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Methodology and implementation

Belgrade, April 2014

Structure of presentation

Section I:
Introduction to RMS

1. 2.

Introduction to RMS Regulatory framework for RMS

1.

Structure of money remunerations Structuring basic salaries Structuring allowances Structuring other personal expenses Structuring taxes and contributions Structuring bonuses

Section II:
Analysis of remuneration structure

2. 3. 4. 5. 6.

Section III:
Proposed principles for RMS in public sector

1. 2. 3.

Essentials of RMS development Managing basic salaries Managing bonuses

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section I

Belgrade, April 2014

Section I / part 1 Introduction to RSM

Overview of RMS

RMS is a complex system that affect both financial performance and quality of human resource management

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section I / part 1 Introduction to RSM

Short introduction to RMS

If implemented well, organization can benefit from RMS

What is Remuneration Management System (RMS)



System of managing amount and structure of all money remunerations (global sense) System of managing amount and structure of money remuneration for employees, i.e. salary mass (specific sense)

Basicly, RMS is methodologicaly approach made to resolve 2 critical business goals:



To improve satisfaction of employees To improve efficiency of organization

What are the benefits:



Better motivation of employees Better HR management (incl. career management) Improved cost efficiency

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section I / part 2 Regulatory framework

Regulatory framework for RMS

RMS is regulated system

Constitution and laws

Decrees

Collective Agreements

Other

GENERAL Constitution of the Republic of Serbia Labor Law Law on Pension and Disability Insurance Law on Tax Contributions for Pension and Disability Insurance for Particular Categories of Insurant Employment and Unemployment Insurance Law STATE INSTITUTIONS Law on Salaries in Government Agencies and Public Services OTHER LAWS

Various decrees made by Serbian Government

General Collective Agreement Specific Collective Agreement Individual Collective Agreement

Employment contracts Managerial employment contracts Rules on HR management Other specific legislative

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section I / part 2 Regulatory framework

Framework for defining RMS

with significant space for adoption and flexibility

Structure of money compensation (remuneration)

Precisely defined

Payroll deadlines Rates and basis for taxes and contributions Obligations for insurance and other allowances

Limits for various allowances within Labor Law

Only limits defined

Limits for other personal expenses within Labor Law Limits for bonuses within Collective Agreements

Calculation of basic salaries (incl. structure of coefficients)

Not strictly defined

Bonus schemes and evaluation principles Management of variable part of salaries

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II

Belgrade, April 2014

Section II / part 1 Structure of remuneration packages

Structure of money remunerations basics


Money remuneration packages can be structured in 3 ways

Money remuneration packages consists of 5 elements: basic salary, allowances, other personal expenses, taxes and contributions, and bonuses There are 3 types of structuring:
Net / gross Fixed / variable Fixed Direct / indirect

Basic salary

Basic salary

Basic salary
Direct Page 9 Indirect

Allowances

Taxes and contributions

Other personal expenses

Bonuses

Other

Taxes and contributions

Other personal expenses

Variable

Other personal expenses

Net

Allowances

Allowances

Taxes and contributions

Bonuses

Bonuses

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

Section II / part 2 Structuring basic salaries

Structuring basic salaries

Basic salaries can be based on coefficients (fixed model) and discretion of employer (negotiable model)

Basic salaries are the main part of total remuneration package for employees. Consequently, structuring of basic salaries must rely on RSM principles There are 2 models for structuring of basic salaries:

Fixed basic salaries, determined by system of coefficients Negotiable basic salaries, determines by negotiations

In both cases, basis salary is calculated as a product of: a) number of coefficients, and b) value of one coefficient

In fixed model, it is calculated directly In negotiable model, it is calculated indirectly, through flexible calculation of number of coefficients

At the moment, government bodies use fixed model of structuring of basic salaries

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 2 Structuring basic salaries

