You are on page 1of 11

Master of Business Administration-MBA Semester 4 Assignment MU0015 Compensation Benefits Set 2

Q1. What is CTC? What are the components of CTC? Ans. Cost to Company is the amount that you cost your company. That is the amount that the company directly or indirectly spends on you because of employing you. Components of CTC: Following are the components of CTC. i. Basic ii. Dearness Allowance (DA) iii. House Rent Allowance (HRA) iv. Medical Allowance v. Conveyance Allowance vi. Special Allowance vii. Vehicle Allowance viii. Incentives or bonuses ix. Leave Travel Allowance or Concession (LTA / LTC) x. Telephone / Mobile Phone Allowance. Q2. What are the elements of compensation? Ans. The primary elements of a compensation package are: i. Base Pay: Base Pay is the fixed rate of compensation that an employee receives for performing the standard duties and assignments of a job. Employers need to ensure that base-pay programs are designed to reveal market practices within their identified competitor group. To achieve this organisations must first identify their competitive market. This can be achieved by considering different factors, including the nature of the industry, geographic location, total employment and annual revenue. Next, they need to conduct an assessment of market pay practices for similar jobs within the recognized competitor group. This assessment should involve the duties, skills, and impact levels of each job evaluated that is, each job of similar size
1

and scope. Then a pay structure for managing the competitive base-pay levels for the jobs throughout the organization should be developed. Pay structues typically consists of series of pay ranges or bands that reveal competitive rates of pay for specific jobs, as well as allowing room for salary growth. Jobs of similar value from both the market point of view and an internal point of view are together. Then a competitive pay range is developed around the market rates for the particular jobs. ii. Variable Pay: Performance based variable pay continues to achieve momentum as a more successful way to identify and reward employees performance. Also known as pay-per-performance, variable pay is popular in todays corporate world. By including percentage of variable pay in the compensation plan, organisations ensure that two people with different efficiency levels do not get the same benefits. By doing this the company rewards productivity and hardwork and motivates the under-performers to work hard. Once limited to senior management levels, the incentives and bonus plans are redesigned to reward the achievement of specific company or employee performance objectives. In a variable pay plan the size of award varies among the employees and from one performance period to another, based on levels of achievements measured, as well as against pre-established company and employee performance targets. Amounts are usually calculated as a percentage of base-pay depending on Job category and position. Rewards are normally paid in cash on an annual, semi-annual or quarterly basis depending on the plan design. Plan designs range from sales-commission types to individuals incentive or bonus plans or team awards. The main idea of these programs is to reward innovation and hard work and to discourage mediocrity in performance. iii. Skill and Competency-based pay: Skill-based pay offers employees extra compensation when they have new skills especially recognized by the company as essential to achieve a competitive advantage. Skill-based pay can be particularly useful for employees who like their current jobs are looking for new challenges. Competency-based pay is more widespread than skill-based pay because the criteria cover not only measurable skills but also knowledge, performance behaviours and personal attributes. It helps out employees to grow in the company and helps them to close the knowledge gaps needed for creative moves.

iv. Long-term incentive compensation: Long-term incentive compensation vehicles, such as stock-options plans and other deferred-compensation plans, which are not usually to reward performance, are achieving plans appreciate employees based on company performance over a long term that is typically three to five years. Stock-option plans are common form of long-term compensation at public organisations. In most private companies, incentives that reflect stock plans are used for key employees. Long-term compensation plans can be valuable preservation tools for the success of an organization. They help to focus on driving and improving the key employees to achieve the financial performance of the company over a longer term. Q3. Define Internal Equity and explain its importance? Ans. The term equity in compensation theory and practice arises in many different contexts. The following are the major areas: The legal and economic issue related to equal pay for similar tasks performed by employees. 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 wages appropriate to the relative internal value of each job. This is established in accordance with the employers perception of the importance of the work performed. However, before an organisation can evaluate the importance of each job, it must first determine the job-related factors that will be used for setting compensation levels. This refers to the compensable factors. The following are some compensable factors that 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.
3

