and "eeping the general
rules for the design of the compensation component.
The compensation and benefits department is responsible for the personnel expenses
budget of the organization. The compensation and benefits department sets the
standards for the individual salar increase, the mass salar review and the rules for the
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bonus paout as the organization "eeps the financial stabilit and the planned personnel
expenses budget is "ept.
The compensation and benefits department has special processes to monitor the
external !ob mar"et as it can set the right compensation policy, which iscompliant with the approved compensation strateg. The compensation and benefits
department is responsible for the extensive monitoring of the mar"et and designing the
new compensation components inspired b the HR Best Practices in the compensation
area.
The compensation and benefits department is alwas closel attached to the
development of the new compensation components, which support the
performance and effectivit of the organization. &t co$operates with the different
business units and it aligns their re'uests into the general rules for the compensation
components, which are transparent and fair.
The compensation and benefits designs new ad!ustments to the compensation
strategyand the compensation policyas the organization does not lose its
competitive advantage on the !ob mar"et.
Compensation and Benefits Content
o
Compensation #tratego Compensation #trateg (e Content
o Pa )ar"et #trategic Position #etting
o Compensation Consultants and Compensation #trateg
o Compensation #trateg building Competitive %dvantage
o *h is compensation strateg important+
o Compensation Polic
o xecutive Compensation
o xecutive Compensation Plans
o #alar #urves
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o #ales &ncentives Compensation Plans
Compensation #trategThe compensation strategyis extremel important as the right compensation strateg
helps to build the effective and competitive organization and the wrong setting of the
compensation strateg, which does not fit with the needs of the organization and with the HR
and Business #trategies, can destro the organization within several ears and the organization
suffers from decreased performance and not utilizing the full potential of emploees.
*hat is compensation strateg+
The compensation strategyis derived from the HR #trateg and it defines
theposition of the organization on the job market, the level of the totalcash, the main bonus principles in the organization and rules for the base salar setting.
The compensation strateg is the strateg, which is approved b the Board of the
organization as the owner of the compensation strateg is alwas the top executive
management of the organization. The compensation strateg has a huge impact on the
costs of the organization and that is the main reason for the top management approval.
The rest of managers are the users of the compensation strategy.
The compensation strateg defines the pay market, the organization follows, the
desired position on the pa mar"et and the wa, how the desired level and position on
the pa mar"et will be achieved. The compensation strateg defines the basic
compensation components used in the organization and the standard rules applied to
each compensation component.
The compensation strateg has to be in line with the business and HR #trategies as the
compensation of emploees is aligned with the expectation of the top management from
them. The compensation strateg does not change often as the compensation principles
cannot be changed within few das.
Compensation #trateg and HR #trateg
The compensation strateg is one of the main supporting document for the HR
Strategy. The compensation strateg is closel monitored b the management of the
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organization and the as" for the progress of the implementation of compensation
strateg on the regular basis.
The HR #trateg has to be alwas designed and developed withhaving the respect
to the situation in the compensation areain the organization. The HR
#trateg cannot set the ambition, which is not suitable for the compan.
The HR #trateg alwas defines the basic principles for the compensation scheme in the
organization and the compensation strateg defines the details for the components and
when and how the will be introduced or redesigned.
The compensation strateg should be updated, when Human Resources ma"es
significant changes to the HR #trateg or the organization changes its business strateg.
The compensation strateg has alwas support the business and its selling capabilities.
Compensation #trateg &mportance
The compensation strateg helps the organization to manage the personnel
expensesof the organization and it sets clear limits for the managers and emploees.
&t provides the top management with the certaint, the personnel expenses are under
the control and the costs will not boom.
The compensation strateg gives the certaint to the HR emploees and HR managers
as the can promise the stabilit in the compensation, the stabilit and the manageddevelopment of the compensation components and the can explain the basic role of the
individual compensation components.
The compensation strateg acts as the basic document driving the compensation and
benefits processes and defines clear priorities for the development or redesign of the
compensation components.
Compensation #trateg &mportance for managers
The managers should be alwas informed about the existence of the compensation
strateg and the should "now the implementation plan. The managers should not be
allowed to comment and decide about the strateg as the would tend to ma"e their
lives easier and the would ma"e the personnel expenses of the organization to boom.
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The managers are the users of the compensation polic and the should understand, it is
based on the approved principles from the strateg. The compensation polic can
change on the regular -usuall earl basis, but the strateg is consistent over a longer
period of time and the managers can plan the career of the subordinates.
