PRESENTATION BY SAUBHAGYA RAVINDRANATH

Compensation is the remuneration received by an employee in return for his/her contribution to the organization.

It balances the work-employee relation by providing monetary and non-monetary benefits to employees.

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. 

It can be said that compensation is the “glue” that binds the employee and the employer together .

Unless compensation is provided no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals.

 Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose.

  The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards.

Financial compensation Non financial compensation

Financial compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. They are given at a regular interval at a definite time.  The monetary benefits include:

basic salaryForeign service allowance/ Hardship allowance house rent allowance leave travel allowance special allowances bonus Pf/Gratuity etc.

Non financial compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. This includes:

Leave Policy Insurance Leave travel Assistance Limits Retirement Benefits Holiday Homes.

FORMS OF EMPLOYEE REWARDS

FINANCIALNON -

FINANCIAL

DIRECT

INDIRECT

VOLUNTARY

JOB - RELATED

WORK ENVIRONMENT

DIRECT

BonusSalaryCommission

INDIRECT Leave Policy Retirement benefits Insurance

VOLUNTARY Vacations Childcare

JOB – RELATED Challenge Feedback Recognition

WORK ENVIRONMENTWorking conditionsWork hoursSocial environment

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Compensation is designed keeping in minds the strategic goals and business objectives.

Compensation is designed on the basis of certain factors after analyzing the job work and responsibilities.

After liberalization and globalization of 1991, all organizations have become global.

Many changes have been witnessed after these changes like competition at global level, people from various parts of the world working together, more number of working women etc.

Hence all organizations want to maintain an international standards which in turns increases all costs.

In today’s competitive scenario, organizations have to take special measures regarding compensation of the employees so that they retain the valuable employees.

Considering that the current trend in many sectors is to treat the employees as “creators and drivers of value” rather than one more factor of production, companies around the world are paying close attention to how much they pay, the kind of components that this pay includes and whether they are offering competitive compensation to attract the best talent.

compensation management is something that companies must take seriously if they are to achieve a competitive advantage in the market for talent.

If the right compensation along with the right kind of opportunities are made available to people by the firms in which they work, then work becomes a pleasure and the manager’s task made simpler leading to all round benefits for the employee as well as the employer.

- Jack Welch

Internal Corporate philosophy Corporate mission Business strategy Human resources philosophy and strategy Total rewards philosophy and strategy Corporate culture Shareholder expectations Corporate structure Costs/resource availability

External Community culture Competition Industry Characteristics Labor market Legal/regulatory Technology  Globalization

The policy should be consistent with the overall strategy, structure and business needs of the multinational.

The policy must work to attract and retain the staff in the areas where multinationals have the greatest needs and opportunities.

The policy should be able to transfer international employees in the most cost effective manner.

Well defined and uniform which will be apply to all the levels of the organization as a general system.

Simple and flexible so that every employee would be able to compute his own compensation receivable.

Easy to implement, should not result in exploitation of workers.

Should also solve disputes between the employee union and management.

Should follow the management principle of equal pay.

Instills a healthy competition among employees and encourages them to work hard and efficiently.

Encourages the employees to perform better and achieve the standards fixed and hence improve the efficiency of the organization.

Enhances the process of job evaluation.

Raises the morale, efficiency and cooperation among the workers and provides satisfaction to the workers.

Provides growth and advancement  opportunities to the deserving employees.

Minimizes the labour turnover. The organization enjoys the stability.

The sound compensation system is hallmark of organization’s success and prosperity.

POWER DISTANCE

INDIVIDUALISM

LOW HIGH

•Employee participation and involvement in reward determination.•Profit sharing.•(Austria, Denmark, New Zealand )

•No employee participation and involvement in reward determination.•No profit sharing•(India, Mexico, Panama)

LOW HIGH

Group based rewards, recognition for the group.