Structuring basic salaries illustration

Coefficients and its values are two building blocks of basic salaries

Basic salary

Number of coefficients

Value of one coefficient

Determined by: a) system of coefficients (payment groups), and b) negotiation results In ALIMS there are 16 payment groups at the moment, with no payment sub-groups In negotiation model basic salary and value of one coefficient are known so, we are calculating number of coefficients indirectly (basic salary / value of coefficient)

Determined by: a) management attitudes, and b) collective negotiations Basically, it is used for indexation of the real salaries and annual salary increase for all employees

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 3 Structuring allowances

Structuring allowances

Allowances are strictly defined by law, so it can not be managed directly

Allowances refers to different types of bounties related to gained right from the employment as well as to other indemnifications related to wages Basically, management of allowances is limited because of 2 main reasons:

For the most parts of allowances limits are strictly defined by law Level and structure of all allowances is regulated by setting up the wage system in organization. It can not be changed in short term.

All allowances are comprised of 2 parts:



Salary increments Salary indemnifications (basic and other indemnifications)

For tax purposes, all allowances are equalized with salaries, which means that they have same tax treatment as salaries

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 3 Structuring allowances

Structuring allowances illustration

There are 2 types of allowances salary increments & salary indemnifications

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 4 Structuring other personal expenses

Structuring other personal expenses

Other expenses depend on employers will and are tax free

Other personal expenses refers to money paid to employees related to various indemnifications and aid by employer Other personal expenses are not linked with salaries and employers are not obliged to pay these amount to employees Even employer is free to calculate these expenses, management of other personal expenses is limited mainly due to limits defined by usual (standard) business practice All other personal expenses are comprised of 2 parts:

Cost reimbursements Other receipts

Oppositely to allowances, other personal expenses are not included in employment tax basis (tax free expenses)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 4 Structuring other personal expenses

Structuring other personal expenses illustration


There are 2 types of other personal expenses cost reimbursements and other receips

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 5 Structuring taxes and contributions

Structuring taxes & contributions

Taxes & contributions are distributed between employer and employee

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 6 Structuring bonuses

Structuring bonuses

Bonus management is a most reliable instrument for motivation of employees and their evaluation

Bonuses represents part of the money remuneration directly related to quality of work and motivation of employees, as well as teams that employees are involved in As such, managing bonuses is one of the most reliable instrument for stimulations (motivation) of employees and key precondition for successful motivation and effective evaluation Following key issues should be considered, in order to enforce efficient bonus policy:

Which basis shall we use? In which time intervals shall we evaluate and reward employees? Which bonus spread shall we use? Should we use negative stimulations?

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section II / part 6 Structuring bonuses

Structuring bonuses - illustration

There are 2 questions:: (1) how to determine basis and (2) how to determine % of stimulation

Bonuses and stimulations

Basis

% of stimulation

Determined by existing wage system defined within Specific Collective Agreement from 2005 Key dilemmas:

Determined by actual Specific Collective Agreement from 2005 According to this:

Basic salary is used


as a basis

What to use as a
basis (basic, net or gross salary)?

Amount (monthly
or average) is not precisely defined

Which amount to
use (single month, yearly average, etc.)?

Limits can be +20% or more

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III

Belgrade, April 2014

Section III / part 1 Essentials of RMS development in ALIMS

Basic requirements & criteria for RMS development


RMS management is based on principles

Basic requirements for RMS development:



Justness, in order to establish socially responsible management system Transparent & clear, in order to be accessible and controlled by employees Well structured & coherent, in order to be easy understandable Flexible, in order to facilitate employees and organizational development Integrated in management information system (MIS)

RMS should materialize (basic criteria for RMS development):



level of responsibility and relevancy in business process streams (hierarchy) acquired degree of formal and additional education (education) cumulated experience, expertise and know-how (experience) working conditions special working requirements (working environment) contribution to organizational results (results) and other personal contributions and characteristics (other criteria)

