Compensation and Rewards 13 th Dec 2011

1. Good Evening & Warm Welcome Compensation and Rewards 13th Dec 2011

2. Basic Goals of a Compensation System Attract Employees Retain Employees Motivate Employees Compliance with Pay Laws Administrative Simplicity Cost Effective Compensation Goals and Strategy

3. Deciding on Compensation Models • Grade Structures are the basic underlying element of most compensation schemes. • No common approach for setting a grade structure – • Typically: • The salary range is +/- 15 to 25 % of the midpoint • The salary midpoint of a grade is typically 20 to 30% higher than the preceding grade’s salary midpoint. • The maximum of a grade may be higher than the minimum of the next higher grade.

4. Companies also use • Broad banding:Sub category of grades since it suggests using very wide grades to create more flexible system • Individual/market pay structure – Case by case based on specific market value of that job or individual • Pay for points: instead of using grades to allocate jobs into categories, companies may build a pay range for specific points rather than using grades.

5. Analyse present compensation structure Formulate salary policies Select compensation system Develop implementation plan Evaluate and monitor Model for Compensation Systems

6. Conduct job analysis Identify compensable factors Develop a job hierarchy Construct job grades Carry out compensation survey Establish final pay policy Job- Based compensation plan route

7. Strategic Choices can Strengthen or Dilute Organization Culture Ex. What choices would support a Culture of High Employee Involvement and Empowerment? Ex. What choices would support a culture of Security and employee Loyalty Strategic Choices should Support HumanResource and Business Strategies Ex. What choices would support an HR strategy of Promote from Within? Ex. What choices would support a Business strategy of Innovation and Growth? Impact of Strategic Pay Choices on the Organization

8. Direct Compensation Indirect Compensation  Types of Compensation Management

9. Direct Compensation

10. Indirect Compensation

11. Four fundamental reward categories make up the typical compensation system: Base Salary Pay Incentives Benefits & Perquisites Non Financial Rewards Base Salaries Benefits & Perquisites Total Rewards Pay Incentives Non Financial Rewards Compensation Systems Intrinsic Rewards – centers on the work itself Extrinsic: Praise, recognition, time off and other rewards given to the employee by peers or superiors. David Balking; Ingram, LaForge; Avilia, Schwenker; Jr, Williams

12. Being Competitive When is it okay to pay above competitive? Check your company’s performance Losing mission critical employees or prospects Remember, base salary decisions are difficult to undo What if you can’t afford competitive base salaries? This is where a bonus plan can make a difference Do you have any kind of equity compensation to offer? What about other rewards? Quality-of-life: flexi time or every alternate Saturday off Career development: training or education allowance Corporate culture and work atmosphere Base Salary

13. Reward Systems in most cases should be consistent with other HR systems. The Reward System is a key driver of: HR Strategy Business Strategy Organization Culture Strategic Reward System

14. Skill-based pay Training Culture Rewards Overtime pay rules in contract Merit pay reinforces performance culture Labor Relations Performance Management Employment Merit Pay Sign-on Bonus Strategic Reward Systems: Need for Consistency with Other HR Systems

15. Pay and Performance should be Loosely Coupled – this gives managers more flexibility to make changes when new situations arise. It is Necessary to Nurture the Belief that Performance Makes a Difference – there are important cultural values that are supported with pay for performance. Abandoning pay for performance may be more problematic than having an imperfect pay system. Pay for Performance systems should be designed to fit each firm’s unique situation – imitation of other firm’s plans should be avoided. Some Suggestions for More Effective Pay For Performance Plans

16. Productivity Achievements & accomplishments Acquisition of new skills Longevity with the firm How to administer incentive pay A. Add it to the regular paycheck Once acquired…forever paid…never is “earned” again Incentive pay mixed with base pay…workers lose motivation B. Pay it all out as a lump-sum at one time Large cash outflows are difficult for the firm to manage Opposed by unions because annual wages don’t grow Use of Incentive Pay to Reward

17. A Well-designed Annual Incentive Plan Should Meet Several Objectives: Allow employees to benefit financially when company meets or exceeds its short-term goals Support and reinforce the financial planning and goal setting process Strengthen and support the individual performance management system Use company’s cash wisely Not a fixed cost like base salaries Provides cash awards only when company performs well Limits cash payments when company does not perform well Annual Incentives

18. Example: Annual Incentive PlanHere is an example of a simple, three-step annual incentive plan. Distribute Bonuses Based on Individual Performance Evaluate Company Performance Establish Total Company Bonus Pool 1 3 2 Annual Incentives David Balking; Ingram, LaForge; Avilia, Schwenker; Jr, Williams

19. Two categories of long-term incentives Cash-Based Performance units Stock Appreciation Rights Equity-Based Stock options Restricted stock Stock Appreciation Rights Long-Term Incentives

20. Performance indicators must be clearly defined Standards must be communicated to workers Workers must be able to influence performance achievement Performance must be accurately evaluated Rewards must be based on worker performance Rewards offered must be highly valued by workers Workers and management must trust each other For Incentive Systems to be Successful

21. The Job Itself Challenging Meaningful Responsible Potential for advancement Intrinsically rewarding The Work Environment Competent supervision Congenial coworkers Appropriate status symbols Enlightened managerial philosophy & programs Non-Financial Compensation Non-Financial Compensation

22. Work Schedules Compressed Workweek Flextime Job Sharing/Part-time Work Telecommuting/Work-at-home Innovative Company Policies All-salary Workforce Overtime for Exempt Employees Sabbaticals Daycare & Eldercare Benefits Cafeteria Benefit Plans

23. Non- Financial Rewards • Volunteer to do someone else’s undesirable tasks • Have the CEO or company president visit with employees or write a personal note of thanks • Let employees put their names on products they made • Create a Wall of Fame to display pictures of outstanding employees • Name a space or event after an employee • Designate a parking spot for the Employee of the Month • Have senior managers and executives serve employees breakfast or lunch • Praise people in public • Give someone a larger office, better tools, better location, etc. • Publish good deeds, praise, & print letters from satisfied customers in a company • Have the CEO or senior executives take lunch with the high performer. • Give your employees time off • Allow people to choose their next project • Let the employees create a paid holiday • Have casual days

24. Are we taking full advantage of the rewards we control? Have we thought through the full impact that our reward system has on the organization? Do employees highly value the rewards we make available to them? Do employees know what they must do to obtain these rewards? In short, do we reward excellence or mediocrity? How to Encourage Excellence?

25. Yours Truly – spatwardhan@tata.com • 98500-37928/ 91-20-66091086 Thank you !!