Compensation #trateg &mportance for emploees
The compensation strateg is not intended to be read b the emploees. The emploees
are the users of the compensation polic and the should not be informed about the
general position of the organization on the pa mar"et and the compensation
components to be used to motivate the emploees.
The emploees can read the compensation polic, which describes the details about
their compensation as the recalculate the salaries, but the should not read about the
strategic compensation components, which help to build the competitive advantage of
the organization.
Compensation #trateg (eContent
The compensation strategyis the underling strateg for the general HR #trateg
and its main role is to support the implementation of the HR #trateg and building the
competitive and effective organization with the high performance corporate culture. The
compensation strateg does not explain the detail of the compensation scheme and the
details of the individual compensation components, but it sets the general guidelines for
the compensation components and sets the priorities to be implemented over the period
of the HR #trateg implementation
The high performance corporate cultureand the high performance Human
Resources organization have to be supported b the compensation strateg, which is
designed to be business driven strateg and with the right compensation tools, which
motivate emploees to go the extra mile and rewarding the real successes.
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)ain Compensation /oals
The compensation strateg has to set the main compensation goalsof the
organization and the have to be "ept as the main target for Human Resources to be
achieved. The compensation goals have to be set in accordance with the business
strateg and the have to visible in the HR #trateg.
The top management and Human Resources have to decide, what the goals are of the
compensation schemes in the organization. The compensation goals should be aligned
with the corporate culture and the general long$term expectations of the emploees,
when the organization does not implement a huge change in the corporate culture.
)ain compensation goal is about the role of the compensation in the organization. ach
organization pa salaries, but the role of the compensation has to be balanced with the
other aspects of the overall motivation scheme applied in the organization. The
organization has to choose to pa higher salaries and offer less development or career
opportunities or it can offer lower salaries and better career opportunities to "eep the
motivation sstem balanced.
*hen the organization defines its basic compensation goals, it can continue with
structuring the main compensation decisions formulated in the compensation strateg.
)ain #trategic Compensation 0ecisions
The compensation strategyallows smooth and efficient operation of other HR
Processes li"e the recruitment and staffing, performance management, proper (P& and
goal setting process, performance appraisals. %s the other HR Processes can run
smoothl and the are not bloc"ed b the wrongl set compensation strateg, the main
compensation decisions have to be included in the compensation strateg and the top
management and Human Resources have to be aligned in the understanding to the
main compensation decisions.
Role of Compensation in Human Resources
The compensation is a part of the complex HR processes, policies and procedures. The
top management and Human Resources have to decide, what will be the primar role of
compensation in the organization. #ome organizations prefer the supplementar role of
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the compensation and other organizations prefer the dominant role of the
compensation.
This compensation decision is extremel important as it sets the general framewor" for
the compensation components, if the will exist in the organization or the will be thepart of the other HR polic.
The compensation strateg has definitel include the description of the role of the
compensation in the organization.
Competitiveness
The competitiveness of the compensation is another important compensation decision.
The organization can decide to be aggressive with the compensation strateg and it can
set the aggressive position on the pa mar"et, but this strateg is extremel expensive
for the organization and it has to balance it with high margin on the products and
services.
1n the other hand, the organization can choose to offer the career and development
opportunities, it can increase the responsibilities of the individual emploees and it can
balance aim to the lower level of the compensation on the pa mar"et.
The decision about the competitiveness of the compensation strateg is extremel
important as it has a huge impact on the costs of the organization and it re'uests the
right setting of other HR Processes.
&nternal #tructures
The organization does not have to follow the same pa mar"et and the same level for all
the !ob positions. &t is extremel important compensation decision to be included in the
compensation strateg.
The organization can decide about ma"ing huge pa differences across different units or
it can decide about the different pa level for the experts and managers as it protects the
"now how.
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%dministration
The administration is a tough compensation decision in the compensation strateg as it
sets the roles and responsibilities of Human Resources, managers, top managers in the
compensation processes.
The organization can decide about preferring the decentralized compensation model,
when the manager decides most issues and pa increases, but Human Resources is in a
danger of not "eeping the total personnel expenses budget.
&n the centralized compensation strateg, the HR )anagers are the main decision
ma"ers and the emploees and managers do not feel the comfort of the free decision.
