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NEELAM ASWAL 521131210 02882 4

Compensation Benefits

10 Dec 2012


Master of Business Administration- MBA Semester 4 MU0015 –Compensation Benefits
(Book ID:1336)

Assignment Set- 1

Q1. Describe flexible workforce in detail.

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. 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.  Teleworking: Employees work from home on all the days of the week via telecommunications.  This flexi-time arrangement has a lot of benefits for both the employers and the employees. The benefits for the employees are:  Provides an opportunity for workers who are disabled.  Working parents can meet their family obligations.  Saves commuting time.  Provides time and location flexibility.  Reduces job related stress and also interruptions at the workplace.  The benefits for the employers are:  Influences employees in a positive way.  Improves productivity.  Reduces absenteeism.  Improves employee job satisfaction, job performance and work quality.  Reduces costs related to environmental requirements, time, space, employee safety, relocation of the employees, and productivity.  Helps in retention of voluntary workforce, women and baby boomers.  Companies can terminate contingent workers services more easily.  With respect to compensation and benefits paid to the flexible workforce, most companies pay an hourly wage, which is fixed on the basis of the complexity of work as well as the skill sets of the employee. No amount of

paid leave, insurance and legally required benefits like gratuity and retirement benefits are paid.

Q2. 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 employer’s 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. 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 job-evaluation 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.

Factor Job Ranking Internal Equity Point System s Comparison

Job Classificat ion

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. 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.

Q3. 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…….  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.

Q4. 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 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 today’s 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. 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. Stockoption 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.


q5. describe Mintzberg 5 p’s of strategy.

Management expert, Henry Mintzberg, argued that it's really hard to get strategy right. To help us think about it in more depth, he developed his 5 Ps of Strategy – five different definitions of (or approaches to) developing strategy. About the 5 Ps, Mintzberg first wrote about the 5 Ps of Strategy in 1987. Each of the 5 Ps is a different approach to strategy. They are: 1. Plan. 2. Ploy. 3. Pattern. 4. Position. 5. Perspective. By understanding each P, you can develop a robust business strategy that takes full advantage of your organization's strengths and capabilities. 1. Strategy as a Plan Planning is something that many managers are happy with, and it's something that comes naturally to us. As such, this is the default, automatic approach that we adopt – brainstorming options and planning how to deliver them. This is fine, and planning is an essential part of the strategy formulation process. Our articles on PEST Analysis, SWOT Analysis and Brainstorming help you think about and identify opportunities; the article on practical business planning looks at the planning process in more detail; and our sections on change management and project management teach the skills you need to deliver the strategic plan in detail. The problem with planning, however, is that it's not enough on its own. This is where the other four Ps come into play. 2. Strategy as Ploy Mintzberg says that getting the better of competitors, by plotting to disrupt, dissuade, discourage, or otherwise influence them, can be part of a strategy. This is where strategy can be a ploy, as well as a plan. For example, a grocery chain might threaten to expand a store, so that a competitor doesn't move into the same area; or a telecommunications company might buy up patents that a competitor could potentially use to launch a rival product.

Here, techniques and tools such as the Futures Wheel, Impact Analysis and Scenario Analysis can help you explore the possible future scenarios in which competition will occur. Our article on Game Theory then gives you powerful tools for mapping out how the competitive "game" is likely to unfold, so that you can set yourself up to win it. 3. Strategy as Pattern Strategic plans and ploys are both deliberate exercises. Sometimes, however, strategy emerges from past organizational behavior. Rather than being an intentional choice, a consistent and successful way of doing business can develop into a strategy. For instance, imagine a manager who makes decisions that further enhance an already highly responsive customer support process. Despite not deliberately choosing to build a strategic advantage, his pattern of actions nevertheless creates one. To use this element of the 5 Ps, take note of the patterns you see in your team and organization. Then, ask yourself whether these patterns have become an implicit part of your strategy; and think about the impact these patterns should have on how you approach strategic planning. Tools such as USP Analysis and Core Competence Analysis can help you with this. A related tool, VRIO Analysis, can help you explore resources and assets (rather than patterns) that you should focus on when thinking about strategy. 4. Strategy as Position "Position" is another way to define strategy - that is, how you decide to position yourself in the marketplace. In this way, strategy helps you explore the fit between your organization and your environment, and it helps you develop a sustainable competitive advantage. For example, your strategy might include developing a niche product to avoid competition, or choosing to position yourself amongst a variety of competitors, while looking for ways to differentiate your services. When you think about your strategic position, it helps to understand your organization's "bigger picture" in relation to external factors. To do this, use PEST Analysis, Porter's Diamond, and Porter's Five Forces to analyze your environment - these tools will show where you have a strong position, and where you may have issues.

As with "Strategy as a Pattern," Core Competence Analysis, USP Analysis, and VRIO Analysis can help you craft a successful competitive position. You can also use SWOT Analysis to identify what you do well, and to uncover opportunities. Note: There can be a lot of overlap between "Strategy as Position" and other elements of the 5 Ps. For instance, you can also achieve a desired position through planning, and by using a ploy. Don't worry about these overlaps - just get as much value as you can from the different approaches. 5. Strategy as Perspective The choices an organization makes about its strategy rely heavily on its culture – just as patterns of behavior can emerge as strategy, patterns of thinking will shape an organization's perspective, and the things that it is able to do well. For instance, an organization that encourages risk-taking and innovation from employees might focus on coming up with innovative products as the main thrust behind its strategy. By contrast, an organization that emphasizes the reliable processing of data may follow a strategy of offering these services to other organizations under outsourcing arrangements. To get an insight into your organization's perspective, use cultural analysis tools like the Cultural Web, Deal and Kennedy's Cultural Model, and the Congruence Model. Using the 5 Ps Instead of trying to use the 5 Ps as a process to follow while developing strategy, think of them as a variety of viewpoints that you should consider while developing a robust and successful strategy. As such, there are three points in the strategic planning process where it's particularly helpful to use the 5 Ps: When you're gathering information and conducting the analysis needed for strategy development, as a way of ensuring that you've considered everything relevant. When you've come up with initial ideas, as a way of testing that that they're realistic, practical and robust. As a final check on the strategy that you've developed, to flush out inconsistencies and things that may not have been fully considered.

Using Mintzberg's 5 Ps at these points will highlight problems that would otherwise undermine the implementation of your strategy. After all, it's much better to identify these problems at the planning stage than it is to find out about them after you've spent several years – and millions of dollars – implementing a plan that was flawed from the start.

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.