Determining the relative internal value of jobs within a large or complex organisation could prove difficult. Job-evaluation methods are used to develop a job hierarchy that reflects the relative value of jobs, which is assessed on the basis of skills, effort, responsibility, and working conditions. Several jobevaluation approaches have been developed. 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 or a relatively simple one. However, it is important to note that all approaches are subjective, as they depend a lot on the judgement, accuracy and commitment of the top management of an organisation. Internal equity covers a wide range of subjects apart from the amount paid to employees 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 individual and the value of the job they are performing to the entire organisation. Such investments can be done in different ways and most of the companies benefit greatly by hiring an outside firm to check on methods to reduce costs and increase worker motivation. The internal equity method undertakes the positioning of a job in the organisational hierarchy. 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 level in the hierarchy. This fairness is ensured using methods such as: Job ranking. Job classification. Factor comparison. Point system. Job ranking: This method involves placing jobs in order, from the most valuable (or most difficult) to the least valuable (or least difficult) using a single factor such as job complexity or the importance of that job to the organisation. Job classification: In this method, each job is measured against a pre-existing set of job classes that have been designed to cover the complete range of work that the employees would perform.
4

Factor comparison: In this method, a set of compensable factors are identified as determining the worth of jobs. The examples of compensable factors are skill, responsibilities, effort and working conditions. Point systems: In this method, clusters of jobs to be evaluated are determined. Jobs are clustered based on the type (for example sales job, factory job and so on), and an evaluation committee develops a point plan for a cluster or a group at a time. Several different techniques can be adopted in your business to maintain internal equity. A few of the techniques are as follows: Optimise employee performance. Reducing unnecessary levels of employee pay. One tool that can be used to achieve internal equity is variable pay scale. Using such a pay scale, you can pay your employees on the basis of their performance. In this manner, the employees who do a better job will receive greater compensation than those who perform average or less than expected. On the whole, employees are motivated to perform better and produce more when they understand how their performance affects their pay. Hence, educating them on how their pay is determined can make a big difference. Q4. What are the major issues related to repatriation? Ans. The term repatriation refers to bringing the employees who are on an international assignment back to the home country. It is very important to manage repatriation of employees in a very careful way. A poorly managed repatriation can lead to a feeling of frustration and cynicism in the employees. These feelings can be worse than the culture shock experienced in the first weeks of the assignment. It requires transparency in repatriation policy, sharing information on the career progression path, degree and support from the organisation during the international tenure and so on. Many organisations develop and share documented guidelines with respect to overseas assignment, so that the employees understand the rules and regulations and also know what to expect. Expatriate managers often return to the home office with a wealth of experience and perspectives. Yet, poor repatriation processes are blamed for underutilizing talent, losing human capital, and discouraging skilled managers from accepting overseas assignments (Gregersen and Black, 1995). Often the impact of repatriation for the employee is far greater than that of the original move to the host location. The move abroad is usually exciting,
5

involving a promotion or at the very least, an increase in peer status. Also, the day to day impact of life in the new culture is more keenly felt by the spouse and children, who interact with it on a far more personal basis. Moreover, the employee will be chosen for a particular skill set, which are generally appreciated by the new team as an asset. As the project comes to an end, the expatriate starts the closure process of the post, probably handing over to a locally based team or manager. At this point, home country HR should be back in touch with the employee, to start the career planning for the home move. However, most companies provide no post assignment guarantees, and this has a dual impact on the employee. Firstly, they will feel deeply insecure since they may have taken their family away from extended family and friends, interrupted education programmes and careers, and for what? To return home with no job? Another issue is the change in living standards. While settling down in a foreign country, they would have been offered financial incentives for the family to relocate from generous housing allowances to the payment of school fees. On returning home, these are taken away and the lifestyle that the family has become used to is radically reduced. This is particularly a factor for Europeans coming home from the USA, where living standards are very high in comparison with the cost of living in most European cities. It is the children of expatriates that the impact can be the most pronounced, and the most dramatic, especially for teenagers caught between school systems, deep friendships and hormonal angst! Where the assignment has been a long one, there is the risk of the child becoming a Third Culture Kid far more familiar with the host culture than the home one. For them the return is a far greater challenge, as they are already at home and will be going somewhere completely foreign. Not only will they face a profound culture shock, they will also struggle with a sense of loss of identity as they leave their friends and peers behind. Q5. Describe flexible workforce in detail. Ans. Thanks to the changing employment situation, today, the average workforce of an organisation is far different to that of a few years ago. More and more companies are going for different kinds of employee engagements like temporary staff, consultants, freelancers, contractors, sub-contractors and so on. This brings with it its own particular sets of advantages and disadvantages

