Indian Institute of Management, Raipur

HUMAN RESOURCE MANAGEMENT (HRM)

Assignment 4- Sushma Industries: The Gordian Knot of
Compensation Design
March 10, 2023

Submitted to: Prof. Ritu Gupta

Submitted By: (Group 7)

22PGP128 Vanika Keswani

22PGP142 Chirag Bhatia

22PGP158 Sanchit Nema

22PGP164 Mithapani Asheena Tanvi Abdul Khalik

22PGP175 Sushmita

22PGP297 Himanshu Meena

Introduction:

The 29-year-old CEO of Sushma Industries Private Limited (SIPL), S. Suveer,

welcomed G. Padmanabhan, the head of SIPL's human resources (HR), had
questioned his wisdom and judgment in appointing him a year earlier. To change the
organization that had been around for almost 25 years and put it on the path of growth,
he needed strategic talent interventions. While Padmanabhan was troubled by SIPL's
lack of organization, he was also enthusiastic about the prospect of designing and
putting procedures in place that would help the company advance to the next stage of
development.

Organization and Industry Context:

Sadananda Murthy founded SIPL in 1986 to address a shortage of precision

instruments supporting quality activities in Indian industry. In the past, businesses relied
on imported equipment with scant post-sale support and training. Murthy recognised a
chance to offer affordable, high-quality devices, along with solid post-sales training and
frequent calibration services, in this untapped market. He founded SIPL in Peenya, an
industrial area outside of Bangalore, with his wife and three staff, and it swiftly grew to
include manufacturing companies all throughout India.

He established a specialized calibration center in 1995 that offered testing and

measuring services and complied with strict national and international requirements. For
SIPL, the calibration center was responsible for around 35% of total revenue. The
technology firm SIPL specialized in sensors for pressure, force, and torque. It offered
testing, measuring, and calibration services to enterprises in the engineering,
automotive, pharmaceutical, and process manufacturing industries as well as to
institutions related to the government and the military. Its capacity to design items
specifically suited to a client's requirements was the source of a significant portion of its
revenue. The UK companies Norbar Torque Tools Ltd. and Crane Electronics Ltd., as
well as the Japanese company Tohnichi Mfg. Co. Ltd., were its main rivals.

In 2010, SIPL competed against Honeywell International Inc., Hottinger Baldwin

Messtechnik GmbH, FUTEK Advanced Sensor Technologies, Inc., and Syscon
Instruments Pvt. Ltd. for force testing systems, holding a 30% market share for sensors
and display units.

Due to its reliance on bespoke solutions, SIPL changed from a proprietorship to a

private limited company, which led to longer product development and go-to-market
periods as well as poorer profitability.
SIPL’s Initial Decade of Growth: Talent Acquisition, Compensation,
and Merit Increases:

When SIPL first started to expand, talent was engaged on a contingent basis and
obtained through known referrals. Much of the talent SIPL hired was from desperate
individuals who had no prior work experience or experience in other fields. No
competency-based, role-based, or needs-based hiring had ever been done by SIPL
before to 2012.

Shiv, a 1986 Industrial Training Institute diploma graduate, approached Murthy through
a family member, and Murthy created a new post, defending it by citing Shiv's qualities
as a quick learner, needy person, and humble person. Shiv resided on the same
property as Murthy and his family, put in long shifts, and worked on the weekends
before becoming the factory's production manager. Murthy received financial
assistance, personal loans, and R&D expertise from him because he was a devoted
friend. At SIPL throughout these years, there was hardly any attrition. A small number of
staff members established the R&D capabilities to meet the SIPL’s continual need for
customized products till 2010.

Although SIPL gave its technicians the opportunity to work the complete product cycle,
enhancing their exposure and learning opportunities, annual merit raises were given out
in a discretionary manner and not uniformly across the board.

SIPL had no structured performance management system, with goals tacitly understood
and periodically changed due to business exigencies, and Murthy subjectively evaluated
employees' performance against goals. Some employees were deprived of any
increment due to perceived poor performance, but the absence of a merit increase was
accepted. This was resulting in employee's dissatisfaction. Some newcomers were
silenced by the ethos of the organization and those who could not adjust left within a
year.

