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Today’s compensation systems have come from a long way. With the changing organizational structures workers’ need and compensation systems have also been changing. From the bureaucratic organizations to the participative organizations, employees have started asking for their rights and appropriate compensations. The higher education standards and higher skills required for the jobs have made the organizations provide competitive compensations to their employees. Compensation strategy is derived from the business strategy. The business goals and objectives are aligned with the HR strategies. Then the compensation committee or the concerned authority formulates the compensation strategy. It depends on both internal and external factors as well as the life cycle of an organization.
Evolution of Strategic Compensation
Traditional Compensation Systems In the traditional organizational structures, employees were expected to work hard and obey the bosses’ orders. In return they were provided with job security, salary increments and promotions annually. The salary was determined on the basis of the job work and the years of experience the employee is holding. Some of the organizations provided for retirement benefits such as, pension plans, for the employees. It was assumed that humans work for money, there was no space for other psychological and social needs of workers. Change in Compensation Systems With the behavioral science theories and evolution of labour and trade unions, employees started asking for their rights. Maslow brought in the need hierarchy for the rights of the employees. He stated that employees do not work only for money but there are other needs too which they want to satisfy from there job, i.e. social needs, psychological needs, safety needs, self-actualization, etc. Now the employees were being treated as
human resource. statutory leaves. etc. The level of incentives also depends on the level of job position in the organizational . Pay structures also include the estimation of incentives. Job description provides the in depth knowledge about the job profile and its worth. House rent allowances. It helps in analyzing the employee’s role and status in the organization. Pay structure refers to the process of setting up the pay for a job in an organization. Employees feel secured and valued in the organization. The compensation system was designed on the basis of job work and related proficiency of the employee. Pay-Structures Once job analysis has been done organizations need to decide upon the pay structures. The process deals with internal and external analysis to estimate the compensation package for a job profile. company’s vehicle. Their performance was being measured and appraised based on the organizational and individual performance. Authority is being delegated. Internal equity. Some of the benefits are special allowances like mobile. Maslow’s Need Hierarchy Today’s Modern Compensation Systems Today the compensation systems are designed aligned to the business goals and strategies. Pay structures are the strong determinant of employee’s value in the organization. It provides for fair treatment to all employees. Organizations offer monetary and non-monetary benefits to attract and retain the best talents in the competitive environment. The employees are expected to work and take their own decisions. Employees were expected to work hard to have the job security. External equity and Individual equity are the most popular pay structures. Competition among employees existed.
The process aims at balancing the compensation provided to a job profile in comparison to the compensation provided to its senior and junior level in the hierarchy. Internal Equity The internal equity method undertakes the job position in the organizational hierarchy. job classification. Organizations set the compensation packages of their employees aligned with the prevailing compensation packages in the market. level of management. External Equity Here the market pricing analysis is done. level of status and factor comparison. Organizations formulate their compensation strategies by assessing the competitors’ or industry standards.hierarchy. This entails for fair treatment to the employees. At times organizations offer higher compensation packages to attract and retain the best talent in their organizations. The fairness is ensured using job ranking. .
special allowances. . a week. They are given at a regular interval at a definite time. medical reimbursements. Pf/Gratuity. House Rent Allowance Organizations either provide accommodations to its employees who are from different state or country or they provide house rent allowances to its employees.Direct Compensation Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. etc. It is the money an employee receives from his/her employer by rendering his/her services. Basic Salary Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day. etc. The monetary benefits include basic salary. conveyance. a month. Conveyance Organizations provide for cab facilities to their employees. house rent allowance. bonus. This is done to provide them social security and motivate them to work. Few organizations also provide vehicles and petrol allowances to their employees to motivate them. leave travel allowance.
Leave Travel The employees are provided with leaves and travel allowances to go for holiday with their families. Flexible Timings Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons. Holiday Homes Organizations provide for holiday homes and guest house for their employees at different locations. Retirement Benefits Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age. Some organizations arrange for a tour for the employees of the organization. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house. .Insurance Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization. This is usually done to make the employees stress free. These holiday homes are usually located in hill station and other most wanted holiday spots.
Law has also provided an amendment for the employees who have attained the age of 60 and their ESOP shares are allotted after December 31. 1986. They make annual contributions in a special trust set up for ESOPs. The scheme provides employees the ownership of stocks in the company. Advantages of an ESOP Figure: Advantages of ESOP Disadvantages of an ESOP . After completing 10 years of service in an organization or reaching the age of 55. Organizations strategically plan the ESOPs and make arrangements for the purpose. It also provides for tax benefits to the employers.Employee Stock Ownership Plans (ESOP) Employee Stock Ownership Plan (ESOP) is an employee benefit plan. It is one of the profit sharing plans. Employers have the benefit to use the ESOPs as a tool to fetch loans from a financial institute. an employee should be given the opportunity to diversify his/her share up to 25% of the total value of ESOPs. An employee is eligible for the ESOPs only after he/she has completed 1000 hours within a year of service. The amendment provides those employees with an option to diversify their shares up to 50%.