for organisations. Managing the flexible workforce of a company needs a different set of policies and strategies. Some of the key reasons or trends for the emergence of flexible workforce below: 1. Retention of women employees: Over 60 % of women opt out of full-time work within 6-8 years of employment, but 93% of these women want to return to work part-time. Companies that tap into this talent pool by accommodating their request for flexibility in working hours will create a competitive advantage in the labour market. 2. Retirement of baby boomers: Companies in certain sectors will face a significant skilled labour shortage with a huge number of experienced people eligible for retirement in the next ten years. Many of these baby boomer (people born between 1945 and 1965) employees, however, would prefer working in a flexible capacity rather than going for retirement. Many companies would prefer to retain them on flexi-hours engagement, as they prove to be highly beneficial, especially in the absence of a proper knowledge management system. 3. The Retention of the voluntary workforce: In certain high-tech sectors, many highly skilled employees no longer have to work as they would have earned and saved enough for a life time and are leaving because they are unhappy with a lack of work- life balance. Companies are ready to accommodate their need for flexibility in working hours rather than losing out on highly skilled workforce. 4. Challenges of global teams: Today, due to globalization, more and more people are required to work continuously in order to communicate and collaborate with colleagues around the world. Due to this, people are experiencing a feeling of burnout and employers have no option but think beyond 9 to 5 and implement flexible schedules to accommodate these challenging logistics. Some of the different types of work arrangements that accommodate a flexible work force below: Job sharing: Here, the full time job is split between two co-workers and benefits are given in proportion based on the number of hours put in by each employee. Daily flexible choice: In this the log-in and log-out time may vary daily. Open flexible choice: In this the employees can choose the total number of hours required to complete the specific task.
7

Compressed week choice: Here, employees have a choice to work for less than five days in a week. Comp-off: In this, the employees can extend their timings on busy days and use that later for compensatory time off. Types of locations: Satellite options: These are remote work centres like satellite work centres which are provided by the employers. Telecommuting: Employees work from home for a few days in a week via telecommunications and then work out of office on the remaining days.

Q6. Mr.Senthil is the HR Manager of First Source Pvt. Ltd. He found that many of the employees have been doing the same work for a long period of time. He decided to enrich some of their jobs. List some of the strategies which can be used by Mr.Senthil to enrich jobs in organisations? Job enrichment is a way to motivate employees by giving them increased responsibility and variety in their jobs. Many employers traditionally believed that money was the only true motivating factor for employees and that if you wanted to get more work out of employees, offering them more money was the only way to do it. While that may be true for a small group of people, the majority of workers today like to work and to be appreciated for the work they do. Job enrichment allowing the employees to have more control in planning their work and deciding how the work should be accomplishedis one way to tap into the natural desire most employees have to do a good job, to be appreciated for their contributions to the company, and to feel more a part of the company team. Job enrichment has two separate dimensions which contribute to an employee's behavior at work. The first dimension, known as hygiene factors, involves the presence or absence of job dissatisfacters, such as wages, working environment, rules and regulations, and supervisors. When these factors are poor, work is dissatisfying and employees are not motivated. However, having positive hygiene factors does not cause employees to be motivated; it simply keeps them from being dissatisfied. The second dimension of Herzberg's theory refers to motivators, which are factors that satisfy higher-level needs such as recognition for doing a good job,
8