Change of Guard:

This part of the case tells us that there was a transfer of power taking place in the
organization. The business was slowly taken over by the year old engineering graduate
of the owner’s son. Suveer was not completely new to the business as he use to spend
time in it during his summer vacations. During the overlap period Suveer learnt different
strategies of the business from Murthy. Murthy also very well defined the boundaries of
change that would be tolerated in the company

Murthy emphasized on the fact that the people centric approach in

the organization should be continued. He also wanted the employees to be happy and
embrace the all the changes only if it did not change the very DNA of the organization.
Suveer had very ambitious targets for the company and also wanted it to expand in the
international markets. Suveer identified several core business capabilities required to
achieve his growth vision, including talent with specific technical skills, domain
knowledge, and a customer-focused approach. Suveer decided to hire an experienced
HR manager, G. Padmanabhan, in 2015 to streamline the company's people processes.
While this decision was expensive, Suveer believed it was necessary to achieve his
growth goals.

The new HR found that there were many overlapping

responsibilities within the teams which was hampering the performance. He also found
a gap between competencies and technical skills. Since replacing the employees was
not an option, the new HR head decided to augment the workforce, and clear conflicting
responsibilities. The HR head consolidated various functions under single head in case
of operations and purchase department with finance in order to have better control but
at the same time segregated some similar functions to improve the performance as the
case may be.

COMPENSATION AND BENEFITS RESTRUCTURING:

Padmanabhan, the newly appointed head of human resources at Sriperumbudur
Industries Private Limited (SIPL), recognized the need for a structured compensation
and benefits approach to enhance employee trust, loyalty, and fairness. He evaluated
and defined 35 differentiated job roles within the small workforce of 54 employees to
establish internal equity. He developed job descriptions for key roles that outlined the
purpose, deliverables, and required competencies. In 2015, Padmanabhan conducted
an employee survey to evaluate the existing compensation system, which revealed that
employees perceived the compensation and benefits to be significantly below market
standards, and there was a lack of parity among similar roles. The salary structure was
ad hoc, and certain statutory compliances were not observed. The production incentive
had become a guaranteed wage, and variable compensation was ad hoc.
Padmanabhan had reintroduced the term life insurance and group medical insurance for
employees, which was not renewed since 2012, leading to a paying penalty to the
insurance provider. SIPL had not made gratuity payments for 2014 and 2015 to the
insurance provider, which limited the ability of SIPL to attract new talented candidates
and diluted the organization's credibility. Padmanabhan realized that in order to address
the compensation disparity between the new and old employees, a revised
compensation structure along with the performance management system was needed.
Manjula, a veteran employee of 21 years, was deeply affronted by the changes she saw
in recent recruitments, highlighting the need for a revised compensation structure.
DEVELOPING THE ROADMAP FOR CHANGE IN COMPENSATION:
Padmanabhan designed the compensation revision process for SIPL, but multiple
challenges of implementing them caused a threat to derail their revisions. External
market benchmarking had become a requisite to establish the market rate so that
various jobs and skill sets could be compared. But obtaining reliable data was very
expensive. Padmanabhan made efforts by looking at the sample sets of data points
from the HR contracts and Job portals so that he could evaluate the competitiveness of
every job family in an economical and cost-effective way. Therefore, he proposed a 3-
year plan, with the first year taking corrections applicable only to key talent and avoiding
strain on the salary budgets of the employees. As a result, the organization’s cost base
increased approximately by about 80% due to the proposed revisions in the
compensation. Different employees would be affected in different ways, with some
seeing an increase in their statutory payments. Realigning the variable compensation
and connecting it with the new performance management system required a significant
change in educating the workforce leading to a consideration of variable compensation
as a deferred and a guaranteed pay.
A lot of resistance was seen from the workforce like even small changes in basic
policies of leaves, attendance and reporting of the employees. Additionally, employee
feedback indicated absence of discipline, problems related to formal working hours and
discipline of clocking attendance. In order to solve this, Padmanabhan introduced an
attendance management program where accountability and availability of productive
outcomes increased during the working hours.
If Padmanabhan had to make changes to the compensation, he needed to develop a
talent strategy and come up with a compensation structure that was in sink with the
financial viability and strategic direction of the organization. Here, the challenge was
communicating and gaining the acceptance from the employees for the proposed
changes.