Pa )ar"et #trategic Position#etting
The right position on the pay marketis a "e to successful compensation and
benefits function in the organization. #etting the right position enables other HR
Processes with value added to wor" and it supports the recruitment, staffing, retention
and talent management. The right position on the pa mar"et allows the organization to
allocate the personnel costs efficientl and to "eep the organization competitive.
*hen the organization sets the strategic position on the pay market, it has to
evaluate several basic 'uestions, which help to set the target position correctl. The
decision is not formal as it forms other compensation and benefits processes, has a huge
impact on the allocation of the personnel costs and limits the potential for 'uic" changes
in the compensation schemes used in the organization.
The main 'uestions to be answered are2
1. What do we want to achieve by setting the strategic position on the paymarket?
2. Who are my competitors?
3. What reactions will we see to follow from the competitors?
. How many strategic positions do we need?
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!. What are the costs of the setting the strategic position on the pay market?
*h to set the strategic position on the pa
mar"et+
The modern organizations and modern and effective Human Resources )anagement
are based on setting the competitive advantages. The right and efficient compensation
strateg is a definitel the competitive advantage and it cannot wor" without the
strategic position on the pa mar"et.
The modern organizations are based on the talent management, offering the career
opportunities and having other HR Processes to prolong the length of emploment of
the "e emploees and "e !ob positions. The strategic positioning on the pa mar"etallows the other processes to function properl and "eeps the organization health.
The recruitment strateg cannot wor" without the ade'uate compensation strateg as it
can easil miss the goals. The compan can target the best potentials on the !ob mar"et,
but the salar offered has to be ade'uate to the 'ualities of the candidates.
(nowing our competitors on the pa mar"et
The organization alwas "nows its competitors in products and services. But the
organization has to "now and understand the competitors in Human Resources as well.
The can be different. But emploees can see the competition on the !ob mar"et
differentl.
(nowing the competitors on the !ob mar"et is extremel important for Human
Resources. HR Recruiters have to analze, which companies are sourcing the
organization and the HR 3ront 1ffice has to monitor, what companies hire new
emploees from the organization.
The compensation strateg has to be set as the organization can compete with the
competitors on the pa mar"et and the compensation strateg has to be inspired b
their compensation strategies. The emploees from the competitors wor"ing for the
organization are usuall open to help and the can provide the excellent information,
which can save man discussions in determining the right compensation strateg.
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Predicting the reaction of the competitors
&t is extremel important to have several scenarios describing the reactions of the
competitors. *hen ou are the mar"et ma"er and ou change our compensation
strateg, ou can expect all the competitors will react and ou can start costl war on the
!ob mar"et. *hen ou are a niche plaer and ou hire several emploees per ear from
our competitors, the will not react.
&n case, ou hire !ust the experts, ou can expect, the initiatives to protect the experts
and "e emploees will evolve at our competitors and the price of hiring the expert
from the competitor will rise.
1ne or more pa mar"et strategic positions
Human Resources has to decide, whether it will use !ustone strategic pay
market positionfor the whole organization or it will identif groups of specific !ob
positions, which will be evaluated and positioned on the pa mar"et differentl.
The general pa mar"et position is simple, it is eas to explain, the organization uses
!ust one, but the organization loses the flexibilit in the setting of the compensation
strateg and this can lead to man exceptions in the compensation polic as the "e
groups of emploees are not protected b the compensation polic in general and themanagers will as" for the increased protection b using the exceptions.
The general pa mar"et position can be more expensive than more pa mar"et positions
as the sstem tends to set the sstem to protect the "e emploees and the "e !ob
positions and the rest of the populations benefits from it.
The costs of setting the strategic pa mar"et
position
)one is driving the compensation strategy. ach proposal for setting the
strategic pa mar"et position has to be carefull calculated, analzed and Human
Resources has to prepare the predictions and forecasts of the future development.
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#etting the strategic pa mar"et position without the proper analsis and calculation is
!ust a hazard with the future of Human Resources in the organization as the top
management can be amazed, how expensive the strategic pa mar"et position is.
Compensation Consultantsand Compensation #trateg
The compensation strategy design and developmentis too difficult to
accomplish purel internall. The compensation and benefits team is usuall as"ed for
the external benchmar"s and the common practice on the mar"et and
thecompensation consultantscan be a huge help, when the HR team is able to
manage their deliverables.
