The challenges in compensation decision for special groups w.r.

t Angelique International Limited

By:

Akanksha Chaturvedi (pgfb1003) Amit Kumar (pgfb1005) Ayush Anand (pgfb1012)

Special Groups ??
Special groups include: Supervisors Corporate directors Executives Sales force Contingent workers Scientists & Engineers Special groups are strategically important to a company. Experience built-in conflicts as different factions place incompatible demands on members of the group.

Angelique International Limited

Is an ISO 9001:2000 & ISO 14001:2004 certified company. Incorporated : 1996 Head office: New-Delhi Regional offices: Africa, South east Asia & SAARC region Operates in areas of project engineering, procurement & construction. Turnover is nearing US $250 million.

Executive Compensation at Angelique !!

Executive compensation focuses on results by providing the leadership needed to create value and grow great companies It provides fair & equitable executive compensation combining: * Base pay * Annual cash incentives * Stock-based long-term incentives & competitive benefits

 Annual incentive plans recognize executive's responsibility for meeting Corporation's overall financial performance goals.

Stock-based incentives focus on long-term performance by aligning the executive's long-term financial interests with the Corporation's shareholders. Stock ownership requirements ensure that the executives remain focused on long-term shareholder value.

Components of Executive Compensation

Angelique International decides its Executive compensation based on the combination of the following various categories: a) Base Salary influenced by the number of employees (current & prospective)

b) Executive Bonuses given annually generally (40 -50% of base pay) sometimes also quarterly (20 -25%) thus executives get 100 to 150% of the base salary as bonuses c) Long Term Incentives In form of stock options or cash rewards, encourage executives to stay with the company & pursue long term objectives.

d) Supplemental Executive Retirement Plans (SERP) - provide ways for executives to manage their income long-term, beyond typical 401k or IRA plans offered to most employees. They also give stock options & profit sharing plans.

e) Change in Control (CIC) These agreements are designed to give peace of mind to the executive in the event of a separation. They secure bonuses and severance and give a payout timeline.
f) Deferred compensation is compensation (bonus or salary) that is given at a later date, after the actual bonus and salary is earned. This delay minimizes tax burden.

g) Extra benefits/perks In addition to cash, executive compensation can include added perks, such as special parking spaces or club memberships.
h) Work environment Quality of life factors are a relatively new form of compensation for executives. These can include: * Shortening the executives commute by creating a separate office location for them or creating a work-from-home agreement.

Issues & Challenges

1. Executive Compensation Governance :

* Refers to executive pay decision making process.

* Compensation committee is tasked with leading the succession planning process. * Corporate boards are becoming more involved in the operations of leadership & talent programs. * A summary of key leadership traits should be prepared this would act as a source of identifying HIPO executives & would be accordingly compensated

2. Institutional Shareholders : * Advocate stronger pay-for-performance links in executive compensation.

* Compensation teams should identify the misalignment b/w executive & broad based pay programs & assess where do stronger linkages b/w pay & performance make more business sense. 3. Shareholder Advisory Groups : * Advisory groups often take formula-driven approaches to assess executive pay programs & shareholders vote in lock-step with their recommendations.

* One of the major issues relates to how companies use their authorized shares for employee stock grants which can dilute shareholder value. * Equity grants should be carefully granted to ensure that shares are going to the right places. * Ways to reduce overall share consumption should be devised, while making sure that key HIPO talent continues to receive meaningful grants.

4. Say on Pay : * It is a recently passed law under the financial reforms & it gives shareholders a non-binding vote on executive compensation & no director wants his pay decisions to be voted down.

* Say on pay leads to several changes in executive pay programs, some of which will cascade down the organization. When they do, the HR team will be responsible for communicating those changes & handling the pressure.

5. Consultant Independence : * Boards and compensation committees no longer can afford to retain executive pay consultants as it leads to conflict of interest.
* A financial conflict of interest occurs if they provide both executive compensation advice and other services also to the same company & earn revenue from both.

* Acc. to experts on corporate governance such consultants may not be able to provide objective advice about the compensation of the executives who hire them. * Experts have recommended that corporate boards should retain a compensation consultant who performs no other work for the company.

6. Risk assessment : * SEC rules issued in December 2009 require companies to disclose if any of their compensation programs could cause employees to engage in behavior that is reasonably likely to have a material adverse effect on the company.

* HR dept. needs to assess the risk profile of every reward program before implementing it.
7. Performance Equity : * Past trends for companies have been to transition a greater proportion of their executive LTI awards to performance-vested share plans.

* Unlike stock options or restricted stock plans, these programs relate executive compensation to a min. of 3 yr. company-wide performance.

8. Peer Groups : * Refers to the list of organizations from which compensation committee collects data to benchmark the companys top executives.
* Peer group development tends to involve highly strategic discussions around a companys true market for executive talent.

9. Relative Performance : * Refers to team-based goal-setting on performance-based incentives, which are targeted towards outperforming peers rather than on absolute goals.
* HR strategy must be geared not just toward helping people perform but also to outperform competitors.

* Incentive programs which include relative performance assessments, should be included 10. Clawbacks : * Refers to recoupment of previously earned incentive pay in the event of new information about performance. * This brings in the component of risk in compensation as the ability to clawback might have a substantial impact on employee behaviour & decision making * Moreover, developing infrastructure to recoup payments already made can also be a difficult process.