MU0015 Set1.Q3.)What is CTC? What are the components of CTC?

Cost to Company (CTC) is the amount that you cost your company. That is, itis the amount that the company directly or indirectly spends on you because of employing you. Components of CTC >The following are the components of CTC: >Basic. >Dearness Allowance (DA). >House Rent Allowance (HRA). >Medical allowance. >Conveyance allowance. >Special Allowance. >Vehicle Allowance. >Incentives or bonuses. >Leave Travel Allowance or Concession (LTA / LTC). Telephone / Mobile Phone Allowance.CTC includes the salary directly paid to the employees, the benefits directlyattributable to the employees such as companys contribution to the provident fund,pension funds, medical insurance premium, life insurance premium, cost of loansoffered to the employees, telephone expenses for mobile phone connections and land-line connections, benefits offered for visiting the home country or hometown and soon.It is important to note that even a lower CTC might mean a higher take home pay thanan offer with higher CTC, if the other components are arranged differently. Similarly,you must not infer that with increase in salary or position, your pay as percentage of salary will increase/decrease. You have to assess each offer separately. Mostcompanies usually talk in terms of CTC as the figures look more impressive.However, they are often misleading. You should carefully look at their offer andcalculate yourself how much your take home pay will be. After all, all deductions arebased on fixed percentages and you can easily arrive at the right figure. Even thecompany will guide you on this. Sometimes, even a lower take home pay may bebeneficial if the other payments are made against vouchers/bills (for example,telephones, cars, refreshment, and so on). This will ultimately lower your tax liability.Hence you

should look at both CTC as well as take home pay while negotiating. Youalso have to look at certain other criteria like work timings, number of holidays,employee centric schemes for further education, and so on. These factors must not beignored even though you cannot put a money value to these factors.The total compensation includes the value of all the perks and benefits the employeeis offered by the company in addition to the employees salary. Calculating the annualCTC is important from the employees and the organisations perspective. This helpsthe organisation ascertain the HR cost and the employees understand what they arebeing offered, as they can benchmark their CTC with other comparable organisations.Employees can decide on other job offers depending on the CTC. For employees todecide on other job offers, it is very important that they understand how the CTC iscalculated. However, it is difficult to arrive at the CTC as many components of theCTC considered by the company may not be considered as a part of totalcompensation package. Therefore, to arrive at a comprehensive CTC value, organisations need to be careful and add all the components of compensation or theirequivalent cash value.

set.1.Q.4) What are the elements of compensation? Compensation refers to money and money-related extras[2].Thus, in addition toa persons base pay, compensation can include bonuses, merit increases, variable pay,and long-term Incentives. Benefits include the remaining things, such as healthcare,pension plans, stock options, and legal services.An organisations compensation program sends a message to employees about itscommitment to encouraging, recognising, and rewarding employee performance.While money should certainly never be the only motivator, it is definitely important.To be successful, a compensation program must link employee performance withbusiness performance. Employees have to understand what the company expects of them, why the company expects it and the possible rewards when performanceexpectations are met. Taking this approach in preparing the pay structure provides anownership context for employees, knowing they are important to the ongoing successof the organisation, and that if they do their part well, they will share in the rewardsgenerated by that success. Let us now look at some of the most common elements orcomponents of Compensation and Benefits. Elements of compensation Let us first discuss the elements of compensation and later we shall discuss what goesinto benefits.The primary elements of a compensation package are: Base pay:

Base pay is the fixed rate of compensation that an employee receives forperforming the standard duties and assignment of a job.Employers need to ensure that base-pay programs are designed to reveal marketpractices within their identified competitor group. To achieve this, organisations mustfirst identify their competitive market. This can be achieved by considering differentfactors, including the nature of the industry, geographic location, total employmentand annual revenue. Next, they need to conduct an assessment of market pay practicesfor similar jobs within the recognised competitor group. This assessment shouldinvolve the duties, skills, and impact levels of each job evaluated that is, each job of similar size and scope.Then a pay structure for managing the competitive base-pay levels for the jobsthroughout the organisation should be developed. Pay structures typically consist of aseries of pay ranges or bands that reveal competitive rates of pay for specific jobs, aswell as allowing room for salary growth. Jobs of similar value from both the marketpoint of view and an internal point of view are grouped together. Then a competitivepay range is developed around the market rates for the particular jobs. Variable pay: Performance-based variable pay continues to achieve momentum as amore successful way to identify and reward employee performance. Also known aspay-per-performance, variable pay is popular in todays corporate world. By includinga percentage of variable pay in the compensation plan, organisations ensure that twopeople with different efficiency levels do not get the same benefits. By doing this, thecompany rewards productivity and hard work and motivates the under-performers towork hard. Once limited to senior management levels, these incentive or bonus plansare being redesigned to reward the achievement of specific company or employeeperformance objectives. In a variable pay plan, the size of the award varies amongemployees and from one performance period to another, based on levels of achievement measured, as well as against pre established company and employeeperformance targets. Amounts are usually calculated as a percentage of base paydepending on job category and position. Rewards are normally paid in cash on anannual, semi annual or quarterly basis depending on the plan design. Plan designsrange from sales-commission types to individual incentive or bonus plans to teamawards. The main idea of these programs is to reward innovation and hard work andto discourage mediocrity in performance. Skill and competency-based pay: Skill-based pay offers employees extracompensation when they have new skills specially recognised by the company asessential to achieve a competitive advantage. Skill-based pay can be particularlyuseful for

employees who like their current jobs but are looking for new challenges.Competency-based pay is more widespread than skill-based pay because the criteriacover not only measurable skills but also knowledge, performance behaviours andpersonal attributes. It helps out employees to grow in the company and helps them toclose the knowledge gaps needed for creative moves. Long-term incentive compensation: Long-term incentive compensation vehicles,such as stock-option plans and other deferred-compensation plans, which are notusually used to reward performance, are achieving desirability among employees.These long term incentive compensation plans appreciate employees based oncompany performance over a long term that is typically three to five years. Stockoption plans are a common form of long-term compensation at public organisations.In most private companies, incentives that reflect stock plans are used for keyemployees.Long-term compensation plans can be valuable preservation tools for the success of an organisation. They help to focus on driving and improving the key employees toachieve the financial performance of the company over a longer term.

Q5.Describe Mintzberg 5 Ps of strategy.

The word "strategy" has been used implicitly in different ways even if it hastraditionally been defined in only one. Explicit recognition of multiple definitions canhelp people to manoeuvre through this difficult field. Mintzberg provides fivedefinitions of strategy: >Plan >Ploy >Pattern >Position >Perspective. Plan Strategy is a plan - some sort of consciously intended course of action, a

guideline (orset of guidelines) to deal with a situation. By this definition strategies have twoessential characteristics: they are made in advance of the actions to which they apply,and they are developed consciously and purposefully. Ploy As plan, a strategy can be a ploy too, really just a specific manoeuvre intended tooutwit an opponent or competitor. Pattern If strategies can be intended (whether as general plans or specific ploys), they can alsobe realised. In other words, defining strategy as plan is not sufficient; we also need adefinition that encompasses the resulting behaviour: Strategy is a pattern -specifically, a pattern in a stream of actions. Strategy is consistency in behaviour,whether or not intended. The definitions of strategy as plan and pattern can be quiteindependent of one another: plans may go unrealised, while patterns may appearwithout preconception.Plans are intended strategy, whereas patterns are realised strategy; from this we candistinguish deliberate strategies, where intentions that existed previously wererealised, and emergent strategies where patterns developed in the absence of intentions, or despite them. Position Strategy is a position - specifically a means of locating an organisation in an"environment". By this definition strategy becomes the mediating force, or "match",between organisation and environment, that is, between the internal and the externalcontext. Perspective Strategy is a perspective - its content consisting not just of a chosen position, but of aningrained way of perceiving the world. Strategy in this respect is to the organisationwhat personality is to the individual. What is of key importance is that strategy is aperspective shared by members of an organisation, through their intentions and / or bytheir actions. In effect, when we talk of strategy in this context, we are entering therealm of the collective mind - individuals united by common thinking and / orbehaviour.

Set2.Q3).What are the factors to be taken into account to ensure an optimumcompensation package for executives?