achievement, and the opportunity for growth and responsibility. These motivators are what actually increase job satisfaction and performance. Job enrichment becomes an important strategy at this point because enriching employees' jobs can help meet some of their motivational needs. There are basically five areas that are believed to affect an individual employee's motivation and job performance: skill variety, task identity, task significance, autonomy, and feedback. Job enrichment seeks to find positive ways to address each of these areas and therefore improve employee motivation and personal satisfaction. Skill variety involves the number of different types of skills that are used to do a job. This area is important because using only one skill to do the same task repeatedly can be quite boring, typically causing the employee's productivity to decrease after a period of time. However, using a variety of skills in a job will tend to keep the employee more interested in the job and more motivated. One way businesses are focusing on this area is through job rotation, that is, moving employees from job to job within the company, thereby allowing employees a variety of tasks in their work and helping prevent boredom. While this process can be costly to the company because employees must be trained in several different areas, the cost tends to be balanced by the increase in morale and productivity. Job rotation also gives each employee the opportunity to see how the different jobs of a company fit together and gives the company more flexibility in covering tasks when workers are absent. However, while job rotation is a good way to enrich employees' jobs, it can also hinder performance: Having to know several different jobs in order to rotate, can prevent employees from becoming proficient at any of the jobs. Therefore, the advantages and disadvantages of job rotation as an enrichment strategy have to be carefully weighed. Task identity is a matter of realizing a visible outcome from performing a task. Being able to see the end result of the work they do is an important motivator for employees. One way to make task identity clearer is through job enlargement, which means adding more tasks and responsibilities to an existing job. For example, instead of building just one component part of a humidifier, a team of employees builds the entire product from start to finish. When using job enlargement as an enrichment strategy, it is important that enlarging the job gives the employee more responsibility and more variety, not just more work.

Task significance involves how important the task is to others in the company, which is important in showing employees how the work they do fits in with that done in the rest of the organization. If employees can see how their work affects others, it will be a motivator to do the best job they can. Many companies take new employees on a tour of the company and provide training sessions on how each part of the company works together with the other parts. In order to accept and handle responsibility, it is important that employees know how the various areas of the company work together; without this knowledge, it is very difficult for them to handle decision-making responsibilities. Putting employees from different areas of the company into planning teams can also help them see the significance of the tasks they perform. Autonomy involves the degree of freedom, independence, and decisionmaking ability the employee has in completing assigned tasks. Most people like to be given responsibility; it demonstrates trust and helps motivate employees to live up to that trust. Responsibility can also help speed up work processes by enabling the employee to make decisions without having to wait for management approval. Autonomy is a very important part of job enrichment because it gives the employee power and a feeling of importance. A type of job enrichment that restructures work to best match the employee to the job is job redesign. Job redesign can focus on combining existing jobs, forming work groups, and/or allowing closer contact between employees and individual suppliers or customers. The idea behind job redesign is to match employees with a job they like and are best qualified to perform. Self-managed teams are a type of job design whereby employees are grouped into teams and given certain guidelines to follow as well as goals to accomplishand then left alone to accomplish those goals. Self-managed teams demonstrate the company's faith in the employees and give employees a feeling of power and pride in the work they accomplish. Feedback describes how much and what type of information about job performance is received by the employee. It is one of the most important areas for motivation. Without feedback, employees have no way of knowing whether they are doing things correctly or incorrectly. Positive feedback helps to motivate employees by recognizing the efforts they have put into their work. While monetary rewards for doing a good job can be a strong incentive, sometimes saying "you did a really good job on that project" can mean just as

10

much. Corrective feedback is also important because it lets employees know what areas need improvement There are many different types of job-enrichment activities and programs that companies can implement to encourage worker participation and enhance motivation. The team atmosphere is one way to enrich jobs. Grouping employees into teams and allowing the team the freedom to plan, make decisions, and accomplish their goals gives employees a feeling of importance and responsibility. It can also help employees come up with creative ideas on ways to improve work activities by giving them the opportunity to work closely with others. Asking for and encouraging employees to give input on company strategies and plans is another way to enrich jobs. Often times employees have the best input because they are the ones actually performing the activity on a daily basis. Holding company award ceremonies can also help to enrich jobs and motivate employees by recognizing individual employees for their contributions to the company. The purpose of job enrichment is to improve the quality of an employee's job and therefore motivate the employee to accomplish more. However, in order for job enrichment to work, the employee has to desire and accept new ways of accomplishing tasks. Some employees lack the skills and knowledge required to perform enriched jobs, while others are quite happy doing routine jobs because they feel the current work situation is relatively stress-free. It is likely that these types of employees would not like job-enrichment activities and would not accept the new way of doing things. Therefore, asking for employee input and keeping communication lines open is essential to the success of job-enrichment programs.

11