The compensation consultants are expensive and HR has to have a clear goal for the
compensation consultant to be achieved. The compensation consultant is alwas able to
bring the creative and innovative compensation solution, when the goal is
not given. The organization has to pa for the services, which are not utilized. *ith the
clear goal, the compensation consultant has a clear navigation tool and forces the effort
to reach the defined vision.
Compensation Consultants Benefits or 4alue%dded
The compensation consultants bring the huge external "now how in the compensation
and benefits area, the previous experience and the experience with different solutions of
the issues in the compensation schemes.
The compensation consultant should provide the advice on the strategic position of the
compensation strateg on the pa mar"et and to provide the information about the bestpractices in the compensation and benefits area. The compensation consultant should
never decide about the final compensation strateg, but can provide the useful feedbac"
and advice in the process of designing the compensation strateg.
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The excellent compensation consultant alwas as"s the clients about the feedbac" and
how the solutions wor" in practice to have the experience to build on. The compensation
consultant can see a new creative solution in one compan, which can help to build the
HR competitive advantage in another organization. The compensation consultant can
help to design the state-of-the-art compensation strategyand can save huge
costs to the organization in the future.
How to use Compensation Consultants
The organization should invite the external compensation consultant at the right
moment. The organization cannot leave the compensation consultant to set the whole
compensation strateg. The organization has to set the clear goals for the compensation
consultant and it should use the deliverables of the compensation consultant in the
following decision process.
*ithout strict goals, the organization cannot manage the compensation consultant and
it cannot use the best "now how of the compensation consultant. The consultant has a
deep "nowledge of the compensation pa mar"et and has "now how about the
compensation best practices and these should be used for building the competitive
advantage, but the organization has to "eep the final decision about the design of the
compensation strateg.
Compensation Consultants 0eliverables
The organization has to define the deliverables, which support the organization in its
decision process. The deliverable of the compensation consultant can be easil the
content of the discussions with the executive top management as the consultant has a
broad "nowledge of the pa mar"et and the top executives li"es the discussions about
the general mar"et and the best pa practices in the industr.
The common deliverables of the compensation consultant are about the comparison ofthe proposal from Human Resources with the best practices available and the
comparison with the real pa data. The consultant usuall has the access to the detailed
salar data and is able to ma"e a comparison and to point out the "e components and
"e !obs to be included in the compensation strateg as the !obs building the competitive
advantage.
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Compensation #trategbuilding Competitive%dvantage
The competitive advantageis a necessar component for the modern
organization. The competitive advantage has to be in products, services, internal and
external processes and in Human Resources )anagement. The emploees are the assets
of the organization and the competitive advantage in Human Resources Policies can
generate a huge impact into the net profits and overall performance and profitabilit of
the organization. The competitive advantage in compensationarea usuall
generates a huge portion of the overall competitive advantage in HR )anagement.
*hat is competitive advantage in compensation+
The competitive advantage in the compensation areais not about beating
the pa mar"et b paing higher salaries and bonuses to all emploees. The managers
tend to thin", the better the pa of emploees, the more competitive the organization is.
&t is not true, the organization has to carr the higher personnel expenses and during thecrisis or the recession, it can be a huge competitive disadvantage in the compensation
and the compensation strateg has to be redesigned 'uic"l as the organization can
continue in its operation and it has a destroing influence on the overall emploee
satisfaction.
The competitive advantage can be built b using two general approaches2
1. "eneral competitive position on the pay market2. #ompetitive pay market position for key $ob positions
/eneral competitive position on the pa mar"et
#etting the higher position than the medianon the pa mar"et is 'uite
common competitive advantage setting in smaller companies, who have to fight for the
best talents with the big organizations in the same industr.
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&t is 'uite dangerous to set the pa mar"et position too high as the organization has to
carr the increased costs and eats more from the margins on the products and services.
The organization cannot ma"e 'uic" changes and the recession can be deadl dangerous
for the organization as it carries higher costs to "eep the processes operating and
functional. The competitors have a better and bigger space to decrease the personnel
costs in bad times.
The higher competitive position on the pa mar"et can be used in the time, the
organization grows dramaticall and it needs the best talents from the !ob mar"et and
there is no time to decide about the "e !ob positions in the organization and all
emploees are treated to be of the same importance.
(eeping the long term higher pa mar"et position is suitable !ust for the companies in
the modern industries, with high margins and the companies with the excellent brand
name being "nown for emploing the best of the best.