Many issues are present in designing executive compensation. There are a lotof factors to be taken into account to ensure an optimum compensation package forexecutives. In this section, some of the important criteria are elaborated. Strategy criterion This refers to the correlation between the organisational strategy and the performanceof its executives. The difficult work is to come out with a model which balancesbetween organisational strategies and employee performance. One of the biggestexpenses for an organisation could be the raising cost of employee compensation. Onthe other side, it cannot be neglected because the employees performance is directlyrelated to compensation. Therefore, some of the important steps to be taken intoaccount are: >Creating incentives based on the product life cycle. >Relating compensation to organisational strategies. >Following a simple compensation strategy. Role criterion Hierarchical positions and organisational roles have a contributing effect on executivecompensation design. Executives act as figureheads, and hence they should becompensated more than others in the lower rungs. However, organisations are nowexperimenting with structures to respond to the changing environment. It may beessential at times to sacrifice the traditional hierarchical structure. In such cases,executive compensation may not be aligned with the figurehead roles.Sometimes the pay is based on functional aspects and not on the role or position. Forexample, pilots are not paid a high compensation package for their position, but fortheir functional aspects. Therefore, the roles and responsibilities of the job is animportant aspect in deciding the executive compensation. Behaviour criterion The actions and the processes followed by executives while performing their jobsreveal their behaviour. This criterion is associated with the monitoring mechanism,and executives usually try and do a subjective analysis of the business decisions.Hence executive compensation based on behaviour criterion is quite sensible.However, executive behaviour is difficult to measure and all the aspects of theobserved behaviour cannot be expected to meet a specific outcome. Hence, behaviourcriterion has not received much attention from the corporate world.

Size There is a general opinion that the size of an organisation plays the most influencingrole while designing executive compensation, while on the contrary, it is not. It is theperformance of the organisation which is the most important criterion whichinfluences executive pay package. Market The marginal productivity theory of Roberts (1956) argues that a market forces, thatis, supply and demand for executive talent determine executive pay. This theoryconsiders the services of executives like any other input for running a businessoperation. The theory argues that the value of the input (executive compensation) isdetermined by the intersection of supply and demand in the labour market. Peer compensation The social comparison theory (OReilly et al. 1988) assumes that the compensation of selected peers plays a role in designing executive pay. Often board members of anorganisation consider themselves as a referral point in their executive payrecommendations.

Set2.Q4).How is employee benefit and labour market linked? Labour markets function through the contact of employees and employers.Labour economics looks at the providers of labour services (employees), thedemanders of labour services (employers), and attempts to understand the resultingmodel of wages, employment, and income. In other words, from the labour marketpoint of view, wages necessarily depends on the prevailing supply-demand conditionsof the labour market. Earlier, the compensation management practices of Indianorganisations focused on attracting, retaining, developing and compensationemployees, not considering the labour market conditions. However, with the increaseof economic activity and the subsequent increase in the competition betweenorganisations, employee retention has taken the utmost priority. Moreover,globalisation has also contributed to the increased mobility of labour as talented andcapable employees now change jobs more frequently, moving across the globe. Giventhe conditions, the demand and supply conditions in the labour market gainimportance and organisations have to consider these factors while setting up thecompensation policies. Designing compensation plans which keep pace with thedemand and supply of labour is now becoming a corporate practice

Set2.Q5).What are the factors that have to be determined before preparing the salarystructure? From the previous section we came to know about establishing externalequity. In this section let us discuss how we can develop the pay structures of theemployees and why is it necessary to develop a proper pay structure.Pay structure is the grouping of pay grades or pay bands. There can be more than onepay structure in a compensation plan. For instance, there may be one pay structure forservice and maintenance positions, one for sales positions and one for managerialpositions. Or, the organisation may have just one structure for all positions. Theprocess of developing the pay structure deals with internal and external analysis toassess the compensation package for the specific job profile. As discussed in theprevious unit, job description provides in-depth knowledge about the job profile andits worth. For more information on job description, refer to unit 4 CompensationManagement and Job Design.Pay structure helps in analysing the employees role, value and status in theorganisation. It also helps in the assessment of incentives.If the organisation is paying very less to employees, then it may lose valuableemployees. If the organisation is paying high, then it may be unwisely spendingcompany resources.The main goal of developing a pay structure is to manage and demonstrate anorganisations compensation philosophy and to reflect and support the advancement of the companys culture. An effective pay structure also helps to attract and retain theefficient employees. An organisation's pay structure is a visible demonstration of its compensationphilosophy and plan. Pay structure is a tool, which is developed logically andcommunicated effectively to make the employees more motivated towards the job.The following three factors have to be determined while developing a pay structure:The proper data for establishing the relative value of a particular job to theorganisation.The proper pay range for a job with the defined value to the organisation.The value of each job position within the specified pay range.Once the above factors are determined, pay structures can be developed through thefollowing steps:1. Group the jobs with those that have a similar value in the organisation.2. Measure these groups to find out the number of pay ranges needed to group the jobs on the basis of their value to the organisation.3. Create a salary range that has a minimum point, a mid-point and a maximum pointfor amounts allotted within the range and determine the pay for each job grouping.An organisations compensation philosophy and pay strategy determines the approachthat should be taken to allocate pay across job ranges. Factors to be considered

