UNIT-2

EXECUTIVE COMPENSATION OR MANAGERIAL REMUNERATION

Executive compensation is also (managerial remuneration) is now top executive business

corporation are paid. This indeed basic salary, bonus, share, other company benefit etc….

The board of director is the controlling organization of the company, so responsibility for the
levels of paid for all company employees is ultimately there. Pay is just one element in the wide
range of painting and resource allocation decision by the hands of firm. Other include investment
decision which supplier to use, which, how distribute the capital and development to share holder
and so on.

EXECUTIVE REMUNERATION AS CERTAIN UNIQUE FEATURE

Executive remuneration as certain unique feature is as flows

1. Executive remuneration can not be compared with wage and salary scams
mend for other employee in the organization.
2. Executive is denied the privilege of having unions. It is the worker workers
who resort to slogan shouting and if the succeed in there effects executive to benefit.
3. Secrecy in respect of executive remuneration because more two executive in
the private sector in the same grade not receive the same payment. Remuneration depend
upon the such factor, such as competency length of service and loyalty to founder.
4. Executive pay is supposed to be based on individual performance measure but
rather of organization performance.
5. Executive remuneration is subject statutory ceiling. These ceiling do not apply
to private limited company.

COMPONENT OF EXECUTIVE REMUNERATION

1. Salary.

2. Bonus.

3. Long term incentive.

4. Perquisites.

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1. SALARY: - Salary is the first compensation for executive remuneration. Salary is supposed to
be determining through job evaluation and serve as a basis for other type of benefit. The amounts
of salary managers are paid generally depend on the value of the person work to the organization
and how well the person is discharging his responsibility. Basic trend in resent time is to reduce
the relative importance of base salary and to boost the impotent of incentive.

2. BONUS: - Most firms have annual bonus plane in act motivating the shoot term performance
of there managers and executive. Unlike performance, shoot term bonus can easily result in (+)
and (-) adjustment of 25% or more in total pay. There are 3 basic issues to be considered while
awarding bonus.

(A) ELIGIBILITY: - Bonus eligibility is usually brought covering both top and lower level
executive and is mainly decision in one of the two ways.

(I) Compensation decision on the basis of job level, of job title how will be eligible for short
term bonus.

(II) Some company decision eligible on a combination of factor including job level/title base
salary level etc…

(B) FUND SIZE: - Next a decision must be make regarding the fund size. The total amount of
bonus money will be available. There are no hard and fast rules and some companies do not have
a formula for developing the bonus fund, they make the decision on a totally discretionary.

(C) DECIDING INDIVIDUAL AWARDS: - The third issues are deciding a individual awards
to be paid. Typically a target bonus a set for each eligible position and adjustment are there made
for greater of less then targeted performance and a maximum amount must be set.

3. LONG TERM INCENTIVE: - Long term incentive aim to motivate and reward manager for
the firm long term growth, prospective and to inject a long term prospective into the executive
decisions. Long term incentive is also be used encourage executive to stay with the company by
giving them opportunity to encourage capital.

Ex- company stock that can cash be no. of year.

4. PERQUISITES: - Perquisites constitute a major source of income for executive. In addition

to the normally to award work lick PF, gratuity enjoyment the fallowing benefit also.

(I) Medical car

(II) Legal, tax, financial canceling.

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(III) Company recreational area.

(IV) Facility for entertaining customer and anctining out.

(V) Cost of education and training of executive, scholarship for children and allowance for book
and magazine.

(VI) Free well furnished accommodation, conveyances, service.

(VII) Vacation and travel.

(VIII) Membership in clubs etc….

WAGE DIFFERENTIALS

Different person get different wage depending on the nature of job, skill of the person, region,
employers ability to pay, demand and supply of the labor and other factors, thus the relative
difference in wage levels is called wage differentials. Wage differentials means, differences or
disparities in wages. Wages differ in different employment or occupation industrial and location
and also between person in same employment or grad.

TYPES OF WAGE DIFFERENTIALS: -

1. Occupational wage differentials.

2. Inter firm wage differences.

3. Inter area/ regional wage differences.

4. Inter industry wage differences.

5. Inter personal wage difference.

6. Sectored wage differences.

1. OCCUPATIONAL WAGE DIFFERENTIAL: - Occupational in an organization widely

differ from one anther in term of skilled required and the extent of responsibility. Accordingly
wages are varying from occupational to occupational. Such difference in occupational induced
worker to under way from more challenging job, encourage worker to develop their skill by way
of education and training.