Competitive advance through strategic pa mar"et
position for "e !ob positions
The competitive advantage in compensation can be set !ust for the key job
positionsin the organization. This solution is cheaper as the rest of the population
can be "ept in line with the median of the pa mar"et or it can be below the median asthe whole organization "eeps the median in general. But, the organization has to be able
to reach the consensus about the "e !ob positions in the organization.
#etting the "e !ob positions is the painful procedure for Human Resources getting the
consensus from the top management is a bit mission impossible, but HR has to
accomplish this procedure successfull as the "e !ob positions are identified and
Human Resources can set the right compensation strateg for the "e !ob positions.
The differentiation in the compensation strateg and setting the different pa level forthe "e !ob positions is 'uite usual for the larger organizations as the save the
personnel expenses and the are able to protect the "e emploees. &t does not protect
the "e emploees automaticall, but it support the managers and other HR Processes
as the emploees feel prett satisfied with their salaries.
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The competitive advantage for the "e !ob positions is usuall the best pa strateg for
the mature organizations, which does not grow aggressivel and are purel focused on
the product innovations. The "e emploees bring the innovations and the rest is paid
fair enough for their !ob content.
*h is compensation strategimportant+
The current competitive conditions in the business world ma"e it difficult to ac'uire and
retain the top talents. 1nce the organization is able to identif, it can be unable to offer
the right pa and to manage the pa increases to retain top talents.
The compensation strategyis the extremel important piece of the overall HR
#trateg to "eep the compan competitive and successful. 1n the other hand, the
compensation strateg is important to "eep the personnel budget under the control and
to manage the !obs in the right salar -pa brac"ets.
The compensation strateg differentiates the organization on the !ob mar"et and builds
the attractiveness of the company for the top talents. The love to be
hired b the attractive organization, the do not li"e to be hired b the average compan
offering the same conditions as an other average organization in the industr.
Competitive %dvantage and Compensation
#trateg
Toda, the products are similar. &t is difficult to distinguish the cars from different car
ma"ers. The emploees are in the same situation as the consumers. The have the
problem to distinguish the employersand the are not able to recognize the
excellent organization, when it is not different from the rest. The competitive advantage
is the essential part of the mix for the success. The organization has to present itself
differentl, not !ust b the presentation, but it should differentiate itself b the different
approach toward its emploees. The compensation strateg is one of the most successful
differentiators.
The excellent compensation strateg does not !ust differentiate the organization from
the other organizations on the !ob mar"et, it brings the differentiation into the
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organizationas well as the successful emploees and top talents feel the success in
their poc"ets.
The effective compensation strateg ma"es people feel the success and the spea" about
their successes with their friends. &t build the extremel excellent competitive advantage
among the competitors as the people feel, the organization reall values the success and
it can pa the successful emploees.
The effective compensation strateg manages the personnel expenses of the
organization, but it supports the performance management and differentiates the
emploees as the successful ones are not motivated to search for a new !ob opportunit.
The good compensation strateg does not provo"e emploees to search the web !ob
boards during the wor"ing hours, it ma"es them to focus on delivering the results as
the can be highlighted and the feel the highlight in their salaries.
The successful compensation strateg gains the competitive advantage and can speed up
the innovation processes and improve the performance management practices in the
organization.
3or what HR Processes is Compensation #trateg
important+
The compensation strateg is not important !ust for the competitive advantage, but it
supports the other HR Processes and helps them to become highl efficient HR
Processes and being on the top in the industr -when measured and benchmar"ed.
The compensation strateg has a strong influence on the performance of the whole
Human Resources, which is a good vehicle to manage the performance of Human
Resources, but has to be managed carefull as it does not destro the performance of the
whole organization. #mart compensation strateg supports the HR Processes and helps
to bring the top talents from the !ob mar"et to the organization and helps to retain the
best talents in the organization as the do not feel the need to find a new !ob opportunit
elsewhere.
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Recruitment and Compensation #trateg
The effective Recruitment and #taffing cannot exist without the effective Compensation
#trateg. The recruitment can be based on the excellent HR Marketing Policies,
but the HR Recruiters have to be able to offer the competitive salar pac"ages, which are
competitive externall and full aligned with the policies and the compensation strateg
internall. The recruitment of the best top talents from the !ob mar"et cannot be based
on exceptions from the compensation polic.