Question Answers for the Case

1. How can Sushma Industries balance the conflicting demands of different

stakeholders, such as employees, shareholders, and executives, in
designing a compensation system?

Creating a pay system that meets the needs of different stakeholders, like employees,
shareholders, and executives, can be difficult for any company. Few ways to do so are
mentioned:-
Align the compensation system with the company's goals: Sushma Industries should
make sure that its compensation system is in line with the company's general business
strategy. This means that the pay system should reward people for doing things that
help the company reach its goals, like growing sales, making customers happier, or
cutting costs. By doing this, the business can make sure that its employees are
motivated to reach its goals, which should be good for everyone in the long run,
including shareholders and executives.

 Think about different ways to get paid. Sushma Industries should think about
different ways to get paid that can help meet the needs of different groups. For
example, a mix of fixed salary and variable pay (like commissions or bonuses)
can help balance the needs of workers who want a stable income with the needs
of shareholders who want to see pay based on performance. Profit-sharing or
stock options can also help make sure that the goals of employees and
shareholders are the same.

 Talk to the people who matter: Sushma Industries should talk to everyone who
matters to make sure everyone knows the compensation system and its goals.
By including stakeholders in the planning process and asking for their input and
feedback, the company can build a sense of ownership and buy-in for the
compensation system.

 Include non-financial incentives: Sushma Industries should think about adding

non-financial incentives, such as recognition, chances for job growth, and a good
place to work. By doing this, the company can help make sure that employees
are driven by more than just money. This can make employees happier and more
likely to stay with the company.

Check on the compensation system and make changes as needed. Lastly, Sushma
Industries should keep an eye on how well the compensation system works over time
and make changes as needed. By looking at the pay system on a regular basis and
getting feedback from all stakeholders, the company can make sure that the system
continues to meet the needs of all stakeholders and works to encourage the right
behaviors.

2. What role does company culture play in designing a compensation system,

and how can Sushma Industries align its culture with its compensation
strategy?
Some approaches that Sushma Industries could take to strike an equilibrium between
these needs are listed below.

 Sushma Industries should make sure that the company's pay plan is in line with
the company's long-term business strategy. This means that the pay structure
should reward efforts that contribute to the company's objectives, such as
growing the business, satisfying customers, and cutting expenses. Employees
will be more likely to work hard toward the company's objectives, which is good
news for everyone involved, from stockholders to upper management.

 Sushma Industries should take into account a variety of compensation plans in

order to strike an equilibrium between the interests of their various stakeholders.
The requirements of employees who want a steady income and the needs of
shareholders who want to see performance-based pay can be met through a
combination of fixed salary and variable pay (such as commissions or bonuses).
Employees' and shareholders' goals can be better aligned through profit sharing
and stock options.

 Sushma Industries should keep all interested parties apprised of developments

regarding the compensation plan so that everyone can work toward the same
objectives. The business can increase support and buy-in for the compensation
system by involving stakeholders in the design process and soliciting their input
and comments.

 Sushma Industries should think about implementing non-financial incentives such

as public acclaim, job advancement opportunities, and a pleasant workplace.
Employee satisfaction and loyalty can be boosted as a result of the company's
efforts to ensure that workers are driven by factors beyond financial
compensation.

Finally, it's important for Sushma Industries to keep an eye on how well the
compensation system is working and make any necessary changes as time goes on.
The business can ensure that its compensation system maintains its ability to balance
the needs of various stakeholders and to incentivize the desired behaviors by reviewing
the system on a regular basis and soliciting input from those affected by it.

