C & b 21 jan 2011

COMPENSATION & BENEFITS MANAGEMENT

Dr. Asit MohapatraDirector HR Raymond Ltd.

“OUR ASSESTS WALK OUT OF THE DOOR EACH

EVENING.WE HAVE TO MAKE SURE THAT

THEY COME BACK THE NEXT MORNING”

- NARAYAN A MURTHY

CHIEF MENTOR OF INFOSYS

HISTORY OF COMPENSATION

Started with barter system

WHAT IS THE MEANING OF…

•Salary

•Wages

•Compensation

WAGES, SALARY AND COMPENSATION

Wages

Payment for labor or services to a worker, especially remuneration on an hourly, daily, or weekly basis or by the piece.

Salary

Regular wages received by an employee from an employer on a weekly, biweekly, or monthly basis. It includes employee benefits such as health and life insurance, savings plans, and Social Security.

Compensation

Direct and indirect monetary and nonmonetary rewards given to employees on the basis of the value of the job, their personal contributions, and their performance. While making these payments one should be alive to the governing legal regulations.

WAGES, SALARY AND COMPENSATION

COMPENSATION STRATEGY

Business Strategy

Compensation Strategy

Contingent Factors

Defines the intentions of the organization on reward policies, processes and practices required to ensure that it has the

skilled, competent and well-motivated workforce it needs to achieve its business goals

CONTINGENT FACTORS

• Legal requirements or government policies

• Strength of Trade Union

• Labour market conditions

• Capacity to pay

External Equity Internal Equity

Retain existing talentAttract new talent

Lead the market Lag the market

External Equity

Lead the market

Attract + Retain

Compensation Philosophy

Fixed Pay Variable Pay

Non-financial Rewards

Financial Rewards

Individual Pay Team Pay

Variable Pay

Individual Pay

Non-financial Rewards

Compensation Structure

COMPONENTS OF

COMPENSATION AND BENEFITS

PHILOSOPHY ORGANISATION MISSION, VISION, GOALS & VALUES – INCLINATION TOWARDS PEOPLE DEVELOPMENT, ATTRACTION & RETENTION OF TALENT

APPROACH TOTAL COST TO COMPANY (TCC), BASE SALARY, TOTAL CASH SALARY

PARITY INTER / INTRA LEVEL RELATIVITY, COMPA RATIO

POSITIONING ASSESS COMPETITIVENESS – CURRENT & TARGETTED PERCENTILE POSITIONING

MIX DEGREE OF FLEXIBILITY

PAYING ABILITY BUDGET CONSIDERATIONS

PHILOSOPHY ORGANISATION MISSION, VISION, GOALS & VALUES – INCLINATION TOWARDS PEOPLE DEVELOPMENT, ATTRACTION & RETENTION OF TALENT

APPROACH TOTAL COST TO COMPANY (TCC), BASE SALARY, TOTAL CASH SALARY

PARITY INTER / INTRA LEVEL RELATIVITY, COMPA RATIO

POSITIONING ASSESS COMPETITIVENESS – CURRENT & TARGETTED PERCENTILE POSITIONING

MIX DEGREE OF FLEXIBILITY

PAYING ABILITY BUDGET CONSIDERATIONS

COMPENSATION MODELS

• Traditional– Company has fixed salary structure with bands based

on the employees grade. An employee has no choice• Cafeteria

– Employee has a flexibility to choose his/her salary components from the basket of components offered by the company

• Combined– A combination of Traditional & Cafeteria

COMPENSATION STRUCTURES IN INDIA

Traditional

Basic Salary

COLA/DA

Personal Pay

Special Allow.

LTA

Medical

Education Allow.

Bonus / Exgratia

Housing

Hard Furnishing

Conveyance/Driver

Variable Pay

Retirements Benefits

Flexible

Basic Salary

Flex. Plan

LTA

Medical

Allowances

Housing

Hard Furnishing

Conveyance

Variable Pay

Retirements Benefits

Rationalized

Basic Salary

Special Allow.

LTA

Medical

Housing

Conveyance

Variable Pay

Retirements Benefits

Evolved

Basic Salary

Special Allowance

Variable Pay

Retirements Benefits

Difference betweenBenefits and Perquisites

Any benefit or amenity granted or provided free of cost or at

concessional rate by the employer to the employee during employment along with cash

wages or salary in kind form.