The recruitment and staffing processes have to be supported and bac"ed b the excellent
compensation strateg as the HR Recruiters can offer the competitive conditions to the
right talents from the !ob mar"et and the are able to identif the "e !ob positions,
where the compensation strateg allows to be more aggressive against the pa mar"et.
The !ob candidates are extremel sensitive to the salar pac"age offered in the 5ob 1ffer
letter and the compensation and benefits department should measure the number of
failures in the !ob offer acceptations. &t is the extremel important sign of the wrongl
set compensation strateg, when the !ob candidates do not accept the !ob offers made b
the organization.
)otivation and Compensation #trateg
The salaries or bonuses are extremel important for the motivation of emploees and
managers. /enerall, the motivation is not about the compensations, but the
compensation should support the general motivation framewor" in the organization.
ven the best managers in the world are not able to "eep highl motivated teams, when
the compensation strateg is not in line with the !ob mar"et. The emploees usuall
"now the common levels of salaries in the industr and when the organization is below
the median or the average, it has to compensate the difference in other area. But, when
the difference is too high, the compensation b a different motivation tool does not wor"
and the emploees start to feel demotivated as the receive no e'ual value for their
effort.
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Talent 0evelopment and Compensation #trateg
The compensation strateg provides the key support to the talent
management processesin the organization. The talents have to be clearl
supported b the compensation strateg as the talents usuall expect higher salar
increases than the average emploees and the compensation strateg has to allow the
limited freedom to managers to do so.
The successful top talents management cannot survive without the ade'uate support
from the compensation and benefits side. The talents have to feel the different approach
of the organization and the compensation is extremel important in this. The top talents
cannot live on the promises for a long time. The have to see the real improvements and
advances. The deliver, the expect the organization the same.
The compensation specialists have to co$operate closel with the career advisors and
career development specialist to introduce the right mix of the career opportunities and
the compensation strategies for the top talents.
Compensation PolicThe compensation policyis the basic document, which drives the detail of the
compensation practices in the organization. %s the compensation strateg sets the highlevel compensation goals of the organization, the compensation polic describes the
details of the individual compensation components, their behavior and their role in the
compensation scheme of the organization.
*hat is the compensation polic+
The compensation policydescribes the details of the compensation
componentsin the organization, how the are used and the conditions for the
emploees as the compensation component can be applied in their specific situation.
ach organization uses man compensation components and the have to be described.
The compensation polic provides the basic explanation of the compensation
component, how it is calculated, who is eligible for the usage and the approval
procedure.
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The compensation polic belongs to most read and discussed internal policiesof the
organization as it drives the salaries of the individual emploees. ach emploee is
interested in the structure of the salar and the potential total cash achievable in the
organization. The compensation polic is the main tool to find out the details about the
compensation components and the wa, how to achieve the highest total cash.
The compensation polic drives the effort and performance of emploees as the
emploees will find the smart and easiest wa how to achieve the highest possible
income with the smallest possible individual performance. The compensation polic has
to be set the smart wa as it avoids the potential wor"$around and abuse.
*hat is important in the compensation polic+
The compensation polic has to be transparentand it has to provide !ust the onl
wa of the interpretation. &t is extremel important, the emploees and managers are
not unsure about the compensation component and the understand clearl, what
conditions are applied for the approval of the specific compensation component.
The transparent compensation polic supports the high performance corporate culture
organization as the emploees understand, what behavior and performance levels are
expected to be eligible for the specific compensation component and it drives the
behavior and performance specificall the right wa for the organization.
The polic has to cover all the compensation components, which are used in the
organization and affects large populations. The exceptional managerial component tools
can be referenced from the general compensation polic, but the should not sta
hidden. The emploees cannot trust the compensation polic, which does not mention
all the compensation components.
xecutive CompensationThe top executive compensationis a special and specific area of compensation
and benefits, which is usuall confidential and it is not open to all emploees in the
organization. The top executives hold the responsibilit for the organization, the lead
the development of the organization and the have a tremendous impact on the results
of the organization. The compensation scheme of top executiveshas to
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reflect the responsibilit and it has to provide the securit to the top executives to use
the personal responsibilit and to ta"e courageous decisions.