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2. INTER FIRM WAGE DIFFERENTIALS: - There are the wage differentials of worker in
different plane in same area and competition occupation factor like different firms imperfections
in quality of labor employee by different firm’s imperfection in the labor market and differences
in the efficiency of equipotent and supervision result in inter firm wage differentials. Other
relative factors are differences in managerial efficiency, technology, financial capacity
availability of raw material also account for differences in wages among firms.

3. INTER AREA/ REGIONAL WAGE DIFFERENTIALS: - The wage differs not only
among occupations but they also differ in case of worker working in the same occupation in
different geographical reasons. These differences are the result of working condition, prevalent
in different reasons of the country.

Ex- central government employees serving in remote and disturb area north eastern states of
India are paid additional remuneration in the form of remote area allowances some time such
differences are used to attract people to serve in particular region.

4. INTER INDUSTRY WAGE DIFFERENTAILS: - This differential in wages areas in case

of workers working in same occupation and in the same area but in different industrials. These
differences are the result of many/varying skill requirements, level of unionization, nature of
product market, ability to pay stage of development of industry etc...

5. INTERPERSONAL WAGE DIFFERENTIALS: - These differences arise of the differences

in the personal characteristics of workers working in same plant and same occupation.

Ex - Base on qualification and explanation.

Ex- In some cases women workers are paid less then the mail worker for the same job (muscular
work).

USES OF WAGE DIFFERENTIALS

1. To induces employees to change the job.

2. To motivate employee to learn and acquire new skills.

3. To enabling to shift from declining industry to new industry.

4. To enable employee to adjust/accept more responsible position.

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FACTORS INFLUENCING WAGE DIFFERENTIALS

1. Organizations ability to pay.

2. Demand and supply of labor.

3. Prevailing market rate.

4. Living wage.

5. The cost of living.

6. Productivity.

7. Tread union.

8. Job requirements.

BENCH MARKING

It is the process the determining who is the very best, who set the standard and what the standard
is, it is a method for identifying and improve best practices in order to improve performance.

In other words bench marking is the process of learning, adapting and measuring outstanding
practices and process from any organization to improve performance.

DEFINITION: - “Bench marking is a process used in management in which organizations

evaluate various aspects of their processes in relation to best practice usually with in their own
sector”

NEED OF BENCH MARKING

1. Identify opportunities to improve performance.

2. Learn from other experiences.

3. Uncover strength in one’s own organization.

4. Batter prioritizes and allocates resources.

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ADVANTAGES

1. Bench marking open organizations to new methods, idea, and tool to improve their
performance/effectiveness.

2. It is a powerful management tool as it outcome within “paradigm blindness” that more of

thinking (The way we do it is the best because this is the way we have always done it).

3. It help to demonstration other method of solving problem then the one currently employee and
demonstrating that they work because they are being used by others.

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 How to bridge this Benchmarking

Where we want to
Where we are
go

Environme
nt

IT industry

Firm
satyam/wepro
Firm
(satayam/wipro)

Laws/acts

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 1. What to bench mark?
2. How to measure?
3. Haw the competitor do the work?

BANCH MARKING PROCESS

Planning

Improving practice Collecting data

Analysis

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TYPES OF BENCH MARKING

1. Process bench marking: - The initiating firm focuses its observation and investigation of
business of business process with a goal of identification and observing the best practices from
one or more bench mark firm.

2. Financial bench marking: - Performing a financial analysis and comparing the result in an
effort to assess your overall compensations.

3. Performance bench marking: - Allows the initiator firm to assess thus competitive position by
comparing product and services with those of target firms.

4. Product bench marking: - the process of designing new product or upgrades to current one.

5. Functional bench marking: - a company will focus it benchmarking on a single function in

other to improve the operation of that particular function.

6. Strategic bench marking: - this involves how other complete by identify the strategies they
apply.

DEFINITION: - Bench marking is the continuous process of measuring products service and
process agents those of industries leader for the tuff competitor this result in a search for best
practices that will leave to superior performance”

“Benchmarking is the process of consciously searching of the best

method practices and process adopting their good features and implementing them to “best of
best”. Bench marking is used both for comparison of performance as well as you understand for
improvement.

