Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q1. What are the factors that have to be determined before preparing the salary structure? Ans. The following three factors have to be determined while developing a pay structure: The proper data for establishing the relative value of a particular job to the organisation. The proper pay range for a job with the defined value to the organisation. The value of each job position within the specified pay range. Once the above factors are determined, pay structures can be developed through the following steps: 1. Group the jobs with those that have a similar value in the organisation. 2. Measure these groups to find out the number of pay ranges needed to group the jobs on the basis of their value to the organisation. 3. Create a salary range that has a minimum point, a mid-point and a maximum point for amounts allotted within the range and determine the pay for each job grouping. An organisations compensation philosophy and pay strategy determines the approach that should be taken to allocate pay across job ranges. Factors to be considered are: Number of years of experience. Number of reporting staff members. Performance evaluation results. Hazardous working conditions. Undesirable shifts. Education and degrees. Professional certifications. Management opinions. A successfully developed pay structure identifies career development in addition to promotion. It demonstrates and pays for the business results on which an organisation places value. An effective pay structure is worth the time and attention. It pays to get it right. How an organisation structures its base salary program is basically a matter of organisational Winter Drive November 2011 Sikkim Manipal University 1

Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

philosophy, although marketplace practices are very essential to consider in highly competitive situations. In structuring this base pay program, several options are available: Organisations can use a single rate structure in which the employees performing similar jobs will receive the same pay rate. Organisations can use a tenure based approach which focuses on from how long an employee has been employed in a particular job. Organisations can also use a combination of a tenure-based plan and a merit-based plan. For example usually employees begin their job at a fixed rate, and then progress to higher rates during their first year based on the number of years spent in the job, then any additional pay increase is awarded only on the basis of performance. Organisations can use a pay system based on productivity. An example for this would be an employee who is paid only a sales commission. An increasingly popular option is some form of base pay with an incentive opportunity, either based on individual, team, unit, or company performance. Most of the organisations combine elements of these approaches to create their own formal program. The most common traditional pay structure involves grouping similar jobs into pay grades and assigning a salary range with a minimum, a midpoint, and a maximum.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q2. 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. i. Basic ii. Dearness Allowance (DA) iii. House Rent Allowance (HRA) iv. Medical Allowance v. Conveyance Allowance vi. Special Allowance vii. Vehicle Allowance viii. Incentives or bonuses ix. Leave Travel Allowance or Concession (LTA / LTC) x. Telephone / Mobile Phone Allowance. =======================X========================X========================

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q3. 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 employers 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: Winter Drive November 2011 Sikkim Manipal University 4

Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

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.

Job Ranking Internal Equity Point Systems

Factor Comparison

Job Classification

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

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.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q4. Mr.Senthil is the HR Manager of First Source Pvt. Ltd. He found that many of the employees have been doing the same work for a long period of time. He decided to enrich some of their jobs. List some of the strategies which can be used by Mr.Senthil to enrich jobs in organisations? Ans. Job enrichment is a way to motivate employees by giving them increased responsibility and variety in their jobs. Many employers traditionally believed that money was the only true motivating factor for employees and that if you wanted to get more work out of employees, offering them more money was the only way to do it. While that may be true for a small group of people, the majority of workers today like to work and to be appreciated for the work they do. Job enrichment allowing the employees to have more control in planning their work and deciding how the work should be accomplishedis one way to tap into the natural desire most employees have to do a good job, to be appreciated for their contributions to the company, and to feel more a part of the company team. Job enrichment has two separate dimensions which contribute to an employee's behavior at work. The first dimension, known as hygiene factors, involves the presence or absence of job dissatisfacters, such as wages, working environment, rules and regulations, and supervisors. When these factors are poor, work is dissatisfying and employees are not motivated. However, having positive hygiene factors does not cause employees to be motivated; it simply keeps them from being dissatisfied. The second dimension of Herzberg's theory refers to motivators, which are factors that satisfy higher-level needs such as recognition for doing a good job, achievement, and the opportunity for growth and responsibility. These motivators are what actually increase job satisfaction and performance. Job enrichment becomes an important strategy at this point because enriching employees' jobs can help meet some of their motivational needs. There are basically five areas that are believed to affect an individual employee's motivation and job performance: skill variety, task identity, task significance, autonomy, and feedback. Job enrichment seeks to find positive ways to address each of these areas and therefore improve employee motivation and personal satisfaction. Skill variety involves the number of different types of skills that are used to do a job. This area is important because using only one skill to do the same task repeatedly can be quite boring, typically causing the employee's productivity to decrease after a period of time. However, using a variety of skills in a job will tend to keep the employee more interested in the job and more motivated. One way businesses are focusing on this area is through job rotation, that is, moving employees from job to job within the company, thereby allowing employees a variety of tasks in their work and helping prevent boredom. While this process can be costly to the company because employees must be trained in several different areas, the cost tends to be balanced by the increase in morale and productivity. Job rotation also gives each employee the opportunity to see how the different jobs of a company fit together and gives the company more flexibility in covering tasks when workers are absent. However, while job rotation is a good way to enrich employees' jobs, it can also hinder performance: Having to know several different jobs in order to rotate, can prevent employees from becoming proficient at any of the jobs. Therefore, the advantages and disadvantages of job rotation as an enrichment strategy have to be carefully weighed.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Task identity is a matter of realizing a visible outcome from performing a task. Being able to see the end result of the work they do is an important motivator for employees. One way to make task identity clearer is through job enlargement, which means adding more tasks and responsibilities to an existing job. For example, instead of building just one component part of a humidifier, a team of employees builds the entire product from start to finish. When using job enlargement as an enrichment strategy, it is important that enlarging the job gives the employee more responsibility and more variety, not just more work. Task significance involves how important the task is to others in the company, which is important in showing employees how the work they do fits in with that done in the rest of the organization. If employees can see how their work affects others, it will be a motivator to do the best job they can. Many companies take new employees on a tour of the company and provide training sessions on how each part of the company works together with the other parts. In order to accept and handle responsibility, it is important that employees know how the various areas of the company work together; without this knowledge, it is very difficult for them to handle decision-making responsibilities. Putting employees from different areas of the company into planning teams can also help them see the significance of the tasks they perform. Autonomy involves the degree of freedom, independence, and decision-making ability the employee has in completing assigned tasks. Most people like to be given responsibility; it demonstrates trust and helps motivate employees to live up to that trust. Responsibility can also help speed up work processes by enabling the employee to make decisions without having to wait for management approval. Autonomy is a very important part of job enrichment because it gives the employee power and a feeling of importance. A type of job enrichment that restructures work to best match the employee to the job is job redesign. Job redesign can focus on combining existing jobs, forming work groups, and/or allowing closer contact between employees and individual suppliers or customers. The idea behind job redesign is to match employees with a job they like and are best qualified to perform. Self-managed teams are a type of job design whereby employees are grouped into teams and given certain guidelines to follow as well as goals to accomplishand then left alone to accomplish those goals. Self-managed teams demonstrate the company's faith in the employees and give employees a feeling of power and pride in the work they accomplish. Feedback describes how much and what type of information about job performance is received by the employee. It is one of the most important areas for motivation. Without feedback, employees have no way of knowing whether they are doing things correctly or incorrectly. Positive feedback helps to motivate employees by recognizing the efforts they have put into their work. While monetary rewards for doing a good job can be a strong incentive, sometimes saying "you did a really good job on that project" can mean just as much. Corrective feedback is also important because it lets employees know what areas need improvement.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