(China, Hong-kong, Taiwan)

Individual based rewards, individual praise and recognition(UK,US, Canada, France)

UNCERTAINITY AVOIDANCE

MASCULINITY

LOW HIGH

Performance based pay, flexibility(US, UK, India)

Limited use of performance based pay, pay consistency(Japan, Germany, Spain)

LOW HIGH

•Strong emphasis on social benefits, quality of work life, job security•Emphasis on work sharing•(Denmark, Sweden , Thailand)

•Emphasis on performance based pay.•Competing for rewards and promotion•(Italy, Switzerland, US, UK)

A growing number of multinational companies are centralizing their compensation structure in an effort to maintain a consistent link between rewards and results, according to a recent study by Watson Wyatt Worldwide and WorldatWork.

"A strategic compensation strategy can help differentiate a company from its competitors, promote overall internal consistency from country to country, and most importantly drive the performance.

Centralized compensation provides consistent guidelines also offers greater budgetary control, increased visibility into compensation

and performance review processes, the ability to consistently enforce policy

throughout the organization reduced IT expenses and audit trails to

demonstrate compliance

Decentralization provides More power to subsidiaries Helps in careful and proper distribution

of compensation

Findings of the survey: The survey found that nearly 60 percent

of companies with a decentralized compensation structure expect to centralize it in the next two years.

Twenty-three percent of those that have already centralized compensation are planning to become even more centralized in the near future.

For decentralized global compensation organizations, headquarters plays a minor role in setting local compensation policies and procedures. Only 11 percent of decentralized organizations have headquarters involved in this process. Among the decentralized group, business units and regional offices play the most significant roles.

54% majority report that their organization has a human-resource information system (HRIS) system that covers operations globally. Sixty-six percent of organizations with a “centralized” compensation structure have a global HRIS, while only 41% of companies that are “decentralized” have a global HRIS system. 

Nearly three-quarters of all survey respondents have a performance management system in their organization that pervades all of their global operations. But organizations with centralized compensation management are significantly more likely to also have a global approach to performance management (87 percent versus 60 percent).

GLOBAL COMPENSATION COMPLIANCE- When asked about the responsibility for

ensuring global compensation compliance, most organizations reported that the role rests with either the vice president of human resources or at the headquarters. Twenty-one percent of organizations indicated their regional HR units are responsible for compliance, while fewer than 10 percent have ownership at the business unit or local HR unit level

Global Grades and Global Bands- Across all respondents, 35 percent use

global grades that are consistent from country to country, and 27 percent use global bands. Substantially more centralized organizations than decentralized ones use both global grades and bands. Organizations with a centralized global compensation function are 12 percent more likely to use global grades and twice as likely as decentralized ones to have global bands.

An employee stock ownership plan  is a plan that provides a company's workers with an ownership interest in the company. Under this plan, companies provide their employees with stock ownership, typically at no cost to the employees. Shares are given to employees and are held in the ESOP trust until the employee retires or leaves the company, creating an opportunity for workers to amass long-term savings and benefit from their work.

In an ESOP, employees do not pay taxes on the contributions until they receive a distribution from the plan when they leave the company.

Employee ownership appears to increase production and profitability, and improve employees' dedication and sense of ownership

Employee stock ownership can increase the employees' financial risk if the company does poorly

 

Often called variable pay. Arose because of growing competition. Performance based pay is of two types-

AccumulatedNon- accumulated

Dealing with diverse standards and costs of living and multiple currencies, exchange rates, inflation/deflation rates, tax systems and tax rates. 

Addressing organizational business changes (expansions, mergers and acquisitions, joint ventures, Greenfield operations and investitures). 

Accommodating varied employee values and expectations stemming from differences in cultures, languages and communication preferences. 

Tax regulations vary extensively from country to country.

Competitive labor market. Laws and regulations impact the

remuneration of employees. Standardization versus localization. Collective bargaining, employee

representation and government mandates.

Employers want the best talent to get the competitive advantage and hence they are giving higher compensation.

Growth in management care initiatives.