Beside this, RMS should be suitable for remuneration of special structures of employees in public sector (managers, assessors, etc.)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 1 Essentials of RMS development in ALIMS

RSM in practice

What can be managed? (1)Basic salaries (2) Bonuses and incentives

Unmanageable

Not applicable

Unmanageable

Limited possibilities

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / Part 2

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Managing basic salaries framework

Management of basic salaries is based on management of coefficient number

Basic salary

Number of coefficients

Value of one coefficient

As an essence of basic salary system, it is made to reflect differences among employees status and their performances Consequently, it is best instrument for managing basic salaries in short and long term
Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

Determined by Minimum Basic Salary Agreement Consequently, it can not be used as an instrument for managing basic salaries in short term

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Section III / part 2 Managing basic salaries

Models for managing basic salaries

4 models of managing basic salaries: (1) Arbirtrary model (2) 1-line payment system (3) 2-line payment system (4) Mixed model

Criteria

Arbitrary model High Questionable Low Low Negotiable Not defined Average SMEs

Structured model 1-line payment system Low Average Average High Systematically Strictly defined High 2-lines payment system Average High High High Systematically Strictly defined High

Mixed model High High High Average Mixed Strictly defined High

Flexibility Justness Transparency & clearness Structure & coherence

Determination of single salary Criteria for salary classifying


Integration in MIS Recommended for

Medium and big enterprises and public sector

Notes: green color refers to good practice, red color refers to bad practice

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Mixed model an introduction

Mixed model integrates all adventages of other models

There are 2 main organizational requirements from the new system:



Development of the logical system applicable to all employees Capability of the system to recruit and keep at job leading managers and experts

Mixed model represents combination of two systems:



Core module: 2-lines payment system (payment groups / payment levels) Extended module: negotiation system

Parameter

Standardized system

Negotiation system

Value of coefficient Number of coefficients Salary level Recommended for

Pre-determined & unified Determined Adapted All other employees Adapted Determined Key managers and experts

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Mixed model an overview (2-lines mixed payment group system)


Mixed model allows all types of employees development
Primary level of classifying (status oriented) Secondary level of classifying (personal development oriented)

Rate 1

Rate 2

Rate 3

Rate 4

Rate 5

..

Rate n

Horizontal development Group I Group II Group III Group IV Vertical development Group V .. Group n Hybrid development

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

2-lines payment system illustration

20,0

Number of coefficients

Overlapping is a significant characteristic of 2-lines payment system

Lev el 1 ..... 16,0

Lev el 2 Lev el "n"

Lev el 3

From 10 to 17.49

From 7 to 12.24

12,0
From 5 to 8.75 From 3.8 to 6.65 From 3 to 5.25

8,0

4,0

OVERLAPPING

0,0

Group I

Group II

Group III

.....

Group "n"

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Primary classification overview

Primary classification refers to definition of payment groups (reflects vertical development)

Used for:

Determining employees position in the organizational structure (status determining) Determining vertical improvement of employees

Two basic criteria for primary classification:



Hierarchical position Relevance in main business process streams

Indirectly, key parameters for determining primary classification are:



Education level Working experience (cumulated know-how) Profile and skills

Basically, higher level of responsibility (LoR) and job complexity (JC) is directly related to upper payment group

Primary classification = classification into payment groups Payment group = f (LoR, JC)
Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Primary classification example

For example, it can be 7 payment groups

Payment group Group I

Name of the group Lower executives

Examples

Coefficient spread

Driver, Housekeeper, Courier, Laundry

1.0 4.0

Group II

Higher executives

Technician, Accountant, Help Desk

3.0 6.0

Group III

Associates

HR Expert, System Administrator

5.0 7.5

Group IV

Lower management

Team leaders, Heads of lower units

6.0 9.0

Group V

Project managers Middle management & leading experts Top management

eCTD Project Manager

8.0 10.5 10.5 13.0 (+ negotiable salary) 13.0 16.0 (+ negotiable salary)