The executive payis about the focus on the short$term performance and the long$
term sustainabilit of the organizational development. The top executives are motivated
to search for the cost$cutting potential and focusing on the sales and performance
growth in the long$term perspective as the shareholders can realize the benefits of being
involved in the organization.
xecutive Compensation Principles
The executive pa has to reflect the role of the executive top management in the
organization. The executive management drives the development of the organization
and the executive compensation has to be aligned.
The executive compensation changed dramaticall over the last two ears as the
financial crisis showed several issues with the executive pa, which was too focused on
the growth of the organization while ignoring the sustainabilit of the organization.
The executive compensationconsists usuall from two main parts2
o Short %erm &ay
o 'ong %erm &ay
The short term pa of the executives is about the base salar and short term bonuses,
which are paid on the basis of the immediate performance of the organization. The
bonuses are usuall deferred over a period of time. The short term pa is usuall full
cash based executive compensation component.
The long term pa is about the stoc" options, shares, restricted stoc"s and pa based on
the performance against the index. The shareholders use these long term compensation
components to protect the value of the organization and betting of the top executives on
the growing value of the organization on the mar"et. The long term compensation
components can be realized !ust in case, the stoc" price of the organization grows. The
long term pa component is usuall non$cash based.
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&n the modern organizations the short term pa is !ust a small part of the total cash of
the top executives.
xecutive Compensation Ris"s
The executive compensation is sensitive to the right setting as the short term and long
term components of the pa have to be in balance as the organization does not suffer
from the imbalances in the managerial decisions. The organization should alwas focus
to balance the short term remuneration -which is valued more with the potential to get
more in the future. &t is alwas difficult to find the right balance and the shareholders
have to be in the agreement with the top management.
xcessive compensation
The excessive compensationis alwas more the issue of trust and confidence of
emploees and shareholders. The executive compensation scheme has to include the
holdbac"s and claw$bac"s and safet bra"es for the case, the organization outperforms
hugel the mar"et. ach executive compensation scheme needs caps and floor as it is
manageable in all situations, which can happen on the mar"et
xecutive CompensationPlans
Top management needs an outstanding compensation plan. The executive
management is responsible for the deliver of the business results to shareholders. The
represent the compan to the outside world. The handle the strategic initiatives. The
are in a ris" position. Their !ob contract can be cancelled within minutes. The want
the protection. The executive compensation planhas a highl motivating
component, and it guarantees the income protection in case of the !ob cancellation.
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xecutive Compensation Plan Principles
The shareholders bu the shares of the compan to "eep the value of mone. The
expect even more. The expect to earn the extra from the increased value of shares. The
top management is paid for the constant increases in the valuation of the company.
&t is an absolute rule of the business.
The shareholders define the executive compensation plan. The usuall
cooperate with the C1, who engages Human Resources in the process of designing the
executive compensation. The shareholders define targets6 shareholders expect the
executive management to reach targets.
The executive managers are not paid for developing the warm and friendl environment
in the organization. The are not paid for the smpathetic and people oriented corporate
culture, when it does not bring benefits of increased profits for shareholders. The
compan exists to ma"e profits, it does not exist to emplo satisfied emploees.
The principles of the executive compensation are2
o #lear foc(s on profits generation
o 'ong)term orientation of the compensation scheme
o *otivation of manager by high bon(ses
o +on)cash foc(s of the compensation ,stock options- shares- share phantom
schemes
o Risk *anagement
o /alanced Scorecard implemented into the #ompensation Scheme
The executive compensation scheme has to support goals given b shareholders. The
executives ta"e ris"s of failing. The have to be over$compensated for meeting goals.
The should receive an enormous extra bonus for exceeding the expectations -goals
given b shareholders. The balance in the compensation has to be in favor of exceeding
goals.
The HR Professionals have to support the C1 in setting the executive compensation
scheme, which support the top management in pushing the organization. The top
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managers have to ma"e tough decisions. The have to be compensated for overcoming
the stress, the pressure of the line management and emploees7 complaints about
constant changes in the business operation.
Human Resources has to understand the main business goals. HR has to help in settingthe executive compensation and alignment with the performance based compensation
for the rest of the organization.
#alar #urvesThe salary surveysare extremel powerful compensation and benefits
benchmarking tool. The are important for the setting right compensation strateg
and for following and monitoring the desired pa mar"et. The salar surve is providedb the external compensation consultant, who gather the compensation information and
salar details about the individuals, match the information and provides feedbac" about
the pa mar"et and pa structures bac" to the participating organizations.
