COMPENSATION CRISES

COMPENSATION MANAGEMENT

Human Resource is the most vital resource for any organization. Employees should be managed properly and motivated by providing best remuneration and compensation as per the industry standards. This also serves the need for attracting and retaining the best employees.

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees and resulting in improved organizational effectiveness.

Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives after analyzing the job work and responsibilities. The components are as follows:

JOB ANALYSIS:

process to identify and determine in detail the particular job duties and requirements and the relative importance of these duties for a given job.

PAY STRUCTURE: Once the job analysis is done, organization then focuses
on Pay Structure, a process of setting up the pay for a job in an organization. The process deals with internal and external analysis to estimate the compensation package for a job profile.

Internal Equity and External Equity are the most popular pay structures. determinant of employees value in the organization. Analyses employee's role and status. It also includes the estimation of incentives.

SALARY SURVEYS: Tools used to determine

the median or average compensation paid to employees in one or more jobs. Compensation data, collected from several employers, is analyzed to develop an understanding of the amount of compensation paid

OTHER COMPONENTS

1. 2. 3. 4. 5.

JOB EVALUATION: Job evaluation is a process of determining the relative

worth of a job. The process helps in: Reducing inequalities in salary structure. Job specialization. Selection process. Maintaining employee-employer relationship Standardization.

JOB DISCRIPTION: A job description sets out the purpose of a job, where

the job fits into the organization structure, the main accountabilities and responsibilities of the job and the key tasks to be performed. Its important for performing Organizing, Performance Appraisal and Recruitment function.

OBJECTIVES

Recruit and retain qualified people To have enthusiastic and delighted employees Motivation Retain skilled and talent staff Internal and external equity Reduce employee turnover Loyalty To achieve internal and external equity Reward exceptional performances Control cost Compliance with legal regulation

Types of Compensation
Compensation provided to employees can be: a) Direct Compensation : in the form of monetary benefits

b) Indirect Compensation: in the form of non-monetary benefits

ADVANTAGES OF COMPENSATION & BENEFITS

A well designed compensation and benefits plan helps to attract, motivate and retain talent in an organization. Some of the benefits of Compensation are: Job Satisfaction: employees would be happy with their jobs and would love to work if they get fair rewards in exchange of their services. Motivation: to motivate the employees to increase the organizational productivity by working in the desired way. Low Absenteeism

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2.

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4. Employee Retention: The most competitive compensation will help the

organization to attract and sustain the best talent. The compensation package should be as per industry standards.

5. Need Satisfaction: Salary is just a part of the compensation system, the

employees have other psychological and self-actualization needs to fulfill. Thus, compensation serves the purpose; be it related to money or achievement.

ISSUES FACED IN COMPENSATION MANAGEMENT

How much should companies pay attract, retain, and motivate employees? Should they pay salaries or variable rewards? Should they provide benefits, and if so, to what extent? What's an appropriate discrepancy between the pay for high and low performers?

Organizations have to consider for job seekers it's not just getting a job that matters -it's getting a job that can fulfill them both financially and personally.

COMPANY INTRODUCTION

Cooks Industries is a Pune-based automobile ancillary firm. Produces key engine parts pistions, piston rings, engine valves etc. for major automobile industries. Set up in 1985, by two technocrats, Ram Prakash and Shantanu Kamble. Prakash was an expert in metallurgy and mechanical engineering operations while Shantanu had done his masters in IIM-A. Employs 450 workmen operating in shifts and 100 managers. National presence in the market. No financial or technical crises. Reported net profits of Rs. 35 crore (1995-96).

BUT.

Cooks turnover rate crossed 15% Engineers were chucking their jobs to seek opportunities abroad. Many were setting up their own businesses. It became a trend, more than 30 front-line engineers left Cooks.

One of the reasons for Cooks high employee turnover was low managerial compensation, and the grade system at Cooks. Detected by: Ajay Malhotra, the 45-year old Vice-President (Human Resource and Organizational Development) who joined Cooks as GM (HR) five years ago.

AMAM COMPENSATION BENCHMARKING PROJECT

Commission was started in Nov, 1996. Covered 32 firms covering various sectors like, pharmaceuticals, financial services, automobiles etc. Survey provided data on compensation trends and salary structures across various corporate hierarchies. There were comparisons on total employees cost to the company. Comparisons with; direct competitors, similar players in other industries. Cooks was unable to attract any talent because of inability to offer competitive salaries. Major issue: Need of up gradation of salaries at every level of hierarchy.

FUNDAMENTAL DILEMMAS

Designations: There were some hard decisions to be taken

regarding designations. Cooks firmly believed that a designation must strictly represent the nature of job. For example in the case of Anjan Kumar Saxena.

Hierarchies: Cooks had far too hierarchy levels. It had a 10grade structure which was almost the double as compared to the industrial norms. But if the levels are cut down this would create reduction in opportunities of quick promotions.

Salaries: Difference between the recruitment of Technical and non-Technical people was an issue. Internal parity of salaries amongst these two parties.

Taxation Policy:

Cooks salary srtucture incorporated high reimbursements this was attractive and accepted. However, The Amam Reports showed a trend of lesser proportion paid as cash reimbursements. Companies were going for consolidated salaries rather than breaking up it into allowances. And the tax-burden would then be borne by individual employees themselves.

Leader Follower:

Cooks had to take A radical up gradation of managerial remuneration. This depended on the capacity to pay. The issue was whether to be a paymaster in the employment market or just to follow the trend?

OUR SUGESSIONS

Before going for any changes, Malhotra should examine the role of HR Function at Cooks. He must be aware of the need for changes in the organization. He should undertake the views of the customers and the individual employees into account. For this he can go for an Employee Satisfaction Survey to understant its employees batter. The decisions must come from with in the organization rather than just for maintaining competitiveness. Securing leadership in areas directly impacting the business is a far more worthwhile objective. Company's positioning is another important objective for Cooks. Hence Cooks must prioritize the organizational needs rightly.

QUESTIONS
Should Cooks offer the highest pay packages in the industry and create a high wage island so that people find it difficult to leave the company?

Or should Malhotra continue to peg Cooks salary structure as slightly below average, attracting and retaining people on the basis of the excellent business processes that the company was already known for?