They can also acquire stocks through stock options.) Strategic Incentive Plan In today’s competitive business world of globalization organizations should formulate compensation strategies keeping in mind their employees’ interest. Benefits and disadvantages of each plan should be considered and from the various options available one incentive plan should be chosen.Figure: Disdvantages of ESOP Individual employees’ accounts are credited with the stocks acquired by ESOP.e. They should set clear objectives as of why incentive plans are formulated. Stock options provide employees the right to buy shares at a definite price* for a defined number of years in future. what are the objectives. Incentive Strategy Formulation Process Organizations should first understand the need of incentive plans. The organizations should follow a systematic process to formulate the incentive plans. it is a challenge for organizations to retain their talented human resource. *(Price for the current day i. . Various options for individual and group incentive plans should be explored. the time the options are acquired is set as the definite price for the employee. With more and more players entering the market and high attrition rate. These objectives should be in alignment with organizational goals and objectives.
Compensation . Some employees do not trust the organizational policies. With increased FDI and high inflation rates. They complain that the performance standards set are not fair. Organizations face some problems while setting up the incentive plans. Organizations should provide rewards based on employees’ performance. There are also confusions related to the formulas used to calculate the payout incentives. compensation strategy should be formulated. The methods of appraisal should be fair and known to all the employees. Performance standards set should be acceptable by the management and the employees. Using the best incentive plan. The banks are collaborating with insurance units to provide insurance coverage to their clients. Financial institutes and commercial banks are expanding their business and going for large scale recruitments. Significant monetary and non-monetary rewards should be given. Few of the banks are also dealing in gold and silver. Organizations should see that all the employees receive adequate compensation based on the internal equity with respect to the industry standards. finance sector is enjoying high deposits. Nationalized banks are preferred more as they provide for job security. Banking & Finance Sector Indian banking and finance sector is currently experiencing high growth rate.
commerce graduates. MBA-finance. SBI.Bank of India. HDFC. commerce graduates and finance professionals. The positions are for customer care executives. transportation vehicle etc. In other departments like audit. verification department. Software packages such as tally certification guarantees jobs in the finance sector. paid vacations. These exams are conducted by the respected banks only. ENTRY LEVEL COMPENSATION PACKAGES Indian finance & banking sector offers jobs in various segments. concessions. marketing executives in credit card department.packages in banks have always been lucrative. etc individuals are professionals such as CA. credit. retirement benefits are also offered along with basic salary and other allowances such as house rent allowance. Kotak Mahindra. However at the entry level there are more jobs for graduates in marketing segment. Incentives. loan department. paid leaves. ICICI and other private banks. travel leaves.Com etc. Punjab National Bank. he/she has to pass an entrance exam followed by personal interview and medical inspection. etc. financial institutes such as Bajaj Capital. The . recovery department. Top players such as nationalized banks. CS. special allowances.com. Packages offered to individuals are based on their knowledge level and training experience. Indian Overseas Bank. advances. Getting into nationalized banks is quite difficult. foreign exchange. but if the candidate has desired skills and willingness. M. The managerial level jobs are held by management professionals. Bank of Baroda. Compensation package in finance and banking sector depends on the level of knowledge and experience an individual have. are offering high salary packages with lucrative incentives to attract and retain their talented work force. B.
However the candidates looking for a career in finance should possess the necessary skills. etc. mobile allowances.profile of the candidate also matters. transportations. The industry provides for special allowances such as annual bonus. . house rent allowances. They are: Effective Communication Skills Commerce Background Excellent Marketing Skills Strong Analytical Skills Ability to meet deadlines Apart from pay packages finance professionals also get high incentives and perks. travel leaves. paid vacations.
At higher level employees are given employee stock options. liberalization. other allowances and non-monetary benefits. Organizations also conduct training and development programs for their employees’ professional growth. jobs in the financial sector are also demanding too much hard work. The compensation packages offered to managerial level employees are very much lucrative. With the globalization. Besides the basic salary employees are also provided with heavy perks and incentives with special allowances. company’s vehicle. Figure: Components of Compensation Packages at Managerial Level in Banking & Finance Sector Nationalized banks offer job security and private financial institutes provide high lucrative packages.Figure: Average Salary offered in Indian Banking & Finance Sector for Entry Level Jobs * The salary figures provided are for the business development executives and marketing & sales executives Management Level Compensation Finance sector is a promising sector where compensation is considered. Organizations provide for certification courses and online degree courses for the employees. Individuals are given equal preferences on the basis of their performance. more number of competitors. business expansion. The sector has witnessed 17% average increase in the salary packages in the year 2006. They are offered club memberships. Earlier bank jobs were considered very comfortable ones but now the scenario has . paid vacations. travel leaves.
Figure: Components of Compensation Packages at Managerial Level in Banking & Finance Sector .been changed. Some of the nationalized and private banks have started working 8 to 8. Indian banking sector is heading for 24*7.
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