Group VI

Heads of upper units, leading assessors

Group VII

Director, Executive Directors, advisors

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Section III / part 2 Managing basic salaries

Secondary classification - overview

Secondary classification refers to payment level (reflects horizontal development)

Used to:

Reflect differences among employees within single payment group Reflect horizontal employees development

Within single payment group, some significant differences among employees can arise, due to:

Various working experience (years of service criteria 1) YoS Various levels of qualifications (education level criteria 2) - EdL Various professional improvement (additional education criteria 3) AdEd Various levels of cumulated know-how (core expertise level criteria 4) - CEx Various personal characteristics (profiles and skills criteria 5) P&S

Personal development is reflected through improvement in each above defined criteria

Secondary classification = classification into payment levels (weighted system) Payment level = weighted f (YoS, EdL, AdEd, CEx, R&S)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Secondary classification example

Secondary classification is methodologyoriented

Criteria Criteria 1 Criteria 2 Criteria 3 Criteria 4 Criteria 5 Criteria 6 Total Working experience Qualification level Professional improvement Cumulated know-how Personal characteristics Personal characteristics

Parameter Years of service Educational level Additional education Core expertise level Skills Profile

Weight 25% 25% 10% 25% 10% 5%

Measured result 25 75 75 100 100 50

Weighted result 6.25 18.75 7.5 25 10 2.5 70

Parameter Weighted results spread Number of coefficients (payment group IV)

Level 1 0 15 5.5

Level 2 15 25 5.8

Level 3 25 40 6.0

Level 4 40 55 6.2

Level 5 55 65 6.4

Level 6 65 80 6.6

Level 7 80 90 6.8

Level 8 90 100 7.0

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 2 Managing basic salaries

Process of implementation

Implementation in 5 steps

Step 1: defining payment groups


Defining criteria Defining spreads 1st level of classifying

Step 2: defining payment levels


Defining criteria Defining spreads 2nd level of classifying

Step 3: defining coefficient value

Step 4: defining negotiable salaries

Step 5: adaptation to all employees

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / Part 3

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Section III / part 3 Managing bonuses

Stimulations an overwiew

Managing bonuses is one of the critical management activities

Rewarding is indirect and objective. Rewarding depends on evaluation results (performance evaluation). It means that stracture and amount of bonus depends on: (a) evaluation results and (b) intention of management to motivate employees Implementation of bonus system has two goals:

To reward employees, depending on results To motivate employees to improve performances

Subject of evaluation: personal characteristics of employees, employees behaviour, employees results etc. Types of stimulations

According to nature

Ordinary stimulations (short-term bonuses, annual bonus, group stimulations etc) Extraordinary stimulations (for significant improvement, special types of rewarding etc)

Quartal stimulations Annual stimulations Extraordinary stimulations of managers Group stimulations Stimulations for significant improvements Special stimulations (for top managers, for experts etc)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Rewarding system framework

Managing bonuses is a link between evaluation and improvement of employees

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Introduction to evaluation

Evaluation is highly significant and has multiple management use

What is the evaluation:


Evaluation is a process of assessment of employees contribution to achieving of organizational goals in defined period of time. Three main parts: It is assessment process This process is oriented toward employees performances This process is time determined

What are the benefits:



Increase of motivation & employees development Better planning Better communication & convergence of goals Efficiency improvement

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Proposed types of evaluation

Evaluation can be classificated by 4 criteria

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Evaluation process

Implementation in 7 steps

Step 1: defining the model of evaluation Step 2: defining the evaluation parameters Step 3: selection of evaluators Step 4: defining timeframe for evaluation Step 5: defining the evaluation methods Step 6: realization of evaluation

Step 7: analyzing results

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 1: defining model

Step 1 defining appropriate model of evaluation

Parameter Name Form Frequency Coverage Indicators Criteria

Component 1 Quarterly evaluation Measurement Quarterly Individual & group Mostly performance based Mostly quantitative