The salar surves are alwas based on the proper job evaluation
methodology, which is standardized across the industr as the compensation
consultantcan compare the !obs with the same !ob size as the !ob titles are not the
suitable for the salar comparisons. The compan has to choose the right and suitable!ob evaluation methodolog and this "now how is usuall provided b the compensation
consultants for free.
#alar #urves Benefits
The salar surve measures the competitiveness of the organizationon the
pa mar"et and provides the benchmar" information about the salaries on the general
pa mar"et and the specific industr pa mar"ets, when the organization operates on
several pa mar"ets.The salar surve helps to set the internal compensation policyand to set the
right optimal salaries for each !ob and to "eep the desired position on the pa mar"et as
defined b the compensation strateg.
The salar surves provide the information about the average salar review percentage
and the allocation of the growth of the salaries into specific !ob positions across the
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participating organizations. The salar surve can act as a tool to identif the "e !ob
positions in the organization as the competitors can protect the "e !ob positions and it
is usuall visible in the salar surves.
The salar surves provide the information about the new trends in the compensationand benefits area and man surves bring the additional information li"e the average
number of emploees per manager, the average length of service for the compan, the
number of promotions and man other.
*hat is important to "now about #alar #urves+
The participation in salar surves is a difficult decision as the organization has to
choose the right compensation consultant. The salar surve needs a standardizedapproach to the !ob position creation and the !ob position evaluations as the results of
the salar surve are credible and useful.
Human Resources has to have a clear plan for the usage of thesalary survey
resultsand the presentation including the action plan has to be prepared for the top
management.
The salar surve is about strictl confidential data and the compensation consultant
has to be widel recognized for the data privac practices and has to present the large
population of the participating organizations in the salar surve.
How to participate in #alar #urves+
The organization has to select the right compensation consultant, who brings the
methodolog for the !ob evaluation and determining the !ob size. The organization has
to evaluate all !ob positions and prepare the salar data in the predefined structure as
the compensation consultant compares the right data.
The good compensation consultant will prepare a detailed implementation plan and will
act as the pro!ect manager for the first initial salar surve and will provide the help,
when Human Resources prepares the salar surve results presentation.
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#ales &ncentivesCompensation Plans
8o business compan can survive without the sales. The sales brings the blood of the
organization. The organization needs the sales to grow and to successfull compete with
other organizations on the mar"et. The sales incentives compensation
plansare the compensation tools to support and motivate the sales function to
compete and to increase the sales volumes of the organization.
The art of #ales &ncentives Compensation Plans
The sales incentives compensation plancan reall motivate the salesman to
sell more products and services. 1r, the can easil destro the compan, when the
design of the sales incentive plan is not good and it does not support the business goals.
The sales incentive plans should be alwas focused on increasing the
profitability of the company or gaining the additional market share.
That is the theor behind the sales incentives plans. %s the incentive plans are usuall
introduced purel b the business function, the fail and the do not support the goals of
the organization, the !ust allow the emploees to earn more.
The art of developing the sales incentives plans ta"es several ears of learning and
measuring the results achieved. The senior manager of the #ales function usuall "nows,
what has to be achieved, but does not "now, how to achieve that b using the incentive
plans, which are cost$efficient and not hurting the future of the organization.
The sales incentive plan has to be fair to the whole organization. The emploees in the
Bac" 1ffice and the support functions should not feel the internal unfairness. The
understand, that the sales representatives have to be motivated b the additional
compensation component, but it should be aligned with the overall compensation
scheme and the compensation strateg applied in the whole organization.
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#ales &ncentives 0evelopment
The development of the sales incentive schemehas to be ajoint
initiative of Human Resources and the business function. HR has to
define the general principles, which have to be applied in each incentive scheme as it
follows the compensation strateg and does not brea" the internal e'uit in the
organization.
The effective sales incentive plan does not evolve on its own. The development process is
creative and full of the conflicts between HR and the business. The good incentive plan
is alwas tested on several emploees to see the real results from the field as the !oint
team can do the ad!ustments into the incentive scheme and can ma"e it more realistic.
The sales incentive scheme can be developed in the co$operation with the external
compensation consultant and it is recommended for the first incentive scheme in the
organization, but the compensation consultants should not be invited later in the
process as the can set a generic incentive scheme, which does not full support the
goals of the organization. The organization should develop its internal "now$how for the
development of the incentive schemes.