are: >Number of years of experience. >Number of reporting staff members >Performance evaluation results. >Hazardous working conditions. >Undesirable shifts. >Education and degrees. >Professional certifications. >Management opinions. A successfully developed pay structure identifies career development in addition topromotion. It demonstrates and pays for the business results on which an organisationplaces value. An effective pay structure is worth the time and attention. It pays to getit right.How an organisation structures its base salary program is basically a matter of organisational philosophy, although marketplace practices are very essential toconsider in highly competitive situations. In structuring this base pay program, severaloptions are available:Organisations can use a single rate structure in which the employees performingsimilar jobs will receive the same pay rate.Organisations can use a tenure based approach which focuses on from how long anemployee has been employed in a particular job.Organisations can also use a combination of a tenure-based plan and a merit-basedplan. For example usually employees begin their job at a fixed rate, and then progressto higher rates during their first year based on the number of years spent in the job,then any additional pay increase is awarded only on the basis of performance.Organisations can use a pay system based on productivity. An example for this wouldbe an employee who is paid only a sales commission.An increasingly popular option is some form of base pay with an incentiveopportunity, either based on individual, team, unit, or company performance.

Set2.Q2).How does compensation effect employee satisfaction? Linking employee satisfaction to compensation is being practised since longtime in most of the organisations. Compensation designs based on this link usuallymeasure performance from a relatively objective side, such as sales or revenues, stockprice, productivity gains and so on. The example of this effort in recent times isembedded in labour contracts recently negotiated

at United Airlines (UAL). Theunions were able to push for a major new approach in part because they own 65percent of UALs stock. Under the terms of agreement more than half of the bonus payreceived by the top 625 UAL managers was determined by criteria like timeperformance and employee satisfaction. While time performance is clearly anobjective measure of performance, employee satisfaction is less objective and moreunusual. In fact, only a small handful of other firms use satisfaction to determineexecutive pay.Employee satisfaction has to be measured and evaluated before a new compensationplan can be implemented. Usually, an outside survey firm is hired to perform theannual survey for employees. The results of this survey is shared through out thecompany. Thus, the top management will get to know how employees feel about thecompensation. Employee satisfaction towards compensation is the most importantdiscourse for any company, because it is directly related to the performance that canbe achieved by employees. The more an employee is satisfied and happy with theircompensation, the better they perform. In turn, this will influence the companyperformance too. Thus companies should strive to bring in a fair compensation planso as to increase employee satisfaction. Employee satisfaction with respect tocompensation and rewards depends on the level of intrinsic and extrinsic results andhow the employee views those results. These results have different values fordifferent employees. For most of the employees, a responsible and challenging jobmay have neutral or even negative value depending on their education and previousexperience by work providing intrinsic results. These employees might have a highervalue for monetary rewards, whereas for a few others, a responsible and challengingposition or the learning involved in the job may have very high positive values.Appropriate type of compensation plans, rewards and benefits are important foremployees. Financially, the employees must be satisfied that their salaries are justifiedand are according to their contribution to the company. In this respect, bothemployees and employer basically work towards the same goal for mutual benefit.Non financial rewards should also be given to employees for their contributions. Forexample, paid time off, recognition, employee of the month programs, nominations totraining programs, career growth opportunities and so on.To provide incentives, these models support the existence of reward systems thatstructure compensation so that the employees expected value increases with observedemployee productivity. Thus compensation can take many various forms, includingappreciation from managers and co-workers, implicit promises of future promotionopportunities, feelings of self-esteem that come from superior achievement andrecognition and current and future cash rewards related to performance