There are many different types of job-enrichment activities and programs that companies can implement to encourage worker participation and enhance motivation. The team atmosphere is one way to enrich jobs. Grouping employees into teams and allowing the team the freedom to plan, make decisions, and accomplish their goals gives employees a feeling of importance and responsibility. It can also help employees come up with creative ideas on ways to improve work activities by giving them the opportunity to work closely with others. Asking for and encouraging employees to give input on company strategies and plans is another way to enrich jobs. Often times employees have the best input because they are the ones actually performing the activity on a daily basis. Holding company award ceremonies can also help to enrich jobs and motivate employees by recognizing individual employees for their contributions to the company. The purpose of job enrichment is to improve the quality of an employee's job and therefore motivate the employee to accomplish more. However, in order for job enrichment to work, the employee has to desire and accept new ways of accomplishing tasks. Some employees lack the skills and knowledge required to perform enriched jobs, while others are quite happy doing routine jobs because they feel the current work situation is relatively stress-free. It is likely that these types of employees would not like job-enrichment activities and would not accept the new way of doing things. Therefore, asking for employee input and keeping communication lines open is essential to the success of job-enrichment programs.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q5. Describe Mintzberg 5 Ps of strategy. Ans. 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 Winter Drive November 2011 Sikkim Manipal University 10

Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

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.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

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.

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Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

Q6. What are the factors to be taken into account to ensure an optimum compensation package for executives? Ans. There are a lot of factors to be taken into account to ensure an optimum compensation package for executives. In this section, some of the important criteria are elaborated. Strategy criterion This refers to the correlation between the organisational strategy and the performance of its executives. The difficult work is to come out with a model which balances between organisational strategies and employee performance. One of the biggest expenses for an organisation could be the raising cost of employee compensation. On the other side, it cannot be neglected because the employees performance is directly related to compensation. Therefore, some of the important steps to be taken into account are: Creating incentives based on the product life cycle. Relating compensation to organisational strategies. Following a simple compensation strategy. Role criterion Hierarchical positions and organisational roles have a contributing effect on executive compensation design. Executives act as figureheads, and hence they should be compensated more than others in the lower rungs. However, organisations are now experimenting with structures to respond to the changing environment. It may be essential at times to sacrifice the traditional hierarchical structure. In such cases, executive compensation may not be aligned with the figurehead roles. Sometimes the pay is based on functional aspects and not on the role or position. For example, pilots are not paid a high compensation package for their position, but for their functional aspects. Therefore, the roles and responsibilities of the job is an important aspect in deciding the executive compensation. Behaviour criterion The actions and the processes followed by executives while performing their jobs reveal their behaviour. This criterion is associated with the monitoring mechanism, and executives usually try and do a subjective analysis of the business decisions. Hence executive compensation based on behaviour criterion is quite sensible. However, executive behaviour is difficult to measure and all the aspects of the observed behaviour cannot be expected to meet a specific outcome. Hence, behaviour criterion has not received much attention from the corporate world. Size Winter Drive November 2011 Sikkim Manipal University 13

Master of Business Administration-MBA Semester 4 Assignment - MU0015 Compensation Benefits - Set 1

There is a general opinion that the size of an organisation plays the most influencing role while designing executive compensation, while on the contrary, it is not. It is the performance of the organisation which is the most important criterion which influences executive pay package. Market The marginal productivity theory of Roberts (1956) argues that a market forces, that is, supply and demand for executive talent determine executive pay. This theory considers the services of executives like any other input for running a business operation. The theory argues that the value of the input (executive compensation) is determined by the intersection of supply and demand in the labour market. Peer compensation The social comparison theory (OReilly et al. 1988) assumes that the compensation of selected peers plays a role in designing executive pay. Often board members of an organisation consider themselves as a referral point in their executive pay recommendations

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