EXECUTIVE COMPENSATION

• Additional principles for designing executive compensation

– Shareholder alignment

• Short term

• Long term

– Global consistency

• The compensation is a mix of –

– Cash

• Fixed compensation

• Variable compensation

– Equity

• Restricted Stock unit

• Performance stock unitSource: If applicable, describe source origin

EXECUTIVE COMPENSATION - CHALLENGES

– Arriving at the right mix of the various components like– Cash

• Fixed compensation

• Variable compensation

– Equity

• Restricted Stock unit

• Performance stock unit

– Benchmarking executive compensation is a challenge– Expatriates vs. Local executives in senior roles– Executive compensation in a multinational organisation

Risks : Financial Operational Legal

Controls :• Support the management of risks while achieving company objectives.• Substantiate integrity through design and execution.• Contribute to providing reasonable assurance of reliable financial reporting.• Help to safeguard physical and intellectual assets and detect/prevent fraud.

RISK & CONTROL

COMPENSATION AND BENEFIT SURVEY

CURRENT CTC

STRUCTURE

Compensation Survey

COMP TEAM COLLECTS SURVEY DATA

GENERIC LEVEL PROFILE FOR GRADE EQUIVALENCE GRID

GenericBand

BAND A

Generic Description Experience

Range [Average]

(Yrs)18 ~ 30[25]

15 ~ 28[22]

VIISR ENGR/ SR OFFR

VIASSTT MGR

DY MGR

V

8 ~ 20[12]SR MGR / MGR

IV

12 ~ 25[18]

5 ~ 10[8]

3 ~ 7[5]

1 ~ 5[3]

Head of a Major Function with responsibility for inter / intra functional co-ordination. Reports to the CEO and is responsible for overall operational planning and execution for his function. Has overall responsibility for planning functional objectives/ targets as per company AOP & accountable for quarterly/ annual results as per plan. Member of the top management and contributes towards the overall strategic direction of the company. Responsible for Customer Satisfaction & People Satisfaction

Confirmation level for Graduate Engineer Trainees or Executives with 1 to 5 years of experience. Reports to Sectional Head. In a manufacturing setup responsible for process improvement of assigned job, analyse cause of problem in the assigned area of job and ensures high level of quality parameter in the assigned area of job

Frontline Executive with slightly increased managerial responsibilities. As a Team Leader develop plans with clear milestones & deadlines and manages to extract high performance levels from subordinates. Responsible for improving processes & operation standards and reports to the Departmental/ Sectional Head.

Head of a Medium Sized Department / Sectional Head. Reports to Major Functional Group Head / Large Departmental Head. Responsible for implementation of departmental / sectional KRAs, Staff development & proper allocation of work.

Head of a Relatively Smaller Section - Responsible for day to day management of work. Reports to Departmental Head. Manages one or more related activities within a department. Ensures achievement of sectional plans within the defined budget and demonstrates use & application of concepts & techniques in the job.

BAND B

Head of a Large Departmental - Responsible for management of activities/ projects under his preview and reports to the Functional Head. In a manufacturing setup is overall accountable for Departmental Monthly Budgeted Plan v/s Actual Plan and constantly reviews the processes, suggest changes and ensures quality of highest standards is maintained in all processes and services under his departmental preview

Head of a Relatively Smaller Function/ Number 2 position in a major functional group, with independent responsibility for certain key functions. Responsible for inter/ intra functional co-ordination. Reports to the CEO/ Major Functional Head and is responsible for implementing operational plans. Is responsible for the activities of the function.

Standardised Grade & Typical Designations

BAND C

IIIDGM

IIGM

IVP

COMPONENT - BAllowances/ Reimbursements : Special Allowance, House Rent Allowance, Children Education Allowance, Professional Development Reimb, Business Promotion/ Entertainment Reimbursement, Gas/ Electricity, Medical Reimbursement, Company Driver/ Driver Allowance, Leave Travel Allowance, Conveyance Allowance, Petrol Reimbursement/ Fuel Expenses, Soft Furnishing, etc

COMPONENT - ABasic Salary

COMPONENT - CVariable Pay : Performance Linked Pay, Annual Bonus/ Ex-gratia etc.