Component 2 Yearly assessment Assessment Yearly Individual Mostly personality based Mostly qualitative

Component 3 Extraordinary evaluation Measurement & assessment Extraordinary Individual and/or group Performance and/or personality based Quantitative and/or qualitative Evaluation of extraordinary results of employees

Example form

Quarterly evaluations

Annual interview

Evaluation of special groups of employees (managers, experts) Evaluation of problematic employees

Key inputs

Quarterly evaluation appraisals

Results of quarterly evaluation Personal development plans

Details on extraordinary results Details on other key essentials Model for evaluation of extraordinary results

Models to be developed

Model for individual quarterly evaluation Model for group quarterly evaluation

Model for individual yearly evaluation

Model for evaluation of special groups of employees Model of evaluation of problematic employees

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 2: defining parameters

Step 2 defining right parameters for evaluation

Defining the parameters refers to selecting the indicators (1st step) and selecting the criteria (2nd step)
Indicators Used for
Performance oriented Personality oriented Measuring work results Measuring key dimensions of business efficiency Assessing personal characteristics Assessing personal behavior Related to Particular workplaces Particular business processes Individuals Teams Main characteristics Mostly quantitative Easy measurable Mostly qualitative Easy assessable

Criteria
Quantitative

Main characteristics Easy measurable KPI oriented Hardly measurable / easy assessable Important for personal development

Examples Respect the terms Contributions Learning speed Team work orientation Creativity Reliability

Mostly used for Measuring performances

Qualitative

Assessing personality

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 2: proposed weighted system

Step 3 defining appropriate weights

Criteria for evaluation Quantitative Work correctness & precision Respect the terms Contribution to results Independency in work Learning speed Qualitative Team work orientation Level of motivation Systematic work Reliability in work Creativity in work Total

Weight 20% 10% 10% 5% 5% 20% 10% 10% 5% 5% 100%

Measured result 5 4 4 3 3 3 3 5 4 3 37

Weighted result 1.00 0.40 0.40 0.15 0.15 0.60 0.30 0.50 0.20 0.15 3.85

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 3: selection of evaluators

Step 3 selection of evaluators

Evaluator

PROs Evaluation experience Good insight in goals and results Wider organizational picture Best insight in work details Participation Self-monitoring Various dimensions of evaluation Appraisals are stabile in time Focus on competences Maximum information for evaluation Appraisals are usable for employees professional improvement Development aspects Double control Focus on customer satisfaction High level of professionalism Objectivity

CONs Discontinuity in monitoring Focus on administrative aspects Subjectivity Discrepancy between managers and employees evaluation Subjectivity Appraisals distortion (protection of colleagues) Erosion of managers influence Stereotypes Mistrust after lower appraisals Predetermined appraisal Lack of information Hard to quantify and measure Lack of information Unnatural behavior of employees

Managers

Employees (self-evaluation)

Colleagues

Top management External partners External evaluators

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 3: proposed model (360)

Step 3 selection of evaluators (360 degrees principle)

Model of multiplied sources of evaluation (Model 360) - based on weighted evaluation from 3 lines:

Hierarchy line (formal authority and formal subordinated) Professional line (professional authority and professional subordinated) Process line (input and output process cooperators)

Note: distribution of weights can vary by each single employee and more then 6 colleagues can be involved in evaluation

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Section III / part 3 Managing bonuses

Step 4: defining timeframe

Step 4 defining the time (cycles and duration) of evaluation

Defining timeframe of evaluation refers to defining: a) cycles of evaluation and b) duration of each single evaluation It is recommended to make a difference between:

Evaluation in rewarding purposes (suitable for periodic assessment) Evaluation in purpose of career development of employees (suitable for occasional assessment)