DIAGNOSIS OF EMPLOYEES POTENTIAL

In order to mange a firm or a company more effectively it is often vital to diagnosis the potential
of a selective employee group. This will help to take the right decisions in the following areas-

1. Employee promotion and carrier parts.

2. Restructuring of department.

3. Choosing the most suitable.

4. Choosing the most suitable training scheme.

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METHOD OF EXAMINATION

Different method for the examination of diagnosis for the examination of diagnosis of
employee’s potential commonly used are-

1. Psychological test.

2. Questionnaire.

3. Group test.

4. The department interviews.

SCOPE OF TEST EXAMINATION

The purpose of the examination is to diagnosis various abilities, skill and psychological feature.
Following are the aspects covered-

1. General intelligence.

2. Practical problem solving scams.

3. Flexibility and creativity in thinking.

4. Social skills.

5. Reaction to stress.

6. Dealing with stressful situation.

7. Spontaneity.

8. Management style.

9. Behavior in task group.

10. Leadership abilities.

11. Negotiating skills.

12. Managerial decision making.

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13. Self control.

14. Emotional adoption.

15. Drive for power/drive for achievement.

16. Assertiveness.

17. Inalination to manipulation other people.

ORGANIZATIONAL DIAGNOSIS

Diagnosis of the organization is a process where you scrutinize what is going on in your
organization and interpret the finding with the help theory of a model.

Successful business executives constantly monitor financial operational and customer

satisfaction matrices they take appropriate satisfaction, matrices in order to guale the
performance of there business base on this matrix they take appropriate action to anticipate and
correct problem before they negatively affect business performance.

REASONS FOR ORGANIZATION DIAGNOSIS

1. Determine the organization readiness for a planned change.

2. Establishment a base line for understanding to correct current culture versus what needed to
excel.

3. Identify way to improve customer satisfaction.

4. Improving the alignment of organization to strategic objective.

COMMITMENT

Organization commitment refers to

1. An employee loyalty to the organization.

2. Wiliness to exert, on behalf of the organization.

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3. Degree of congruency with the organization.

4. Desired to maintain membership.

Professional commitment refers to a person loyalty to the profession and

willingness to exert him in to uphold its values and goals.

IMPORTANT OF ORGANIZATION COMMITMENT

The employee who process height levels of organization commitment are

1. Poses high level of performance and task completion.

2. Require less supervision.

3. Highly responsible.

4. Production and satisfy.

INTERNAL EXTERNAL EQUITY IN COMPENSATION SYSTEM

Internal equity

A B

Job w x y z Job w x y z

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External equity

Point system Factor

comparison

Internal equity

Job ranking Job

classification

Organization fairness Market rate

External equity

Industry standard Competitor office

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Ones the job analysis has been done organization need to decide upon the pay structures. Pay structure
refers to the process of setting up the pay for the 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 structure pay structure are the strong determinants of
employee value in the organization. Thus it helps in providing for to fair treatment to all employees.

INTERNAL EQUITY

In deles with the perceived worth of a job related to the other job in the organization all employ
camper there job to other job in within the organization. The internal equity method thus under takes
examining the job potion in the organization hierarchy. The aim at balancing the compensation
provided to its senior and junior level in hierarchy. Generally skill, efforts, responsibilities, working
condition are camper in order to determine the value of there job relative to other job like wise mgmt.
determine. The worth or value a one job in relation to other job for the purpose pay programs.
Maintaining appropriate pay relative to value or worth is achieving internal equity. The method uses
are job ranking, job classification, factor comparison and point system.

 Job rankling method

 Job classification
 Factor comparing
 Factor compensation.
EXTERNAL EQUITY

External equity deals with the issues of management rates foe jobs and employee goal should be
pay what is necessary to attract the trend and motivate a sufficient number of qualified employees.
This requires a base pay program that pays competitively.

Employee also compare there jobs and pay to the job and pay in other organization.
Generally employees consider much more then base pay in determining external equity depending on
the individual employee, serious consideration may be to employee’s benefits, job security, physical
work environment committing distance, opportunity for advancement etc… Thus organization
formulates their compensation strategy or industry standards. They set the prevailing compensation
packages in the market. This entails for fair treatment to the employer.

Organization also opt to offer higher compensation package to attract on retain the
best talent in their organization.

