Supplier Capability Building

Building and Utilizing Compensation Strategy and Practices to

Effectively Attract, Motivate, and Retain Talent

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 1

Today’s Session

 How do we design Jobs and Pay Structures

 How to manage pay as an asset

 How to link pay to performance

 Bringing compensation to life for individuals –

beyond the structure

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 What we heard from you…

 Large Population, Small Talent Pool

 Differences of expectation from Gen Y
 Managing evolving expectations of
employees through their lifecycle
 Rising Cost of Business
 Low Cost Country, Increasingly Expensive
Workforce
 Gap in People Capabilities

What can we do?

Build Competitive Advantage through
effective Compensation Philosophy,
Strategy and Structure
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Quiz - Know Your Numbers

What percentage of your Total Operating budget is:

 Production expense?
 Marketing expense?
 Compensation-related expense?

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As companies we all say that people are our greatest
assets, yet do we manage them with the same understanding and
precision that we manage other Company assets?

As a business manager, how well do you understand and

utilize components of pay to
help you optimize your talent spend?
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Job Design

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 6

 Consider Organization 'ZULU' having…

Production CEO
Head
Quality Workmen
Head HR?
Operation
Sales
Supervisors
Accountant
Design Technicians
Maintenance Engineers
staff
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Some questions to reflect…

 Why does Production Head get paid more than

Accountant?
 Why does the Sales employee get paid higher
than Operations Staff?

Whether the pay is our own or someone else's,

compensation questions engage our attention…

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Compensation received by Zulu Organization
… matters to ALL people working there!
Job Roles 1 2 3 4 5
Accountant Rs. 100 Rs. 120
Production Rs. 90 Rs. 80 Rs. 110 Rs. 90 Rs. 95
Sales Rs. 150 Rs. 140 Rs. 110
Design Rs. 140 Rs. 130 Rs. 110 Rs. 130 Rs. 140
Engineers
Technicians Rs. 50 Rs. 45 Rs. 60 Rs. 50 Rs. 50
…….
…….
Internal Equity External Equity

Compensation Systems can help an organization achieve

and sustain competitive advantage…
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Job Analysis

 It is a systematic method of collecting and evaluating

information about a job, the requirements to perform the
job, and the context in which performance occurs.
 Helps differentiate a job from other jobs
 Produces written statement of job qualifications:
 Education
 Experience
 Capabilities
 Knowledge
 Skills

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Data Collection Tools / Techniques

Direct
Questionnaires Observations

Interviews Logs or diaries

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Data Collection Tools
Method Pros Cons
Inexpensive, efficient, Job perceptions may vary.
especially good for large
Questionnaires number of job analysis,
with limited resources.
Good for professional Time consuming
Interviews jobs.

Gives realistic view of the Tasks & duties of many

Direct job, useful for repetitive jobs are not easily
Observations jobs. observed. Depends on
observer perceptions
Provides lots of Burden for employees,
Logs or diaries information, can apply for difficulty in interpreting
most jobs. & keeping updated.
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Job Documentation

Job Behavioural
Description Competency
Framework

Skills &
Knowledge
Matrix

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Job Documentation
Establishing
Performance
Standards Recruitment
Establishing
career paths / Training
succession
planning Organizational
Design
Legal
Performance
Compensation Appraisals
Administration

Pag 14
Job Description Components

 Job identification
 General summary
 Essential functions
 Nonessential functions (Preferred)
 Knowledge, Skills and Abilities
 Supervisory responsibilities
 Working conditions
 Minimum Qualification
 Success factors
...Sample JD

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Discussion

 Who writes your job descriptions?

 Who has input into them?
 How does Job Design help you to achieve equity
within your organization?

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 Job Evaluation

It is the process used to determine the relative worth

of each job within an organization.

It generally assesses:
 Relative importance of the job
 Knowledge, skills and abilities needed to do the job
 Complexity or difficulty of the job

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Purpose of Job Evaluation

 Gives structure for correlating job worth

 Supports pay rate and internal equity
 Helps set pay rates comparable to those for
similar jobs
 Identifies opportunity for upward movement

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One of the methods of Job Evaluation

Degree Levels (Skill Factor) Points

1 Requires no previous training or experience 60

2 Requires moderate degree of experience or previous 120

training
3 Requires training and experience 180

4 Requires considerable training and experience 240

5 Requires extensive training and experience 300

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Results of the Job Evaluation
Corresponding points for each compensable factor are
added to get total value for the job.