Time cycles Monthly Quarterly Yearly

Monitoring High Average Average

Measurement Low High Low

Assessment Average Low High

Type of evaluation Monthly interviews Quarterly individual evaluation Quarterly group evaluation Yearly interviews (feedback int.) Evaluation of extraordinary results Evaluation of managers Career development evaluation

Occasionally

Low

Average

High

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 5: defining methods

Step 5 defining methods of evaluation

Defining methods are significant step in evaluation process and refers to:

Defining evaluation methods:


Objective evaluation method, mostly based on performance and focused on quantitative indicators Subjective evaluation method, mostly based on personality and focused on qualitative indicators

Defining evaluation techniques:


Employees ranking technique Comparing with descriptively defined standards Comparing with numerically defined standards

Defining evaluation instruments:


Hard instruments (direct evaluation, fulfilling questionnaires etc.) Soft instruments (interviews, interpersonal interaction, observation etc.)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Step 5: proposed methods

2 main methods are quarterly and yearly individual evaluation

Evaluation type

Evaluation method

Evaluation technique

Evaluation instrument

Quarterly individual evaluation

Objective method

Comparing with numerically defined standards

Exemplars for direct evaluation

Yearly individual evaluation

Subjective method

Comparing with descriptively defined standards (goals realization)

Yearly interview (feedback interview)

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Steps 6 & 7: realization of evaluation and analyzing results


Steps 6 & 7 are very important (implementation and control)

Realization of evaluation

In accordance with General Evaluation Plan (part of HR Annual Work Plan) Two main conditions for successful realization of evaluation:

Pre-condition all previous issues (model, parameters, evaluators, timeframe, methods) must be clarified Post-condition methodology of analyzing results and system of rewarding must be defined

Analyzing results

Analyzing results includes: a) assembling and classification of materials, b) processing and extracting results, and c) analysis of results and preparation for the next step (rewarding)

Some useful notes



In order to avoid errors in evaluations, evaluation system must be as much as possible precisely and objectively defined ALIMS should acquire modern IT tools, in order to successfully implement RMS in the real life Performing periodical (repetitive) evaluations, organization is cumulating experience and significantly improving its know-how, which enables it to improve evaluation system

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Linkages between evaluation and rewarding system


Evaluation and rewarding (bonuses) are closely linked and depend each other

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Evaluation and stimulation in practice

Example shows how it works

EVALUATOR Formal authority Formal subordinate Professional authority Professional subordinate Collaborator in process (input) Collaborator in process (output) TOTAL /AVERAGE STIMULATION

MARK 3 5 5 4 3 2 3,67

WEIGHT 30% 20% 15% 15% 10% 10% 100%

WEIGHTED MARK 0,90 1,00 0,75 0,60 0,30 0,20 3,75 10%

STIMULATION CRITERIA For mark between 0 and 1 For mark between 1 and 2 For mark between 2 and 3 For mark between 3 and 4 For mark between 4 and 5

% OF STIMULATION -20% -10% 0% 10% 20%

BASIS

E.g. basic salary

NOTE: All data are arbitrary and used exclusively for illustration

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Double overlapping after stimulation

System of bonuses allows firm to have double overlapping system

20,00 18,00 16,00

Coefficient overlapping 1:6

Subgroup 1 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 GROUP I GROUP II GROUP III GROUP ... GROUP "N" Subgroup 2 Subgroup 3 Subgroup Subgroup Subgroup "n"

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Structure of remuneration packages

Remuneration packages can vary in few ways

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Section III / part 3 Managing bonuses

Further steps

Further steps

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Contact

Address: evelijska 55, 11000 Belgrade Phone (fix): +381 11 240 50 22 Phone (cell): +381 62 227 045 E-mail (business): office@aventinpartners.com E-mail (personal): igor.lazarevic@aventinpartners.com Web: www.aventinpartners.com

Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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Igor Lazarevi, Aventin Partners Djevdjelijska 55, 11000 Belgrade; +381 62 227 045 www.aventinpartners.com; igor.lazarevic@aventinpartners.com

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