3) What lessons can be learned from other companies that have faced similar
challenges in designing a compensation system, and how can these insights be
applied to Sushma Industries' case?
There are a number of things that can be learned from other businesses that have had
to establish compensation systems and encountered comparable difficulties. They
include, among others:

 Recognize the objectives and principles of your company: To create a

compensation system that supports the organization's aims and values, it's
critical to have a clear understanding of them. To learn what employees value
most, this may entail conducting surveys, focus groups, or other types of
research.
 Think about the competitive environment: It's crucial to comprehend the
environment of competition and compare pay scales with those of other
businesses in the sector in order to draw and keep top people.
 Fairness and equity should be balanced: A pay plan should aim to be both fair
and equitable while also taking into consideration each employee's performance
and contributions. To assess employee performance and establish pay scales,
think about combining objective and subjective metrics.
 Be transparent and explicit in your communication: Be open and honest with
your staff regarding the operation of the compensation structure and the
decision-making process. Employee engagement and trust can be increased as
a result.
 Review and modify the compensation system frequently: Because the
business environment is always changing, it's critical to review and modify the
compensation system frequently to keep it efficient and competitive throughout
time.

By carefully examining the organization's objectives and core values, market conditions,
and labour market, these lessons can be applied to the situation of Sushma Industries.
This can assist in guiding the creation of a long-term compensation system that is both
efficient and viable. The system can also be maintained in alignment with the objectives
of the company and the marketplace by routine review and modification.

4) What are the ethical considerations involved in designing a compensation

system, and how can Sushma Industries ensure that its practices align with its
values and principles?
Fairness, equity, openness, and accountability are just a few of the ethical factors that
must be taken into account while creating a pay system. Companies like Sushma
Industries must make sure that their compensation policies reflect their values and
guiding principles if they want to keep their good name, attract and keep top talent, and
promote an environment of employee engagement and trust.

When creating its compensation scheme, Sushma Industries might take into account a
number of ethical factors, such as:

 Fairness and equity: Sushma Industries must make sure that its remuneration
policies are equitable at all organisational levels and throughout all departments.
To find any potential biases or pay inequalities, frequent pay equity evaluations
might be conducted.
 Honesty and communication: Sushma Industries needs to be open and honest
with its staff about their remuneration policies. By doing this, you may increase
employee engagement and trust while also making sure that everyone is aware
of the process used to determine compensation.
 Accountability: Sushma Industries must be willing to accept responsibility for its
compensation policies and hold itself accountable when necessary. This may
entail periodically assessing the efficiency of the compensation system and
taking appropriate corrective measures.
 Alignment with organisational values: Sushma Industries should make sure
that its pay policies follow its guiding ideals, which include honesty, justice, and
respect. This may entail creating a code of conduct or ethics policy outlining the
organization's dedication to ethical norms and practises.

Employee participation in the design and implementation of the pay system is another
option that Sushma Industries can take into account in addition to these factors. This
can promote a culture of openness and accountability and guarantee that workers feel
empowered and respected.

5) How can Sushma Industries communicate the rationale for its compensation
decisions to its employees and other stakeholders, and what potential challenges
might arise in this process?

Some ideas that Sushma Industries could use to explain why its pay choices are the
way they are, as well as some problems that could come up in this process:
  Give clear and open information: Sushma Industries should give clear and
open information about its compensation system, including how it is set up, how
success is measured, and how rewards are given. This information can be
shared in different ways, such as through online portals, staff handbooks, or
meetings with managers.

 Explain the business reason: Sushma Industries should explain the business
reason for its compensation choices, such as how the compensation system is
made to support the company's goals and values. This can help workers and
other important people understand why certain decisions are made and how they
fit into the bigger picture.

 Include employees in the decision-making process: Sushma Industries could

think about including employees in the decision-making process by asking for
feedback and input on compensation choices. This can help get employees on
board and involved, and it can also give useful information about how to improve
the pay system.

 Be consistent and fair: Sushma Industries should try to be consistent and fair in
how it pays its employees. Inconsistency or what workers see as unfairness can
make them less motivated and unhappy. This needs clear ways to measure
success and make sure rewards are given out in a fair and objective way.

But there may also be problems for Sushma Industries when it comes to explaining why
it made the pay decisions it did. Some of these problems are:

 Complexity of the compensation system: If the compensation system is too

complicated, it may be hard for workers and other stakeholders to understand
how it works and how decisions are made. This could make people confused and
upset.

 Resistance to change: If Sushma Industries is making changes to its

compensation system, some workers or other stakeholders may fight against the
changes if they think their interests are not being taken into account enough.