COMPONENT - DRetirals : Provident Fund, Gratuity,

Superannuation

COMPONENT - EValued Perquisites : Company Car

Value, Company Leased/ Owned Accommodation, Hard Furnishing

(White Goods), Telephone at Residence, Mobile Reimbursement,

Lunch Subsidy/ Allowance etc.

A

BC

D

E

COMPONENTS OF COMPENSATION STRUCTURE

CLIENT COMPANY BENCHMARK COMPANIES

009 001 002 003 004 005 006 007 008

I SR VP VP VP VP VP VP SR VP VP VP

II VP GM SR GM GM GM GM VP/ AVP GM GM

III SR GM/ GM MGR-I GM DGM/ AGM SR MGR SR MGR GM DGM SR MGR

IV SR MGR MGR-II SR MGR DIV MGR MGR MGR DGM/ AGM SR MGR MGR

7

V MGR MGR-III MGR MGR ASSTT MGR ASSTT MGRSR MGR/

MGRMGR ASSTT MGR-I

VI ASSTT MGR ASSTT MGR SR EXEC DY MGR SR EXEC SR EXEC DY MGR DY MGR ASSTT MGR-II

VII SR EXECSR EXEC/ SR OFFR

EXEC ASSTT MGR EXEC EXEC ASSTT MGR ASSTT MGR EXEC

VIII EXEC EXEC/ OFFR OFFRSR EXEC/

EXECOFFR OFFR SR EXEC SR EXEC OFFR

IX SR OFFR EXEC/ OFFR/ ASSTT EXEC/ ASSTT OFFR

OFFR/ ASSTT OFFR

OFFR OFFR/

ASSTT OFFR OFFR/

ASSTT OFFR EXEC EXEC ASSTT OFFR

X OFFRASSTT EXEC/ ASSTT OFFR

ASSTT OFFR ASSTT OFFR ASSTT OFFR ASSTT OFFR ASSTT EXEC ASSTT EXEC ASSTT OFFR

STANDARDISED GRADE

GRADE EQUIVALENCE GRID

GRID INDICATING OVERALL IMPACT (AVERAGE) ON TOTAL EMPLOYEE COST AT 25th, 50th, 66th PERCENTILE

%AGE INCREASE

INCREASE (Rs. PA )

NEW TOTAL COST TO

COMPANY (Rs. PA)

LEVELWISE TOTAL

EMPLOYEE COST

(Rs PA)

%AGE INCREASE

INCREASE (Rs. PA )

NEW TOTAL COST TO

COMPANY (Rs. PA)

LEVELWISE TOTAL

EMPLOYEE COST

(Rs PA)

%AGE INCREASE

INCREASE (Rs. PA )

NEW TOTAL COST TO

COMPANY (Rs. PA)

LEVELWISE TOTAL

EMPLOYEE COST

(Rs PA)

I VP 3 5169920 15509760 2% 103398 5273318 15819955 12% 620390 5790310 17370931 19% 982285 6152205 18456614

II GM 4 3274644 13098576 1% 32746 3307390 13229562 21% 687675 3962319 15849277 30% 982393 4257037 17028149

40

III DGM 14 2280688 31929632 1% 22807 2303495 32248928 10% 228069 2508757 35122595 24% 547365 2828053 39592744

IV SR MGR 47 1578040 74167880 3% 47341 1625381 76392916 11% 173584 1751624 82326347 23% 362949 1940989 91226492

V MGR 29 1024680 29715720 4% 40987 1065667 30904349 10% 102468 1127148 32687292 17% 174196 1198876 34767392

VI DY MGR 30 777640 23329200 2% 15553 793193 23795784 13% 101093 878733 26361996 24% 186634 964274 28928208

VIISR EXEC/

EXEC70 547248 38307360 10% 54725 601973 42138096 23% 125867 673115 47118053 37% 202482 749730 52481083

TOTAL 197 226058128 234529590 256836491 282480683

INCREASE IN TOTAL EMPLOYEE COST (Rs PA) 8471462 30778363 56422555

PERCENTAGE INCREASE IN TOTAL EMPLOYEE COST (Rs PA) 3.75% 13.62% 24.96%

COST IMPLICATION - 50TH PERCENTILE COST IMPLICATION - 66TH PERCENTILE

STD. GRADE

COST IMPLICATION - 25TH PERCENTILE

CLIENT'S GRADES

STAFF STRENGTH

LEVELWISE CURRENT

TOTAL COST (Rs PA )