DEVELOPING SALARY STRUCTURE

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The 9th criteria for developing a compensation plane

1. Internal v/s external equity: - Will be compensation plane be perceived as fair within the or
will it be perceived as fair relative to what other employee are paying for the same type of labor.

2. Fixed v/s variable pay: - Will compensation be paid monthly on fixed basis through base
salary or will fluctuation depending on such pre-established criteria as performance and company
profit.

3. Performance v/s membership: - Will compensation emphasize on performance of individual

or group contribution or will it emphasize membership in the organization.

4. Job v/s individual pay: - Will compensation the based on how the company values a
particular or will it the based on how much knowledge and skill an employee brings to that job.

5. Egalitarianism v/s elitism: - Will the compensation plays most employees under the same
compensation system (egalitarianism) or will it establish deferent plane by organizational level
and/or employee group (elitism).

6. Below market v/s above market compensation: - Will employee the compensation and
below the market level and or it prevailing market level.

7. Monitory v/s secret pay: - Will the compensation plan emphasize wills the motivation
employee through monetary rewards like pay and stock option of will it stress on non-monetary
rewards such as interesting words and job security.

8. Open v/s secret pay: - Will employee .have assist to information about workers compensation
level and haw compensation level and haw compensation decision are made ( open system) will
this knowledge be withheld from employees (secret pay).

9. Centralization v/s decentralization pay division: - Will compensation decision be made in a

type control central location or will they be delegated the manager of the firm unit.

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ELEMENTS OF COMPENSATION

ELEMENTS

Direct compensation Indirect compensation

1. Leave policy.

1. Basic salary. 2. Over time.

2. House rent allowance (HRA). 3. Hospitalization.

3. Conveyance. 4. Insurance.

4. Leave travel allowances. 5. Leave travel.

5. Medical reimbursement. 6. Retirement benefit.

6. Bonus. 7. Flexible timing.

7. Special.

Direct compensation

Direct compensation refers to the monetary benefit offered and provide to employee in written
on the service they provide to the organization. These are given at regular interval at a definite
time.

1. Basic salary: - Salary is the amount received by an employee in liell of the work done by him
or her for a certain period say a day, a week, a month, etc… It is the money and employee
received from employer for rendering service.

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2. House rent allowance: - Organization either provides accommodation to its employee. How
are from different state or country or the provide HRA to its employees. This is done to provide
them social security and motivate them to work.

3. Conveyance: - Organization provide for cab facilities to there employees few organization also
provide vehicles and petrol allowance to there employee to motivate them.

4. Leave travel allowances: - these allowances are provided to retain the best talent in the
organization. The employees are given allowance to visit any place they wish whit there families.
The allowances are scaled as per the position of the employee in the organization.

5. Medical re-imbursement: - organization also looks after the health condition of there
employee. The employees are provided with medi-claims for them and family member. These
medi-claims include health insurance and treatment bill reimbursement.

6. Bonus: - Bonus is paid to employees during festive season to motivate them and provide them
social security the bonus amount usually amounts to one month salary of the employee.

7. Special allowances: - Special allowances such as mobile allowances, meals commit ion, travel
expenses reduce interest loan club membership etc… are provided to the employees.

Indirect Competition

I.C. refers to non monetary benefits offered are provided to employees in view of services
provided by them to the organization.

1. Leave Policy: - It is right of employee to get adequate number of leaves will working with the
organization. The organization provide for leaves such as

(A) Casual leave.

(B) Medical leaves.

(C) Maternity leaves etc….

2. Over time policy: - employee should be provide with educate allowance and facility during
there over time, if they happened to do so such as transport facilities over time pay etc…

3. Hospitalization: - The employee should be provide to get there regular checkup usually at an
interval of year. Even there depended should be eligible for medical that provide them
economical and social security.

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4. Insurance: - Organization also provide for accidental insurance for employees. This gives
them emotional security and they feel them self valued in the organi8zation.

5. Retirement benefits: - Organization provide for pension plane and other benefits for there
employees which benefits them after they retive from the organization at the prescribed age.

6. Holiday home: - Organization provide for holidays home and guest home for there employee
at different location. This holiday homes are usually located in hill station and other holiday
stops.

7. Flexible timing: - organization provide for flexible timing to the employee who can not come
to work during normal shifts due to there personal problem and valid reasons.

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