set.1.Q2.)Define internal equity and explain its importance. The term equity in compensation theory and practice arises in many differentcontexts. The following are the major areas:The legal and economic issue related to equal pay for similar tasks performed byemployees. >The difference in pay caused due to external competition or market pressures. >The fairness of individual wage rates for people performing the same task. >The views of individual employees of their value relative to their pay.We say that internal equity exists in an organisation when an employer pays wagesappropriate to the relative internal value of each job. This is established in accordancewith the employer's perception of the importance of the work performed.However, before an organisation can evaluate the importance of each job, it must firstdetermine the job-related factors that will be used for setting compensation levels.This refers to the compensable factors. The following are some compensable factorsthat are used for lower level jobs >Education required. >Physical demands. >Experience required. >Supervisory/managerial responsibility. >Working conditions. >Responsibility for equipment/materials. >Public contact. >Accident or health hazards. >Manual ability. Determining the relative internal value of jobs within a large or complex organisationcould prove difficult. Job-evaluation methods are used to develop a job hierarchy thatreflects the relative value of jobs, which is assessed on the basis of skills, effort,responsibility, and working conditions. Several jobevaluation approaches have beendeveloped. These approaches include: >Whole job ranking. >Classification.

>Point factors. >Factor comparison. >Slotting. >Scored questionnaires An organisation may choose a rigorous and disciplined approach to job evaluation ora relatively simple one. However, it is important to note that all approaches aresubjective, as they depend a lot on the judgement, accuracy and commitment of thetop management of an organisation.Internal equity covers a wide range of subjects apart from the amount paid toemployees such as stock plans, benefits, retirement plans, health and welfare plans,vacation time, and so on.To maximise internal equity, an organisation must assess the value of each individualand the value of the job they are performing to the entire organisation. Suchinvestments can be done in different ways and most of the companies benefit greatlyby hiring an outside firm to check on methods to reduce costs and increase workermotivation.The internal equity method undertakes the positioning of a job in the organisationalhierarchy. The main aim of the process is to balance the compensation provided to a job profile when compared to the compensation provided to its senior and junior levelin the hierarchy. This fairness is ensured using methods such as: >Job ranking. >Job classification. >Factor comparison. >Point system. Figure depicts methods of Internal Equity.

Set2.Q.1).What are the major issues related to repatriation?

Set1.Q1).Describe flexible workforce in detail.

Set1,Q6.)Ms. Deepa Mehra is the VP-HR of Induslink Network. She is assigned

the task of finding a new CEO for the company and fixing the compensation. What are the trends that she will have to look into before finalizing the compensation package for the CEO? Ans. Though we have a lot of literature based on extensive research available on CEO compensation, most of these efforts are focused on the UK and the USA. Very little is known about the trends in India. One thing that is evident from this research is that CEO compensation in India is positively related to the age and organisational abilities of the CEOs. However, it is found that family ownership is negatively related to CEO pay. Further, it was found that CEO duality and proportion of insider directors had no significant bearing on CEO compensation in family-owned firms but did play a key role in non-family organizations. In countries such as India, societal norms accord a great deal of respect for age since it is believed to be related to wisdom (Esterby Smith et. al. 1995, Lawler/Jain/Ratnam/Atmiyanandana 1995). It is therefore considered an important qualification and largely determines an executive's progress up the corporate hierarchy (Dutta 1997, Kuppuswamy 1993, Sinha/Sinha 1995). Thus, in the Indian context it can be hypothesized that: The chronological age of the executive will be positively related to his/her compensation. The length of an executive's tenure in the organization will be positively related to his/her compensation. In countries like India, wisdom is always measured based on the age. Based on Becker postulates, the level of executive compensation is linked to age first. In addition, many researchers found that there is a positive relationship between age and compensation. Hence, age is considered as one of the important qualification and is used as a key component to determine the compensation. The other major link for chief executive compensation is on the tenure of CEO engagement. This is because a CEO who has worked for a very long time would have built the necessary base for the organisation. Organisations give importance to tenure because it is a reflection of the CEOs knowledge which is accumulated over time with experience. The total compensation in CEO pay includes the sum of the executives salary, current bonuses, long term incentive plans, and stock options. They also receive defined benefit plans, various perquisites, and severance payments in case of international assignments. Todays bonuses are generally part of the variable pay, which are based on annual accounting performance. Long term incentives are usually based on multi year performance. The rewards are given based on years of service and also according to their performance either by cash or by stock. Ghemawat and Khanna (1996) report that roughly 60% of all business activity in India is conducted by organisations that are either family owned or family controlled. Another recent study by Dutta (1997) reports that roughly 70% of the largest firms in the country are family businesses. Reflecting its developing nature, the Indian economy has grown as a result of the remarkable impetus provided by an investor class of individual families.