Reference Case Study on Compensation issues

M/s Aspire Silencers Limited,( ASL) Noida

Jasbir Singh, An Engineer from not so known Engineering Institute from Bhatinda, joined ASL
as Graduate Engineer based on recommendation from one of senior managers of the company.
.ASL was leading manufacturers of the Automobile silencers and was having a market share of
30 % in India. The overall turnover of the company was 2000 Crs and it had 2 units in Noida,
and Gwalior It had a profit of Rs 150 Crs in the year 2008-09.

Jasbir was quite happy with job as he was learning a lot .He felt charged to go to factory
everyday to work for his goals .But of late, he started feeling unhappy due to some of the
incidents given below

1. ASL informed him that he would get a CTC of Rs 2.8 lacs pa . But he was given a salary of
Rs 15000/- pm (Rs 1.8 lacs pa ). When asked, he was told about deductions due PF, ESI, and
superannuation, Gratuity Bonus, Medical Insurance, LTA and Bus Charges etc . He found that it
is barely giving him saving potential as his rent of Rs 5000 pm and fooding expenses of Rs
5000 /- consumed major portion of his salary.

1. The company had a Grade structure having 16 Grades as given in Annexure 1. An engineer
joined fresh from Delhi College of Engineering campus is taken in Grade 3 whereas he was
taken in Grade I . DCE fresher was drawing a salary of 4.0 lacs pa .It was told in the interview
that ASL recruit engineers from campus at higher salary and he should perform well to deserve
that salary . It would be considered after one year.

2. He met two other engineers who joined thru reference and they were still drawing 3 lacs pa
after 2 years of experience.,

3. .He found that his compensation had components which did not give him the benefit of using
it when he wants. The components of his salary are given in Annexure 1. He found that various
components mentioned did not allow him flexibility.

• LTA is given after one year of service.

• Superannuation amount can be taken only after leaving the company after serving for
5 years
• PF of 12% on basic salary takes away Rs 3000/- from his pocket.
• Medical Insurance for family costs him Rs 250 pm.
• Gratuity is paid at the end of 5 years on leaving the company.
• Bonus is paid only at the time of Deepawali.
• Bus Charges were very high
• HRA was not tax deductible as he could not produce receipt for the house rent. Land
lord did not give him the receipt.

4. The supervisors and supervisor staff were quite old. They were diploma holders with good
operational knowledge. They almost managed the entire production shop. The grade structure
as given in the Annexure 2 was in place for years. It was well protected due to DA per point of
raise every month. The annual performance linked increments were between Rs 125 to275 /-
per month for Excellent and 1.5 to those rated Very Good and 1 increment to those rated good
and half increment to those rated average. Nil increase to those who were rated poor. .He found
very difficult to get work done as they get more due to DA increase than annual increment given
by company. He once met the Personnel Manager informing him of the dissatisfaction of the
star supervisors with the annual increase given as they felt Rs 150 to Rs 200 pm increase is
very low. He was told that it is his duty to manage the supervisors and he should not entertain
any such grievances on salary front as they get Rs 500 to Rs 600 pm increase due to DA.

5. He found that supervisors in Production shop were very unhappy because they came to
know that HR supervisor with same experience and grade was getting Rs 2000/- pm more
than him and Accounts staff was getting Rs 1000/- more than him whereas he was producing
the goods for sales. HR was only maintaining attendance records and accounts keeps day
today transactions.

6. It was observed that many workers drawing more than supervisors due to annual
agreement related increase negotiated by Union apart from overtime salary ( One gets double
the basic salary during extra hours beyond 8 hrs of working ) . They were able to get overtime to
meet the increased targets.. (Annexure 3)

6. The turn over of the Middle level managers was about 25 % in 2008 , the company decided
to do market survey of the Automobile related companies in India. While it was number 2
in last survey done 3 years back, it has slipped to number 3 in the recent survey where
some good multinational companies were also included. The data of the market is given in
Annexure 4. .
7. The company is now on a major diversification plan and needs young critical talents with 0
to 2 years experience from MBA Institutes and outside to manage Marketing, Finance etc for
managing new Consumer goods business. Company has adequate funds to pay salaries
and attract MBAs from Tier II institutes. It was not able to decide where it should pitch itself
to attract the best MBAs and also ensure internal parity.
8. While it was struggling with its compensation policy, it decided to take some urgent remedial
action. A task force was set up which was assigned the responsibility of working out salary
structure in such a way that it retains the best talents and also ensures that the overall
wages bill does not exceed the 13% benchmark for the automobile Industry.

YOU are now required to analyze the case and list down compensation issues that need to be
addressed by the company.

Annexure 1 Officers Grade structure

Annexure 2 Grade structures of workers
Annexure 3; Grade structure of supervisors
Annexure 4 . Market data
 Annexure -1 Officers grade structure at ASL

Grad Designation Min Basic HRA Con Med LTA

e pm %of Basic Pm pa pa
1 Jr officer 5000- 40 800 3000 4000

2 Officer 7000 40 1000 4000 5000

3 Executive 40 1600 5000 6000

10000
4 Sr Executive 45 2000 6000 8000
12000
5 Asst Manager 15000 45 3000 8000 9000

6 Dy Manager 20000 45

7 Manager 25000 50

8 Sr Manager

9 Chief manager

10 Dy General manager

11 General Manager

12 Sr general Manager

13 Vice president

14 Sr Vice President

15 President

16 CEO
 Annexure 2. Supervisor Structure at ASL

sn Designation Basic DA(dearness HRA pm Conveyance

+increase Allowanc ) pm
yearly
1 Sr Superintendent 10000-250 6000 2000 1500
2 Superintendent 8500-225 6000 1900 1200
3 Sr Supervisor 7500-200 6000 1800 1100
4 Supervisor 6000-175 6000 1700 1000
5 Dy Supervisor 4500-150 6000 1600 900
6 Asst supervisor 3500-125 6000 1500 800
7 Trainee 6000- Nil Nil Nil

Annexure 3.. Workers structure at ASL

sn Designation Basic (pm ) – DA*/pm Average Agreement
increment in overtime Benefit
a year allowance pm
1 Expert 6000-70 6000 2000 3000
2 Highly skilled-II 5000-60 6000 1500
3 Highly skilled -1 4000-55 6000 1000 1400
4 Skilled –III 3500-50 6000 1300
5 Skilled II 3000-45 6000 1200
6 Skilled I 2500-40 6000 900 1100
7 Semi Skilled -3 2000-35 6000 1000
8 Semi Skilled -2 2000-30 6000 900
9 Semi Skilled -1 1800-25 6000 800 800
10 Unskilled -3 1800-20 6000 700
11 Unskilled-2 1700-15 6000 600
12 Unskilled -1 1500-10 6000 700 500
Trainee 5000
*DA is given based annual inflation linked to UNME or CPI @ 2/- per point increase

Annexure 4. Market Survey Report for Managers salary ( 6yrs exp)

factors Company a Company B Company C Company ASL
Location Ludhiana Chennai Mumbai Noida
Basic pm 25000/- 40000/- 45000/- 25000
Average CTC pa 10. lacs 12.0 lacs 14.5 lacs 11..0 lacs
Sales 2008 500 crs 600 Crs 1300 Crs 2000 crs
Wages /Sales % 14% 10% 14% 15%
Percentile 45 55 60 50

25th oct 2010 by vpswarup