Job A Job B Job C Job D Job E

200 300 400 500 600 700 800 900 1000

Points

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Pay Structure

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 21

Designing the Pay Structure

 Job grades group together jobs that have the

same relative internal worth
 Set upper and lower limits of compensation within
a particular job grades:
 Minimum
 Maximum
 Midpoint (job rate)

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 Establishing Base Pay - Salary Ranges
 Helps to reflect what you and your competitors are paying
people in specific positions and help you structure base
pay practices
 Typically a salary range is set based on market data (and
sometime additionally internal comparables)
 Some companies choose to set ranges for staff in key
positions higher (called adding a premium), and ranges for
non-key staff either at market or below depending on
compensation strategy
 For example:
Company
Current Market Data Market Position Average Compa-
Job title Base Source 1 Data Source 2 Average Bench Data Range Min Range Mid Range Max Ratio
Position 55000 48000 45300 50000 47767 40602 47767 54932 1.15

NOTE: Compa-ratio represents one’s individual pay relative to market. – next slide for more detail 23
 What is a Compa-Ratio?

 Compares an individual’s pay rate with a market

anchor (pay range midpoint)
 Employee pay level divided by midpoint of pay
range = COMPA-RATIO

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Compa-Ratio Example
Minimum: 80 Rs
Pay range
Maximum: 120 Rs
Midpoint: 100 Rs
Earning: 110 Rs

Compa-ratio
Earning divided by midpoint: 110/100 = 1.1

Compa-ratio below 1.0 = paid less than midpoint

Compa-ratio above 1.0 = paid more than midpoint

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Discussion
 What kind of external benchmarking do you
do?
 When is your revision cycle? What is the
basis of compensation increments?
 How do you communicate compensation
practices and individual contributions to
employees?

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Compensation Management
Managing Pay as Asset

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 27

 Why Do We Pay People?
 Because we are legally required to do so!

 Yes, but also,

– To attract the desired talent to our organizations

– To motivate colleagues to help the company meet identified goals

and proactively position the company for future growth

– To retain talent

Your compensation processes, policies, and practices can be

uniquely designed to help you best attract, motivate, and retain
talent you are targeting for your organization!
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Answers we need to know…

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Paradigm Shifts

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Compensation System

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 Money Isn’t Everything

 While monetary compensation is a strong factor in

attracting and motivating talent, it isn’t everything

 Other key factors in attracting, motivating, retaining talent

could include:
– Recognition for efforts
– Opportunities for development in role and promotion
– Relationship with one’s direct line manager

Non-monetary rewards and recognition are just as important as

monetary rewards and can be easily used at an ad-hoc basis

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Total Rewards Model

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How can we be competitive?

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What is your Compensation Philosophy?

Entitlement
Based Performance
Oriented

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Typical Elements of “Total Compensation”

Total Compensation
Package

Base Salary Variable pay (bonus) Retirals Benefits

Total Cash Compensation (TCC)

Annual monies Discretionary or variable pay Government mandated pay set Could include health
provided to colleague, provided to colleague annually aside for colleague retirement care, housing

Definitions and examples

typically in monthly usually based on pre-determined assistance,
installments. factors (e.g. company transportation
Guaranteed performance, team performance, allowance, child care,
compensation individual performance); best if etc. this is an area
bonus opportunities are provided where employers can
to those with direct line of sight to be creative to best
business results meet needs of
colleagues

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Discussion
 What kinds of incentives does your company
use?
 To what extent do the incentives vary with job
positions?

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Deciding which benefits to offer

 Are required by law

 Enable you to attract employees
 Are cost-effective to purchase and administer
 Are preferred by employees
 Provide creative alternatives

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Exercise 1

 In pairs, provide an example of a key position in

your organization and how compensation
processes, system, and practices currently
motivate an incumbent (think of a specific
example), or what could be developed if nothing
is currently in place?

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Linking Pay to Performance

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 42

Paying within the Range – Company Best
Practices
 For employees new to role & with less experience in
that capacity, many companies pay lower in the range

 For more seasoned employees and high performers,

many companies pay higher in the range

 Many companies review salary ranges annually or bi-

annually to ensure they are market competitive

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Discussion
 Do you identify key/critical positions in your
organization?
 How do you pay talent in critical positions
relative to the market?
 Do you pay for employee performance and
how do you establish high performance?

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Exercise 2

 In pairs discuss what you are doing to reward for

performance and challenges you are facing…

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Bringing Compensation to Life
Beyond Structures

Copyright © 2012 Mahindra & Mahindra Ltd. All rights reserved. 46

Exercise 3

 Plot your own organization's Total Rewards

Structure…
– Current
– Desired
– Elements focussing growing Gen Y population needs

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Questions ???

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