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Compensation Benefits
set-2

10 Dec 2012
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FACULTY SIGNATURE:

Master of Business Administration- MBA Semester 4 MU0015 Compensation Benefits (Book ID:1336)
Assignment Set- 2

Q1. What are the major issues related to repatriation?

Ans.
The term repatriation refers to bringing the employees who are on an international assignment back to the home country. It is very important to manage repatriation of employees in a very careful way. A poorly managed repatriation can lead to a feeling of frustration and cynicism in the employees. These feelings can be worse than the culture shock experienced in the first weeks of the assignment. It requires transparency in repatriation policy, sharing information on the career progression path, degree and support from the organisation during the international tenure and so on. Many organisations develop and share documented guidelines with respect to overseas assignment, so that the employees understand the rules and regulations and also know what to expect. Expatriate managers often return to the home office with a wealth of experience and perspectives. Yet, poor repatriation processes are blamed for underutilizing talent, losing human capital, and discouraging skilled managers from accepting overseas assignments (Gregersen and Black, 1995). Often the impact of repatriation for the employee is far greater than that of the original move to the host location. The move abroad is usually exciting, involving a promotion or at the very least, an increase in peer status. Also, the day to day impact of life in the new culture is more keenly felt by the spouse and children, who interact with it on a far more personal basis. Moreover, the employee will be chosen for a particular skill set, which are generally appreciated by the new team as an asset. As the project comes to an end, the expatriate starts the closure process of the post, probably handing over to a locally based team or manager. At this point, home country HR should be back in touch with the employee, to start the career planning for the home move. However, most companies provide no post

assignment guarantees, and this has a dual impact on the employee. Firstly, they will feel deeply insecure since they may have taken their family away from extended family and friends, interrupted education programmes and careers, and for what? To return home with no job? Another issue is the change in living standards. While settling down in a foreign country, they would have been offered financial incentives for the family to relocate from generous housing allowances to the payment of school fees. On returning home, these are taken away and the lifestyle that the family has become used to is radically reduced. This is particularly a factor for Europeans coming home from the USA, where living standards are very high in comparison with the cost of living in most European cities. It is the children of expatriates that the impact can be the most pronounced, and the most dramatic, especially for teenagers caught between school systems, deep friendships and hormonal angst! Where the assignment has been a long one, there is the risk of the child becoming a Third Culture Kid far more familiar with the host culture than the home one. For them the return is a far greater challenge, as they are already at home and will be going somewhere completely foreign. Not only will they face a profound culture shock, they will also struggle with a sense of loss of identity as they leave their friends and peers behind.

Q2. How does compensation effect employee satisfaction? Ans.

Linking employee satisfaction to compensation is being practised since long time in most of the organisations. Compensation designs based on this link usually measure performance from a relatively objective side, such as sales or revenues, stock price, productivity gains and so on. The example of this effort in recent times is embedded in labour contracts recently negotiated at United Airlines (UAL). The unions were able to push for a major new approach in part because they own 65 percent of UALs stock. Under the terms of agreement more than half of the bonus pay received by the top 625 UAL managers was determined by criteria like time performance and employee satisfaction. While time performance is clearly an objective measure of performance, employee satisfaction is less objective and more unusual. In fact, only a small handful of other firms use satisfaction to determine executive pay. Employee satisfaction has to be measured and evaluated before a new

compensation plan can be implemented. Usually, an outside survey firm is hired to perform the annual survey for employees. The results of this survey is shared through out the company. Thus, the top management will get to know how employees feel about the compensation. Employee satisfaction towards compensation is the most important discourse for any company, because it is directly related to the performance that can be achieved by employees. The more an employee is satisfied and happy with their compensation, the better they perform. In turn, this will influence the company performance too. Thus companies should strive to bring in a fair compensation plan so as to increase employee satisfaction. Employee satisfaction with respect to compensation and rewards depends on the level of intrinsic and extrinsic results and how the employee views those results. These results have different values for different employees. For most of the employees, a responsible and challenging job may have neutral or even negative value depending on their education and previous experience by work providing intrinsic results. These employees might have a higher value for monetary rewards, whereas for a few others, a responsible and challenging position or the learning involved in the job may have very high positive values. Appropriate type of compensation plans, rewards and benefits are important for employees. Financially, the employees must be satisfied that their salaries are justified and are according to their contribution to the company. In this respect, both employees and employer basically work towards the same goal for mutual benefit. Non financial rewards should also be given to employees for their contributions. For example, paid time off, recognition, employee of the month programs, nominations to training programs, career growth opportunities and so on. To provide incentives, these models support the existence of reward systems that structure compensation so that the employees expected value increases with observed employee productivity. Thus compensation can take many various forms, including appreciation from managers and co- workers, implicit promises of future promotion opportunities, feelings of self-esteem that come from superior achievement and recognition and current and future cash rewards related to performance.

Q3. 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 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

Q4. How is employee benefit and labour market linked? Ans.

Labour markets function through the contact of employees and employers. Labour economics looks at the providers of labour services (employees), the demanders of labour services (employers), and attempts to understand the resulting model of wages, employment, and income. In other words, from the labour market point of view, wages necessarily depends on the prevailing supply-demand conditions of

the labour market. Earlier, the compensation management practices of Indian organisations focused on attracting, retaining, developing and compensation employees, not considering the labour market conditions. However, with the increase of economic activity and the subsequent increase in the competition between organisations, employee retention has taken the utmost priority. Moreover, globalisation has also contributed to the increased mobility of labour as talented and capable employees now change jobs more frequently, moving across the globe. Given the conditions, the demand and supply conditions in the labour market gain importance and organisations have to consider these factors while setting up the compensation policies. Designing compensation plans which keep pace with the demand and supply of labour is now becoming a corporate practice.

Q5. 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 organizational 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.

Q6. 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. 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. 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 program