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COMPENSATION
Akshay Nambiar
Roll No – 10
Exec-PGDM (13-14)
Objectives of Compensation
• International Compensation System is understood
as provision of monetary and nonmonetary rewards
including Base Salary, Benefits, Perquisites, long
and short term incentives in accordance with their
relative contribution to performance.
• Capacity to pay
▫ Cost constraints on the enterprise
• Competitive strategy
▫ If for eg., as part of the MNC competitive strategy, the IHRM
strategy is to be a mkt leader in employee compensation in order
to compete for the most competent candidates, then the levels of
compensation might well be higher than if the competitive
strategy is based on, say, the provision of secure employment.
• Organization culture
▫ It also influences the degree to which employees are
compensated on the basis of seniority, in contrast to
personal connections or performance
• Workforce
▫ Age, education level, qualifications and experience,
along with workforce tastes and preferences, and
labour relations factors such as nature of employment
relationship (level of TU involvement within MNCs)
will result in different international compensation
approaches
External Variables influencing International
Compensation Strategy:
• Competitors’ strategies
▫ Even if the MNC is not seeking to be a mkt leader in international
compensation, it generally cannot afford to fall behind mkt rates
across its locations, as it will risk losing valuable employees to
competitors
Elements
• Base pay- are the wages or Salaries. Employee receives 90%
to 100% of Cash compensation and 2/3rd of total
compensation from Base pay.
No of Levels
Structure of Levels
Pricing strategies
Adjustment method
Weighing of individual performance
Organization performance or Variable pay
2 Role in Total Compensation strategy
Structures
Measures
Targets
Tolerance for pay at Risk
Risk reward rates
Use of Non monetary rewards
Individual Performance recognition
3 Fringe Benefits
Coverage
Cost
Shift differentials
Attendance policies
Role of Seniority
5 Employee Inputs and Preferences
Methods
Trust in Management
6 Business and Operating Units
Operations and manufacturing Strategy
Sales development strategy
% of Compensation costs to total
product/service costs
% of Compensation costs to controllable
product/service cost
Existing markets/products
Potential markets/products
Anticipated volume
Taxes
Salary
Incentives Int.
Benefits
Comp.
11%
33%
17%
18%
21%
Calculation of Retention Bonus
2%
8%
Flat Dollar
Amount
Percent of Baase
Pay
30%
Others
60%
Formula based
on Time
Allowances
Allowance is an inevitable feature of International
Compensation.