LEVELWISE TOTAL

EMPLOYEE COST

(Rs PA)

SALARY BANDS OF PROPOSED TOTAL COST TO COMPANY

All Figures in Rupees Lacs Per Annum

SALARY BAND - ANNUAL TOTAL COST

MINIMA MAXIMA AVERAGE

I VP 24.08 81.72 42.42

II GM 11.58 43.76 25.32

III SR MGR 8.25 27.23 15.11

IV MGR 5.01 16.97 9.44

V DY MGR/ ASSTT MGR 3.07 10.88 5.99

40 VI SR EXEC/ EXEC 1.67 7.14 3.75

TYPICAL DESIGNATIONSSTD. GRADE

11.588.25 5.01 1.67

24.08

3.07

10.88

16.97

27.23

43.76

81.72

7.14

42.42

25.32

15.11

9.445.99 3.75

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

VP GM SR MGR MGR DY MGR/ ASSTT MGR SR EXEC/ EXEC

MINIMA MAXIMA AVERAGE

CASE STUDY

DEFINE SMART KRAs

Key Area DescriptionUnit of

measurementWeightage (%)

Annual Objective /

Target

Sales revenueAchieve sales revenue of 200 from distributive, and 50 from institution

Rs Crores 30200 from Distributive, & 50 from institution

Process barometerTo put in place a system & processes that will trace productivity, bpc and range selling from October on weekly basis

Time 25 Weekly basis

Secondary sales system

To set up secondary sales system by January 10 Time 20 Jan ’11

Ground work for Customer Connect programme

To set up a digital information system to implement Customer Connect – a key account relationship building programme by Feb 2010

Time 10 Feb ’11

DebtorsTo improve collections & reduce debtors 8 day month on month

Time 15 8 days month on month

RATING SCALE

Individual KRA Achievement Rating Scale

Below 90% achievement of Target 1

90 - 92% achievement of target 2

93 – 96% achievement of target 3

97-103% achievement of target 4

Above 103% achievement of target 5

•Above 103% achievement of target. The Appraisee has performance that exceeded the goal set for him in all Key

Result Areas

•97 -103% achievement of target.

Performance meets or exceeds requirements in all KRAs

•93- 96% achievement of targetPerformance meets the expectations in most KRAs

•90-92% achievement of targetPerformance fails to meet requirements in critical KRAs. ( KRAs with higher

weight ages)

•Below 90% achievement of targetPerformance fails to meet requirements in most of the KRAs.

RATING PERFORMANCE MATRIX

Individual KRA Achievement

Level Final Performance

Score (Cumulative

Weighted score)

Final Performance

% Eligibility for Variable

Payout

Below 90% 1 1.4 and belowDoes not Meet Expectation

Nil

90 - 92% 2 1.5 to 2.4 Partially Meets Expectations

70%

93 – 96% 3 2.5 to 3.4Meets Expectations

90%

97-103% 4 3.5 to 4.4Exceeds Expectation

100%

Above 103% 5 4.5 and aboveExceptional Performance

110%

Key Area DescriptionUnit of

measurement

Weightage (%)

Annual Objective /

Target

Actual Achievement

LevelWtd

Score

Sales revenueAchieve sales revenue of 200 from distributive, and 50 from institution

Rs Crores 30

200 from Distributive, & 50 from institution

220 Distributive 58 Institution

5 1.5

Process barometerTo put in place a system & processes that will trace productivity, bpc and range selling from October on weekly basis

Time 25 Weekly basisMonthly basis

4 1.0

Secondary sales system

To set up secondary sales system by January 10

Time 20 Jan ’11 Jan ‘10 3 0.6

Ground work for Customer Connect programme

To set up a digital information system to implement Customer Connect – a key account relationship building programme by Feb 2010

Time 10 Feb ‘11 Before time 5 0.5

DebtorsTo improve collections & reduce debtors 8 day month on month

Time 15 8 days month on month

   Surpassed

5 0.75

PERFORMANCE EVALUATION

4.35 – Exceeds Expectations

Rating Percent

Exceptional Performance 15%

Exceeds Expectation 20%

Meets Expectation 35%

Partially meets Expectation 20%

Doest not meet Expectation 10%

Total 100%

IN A NUT SHELL…

• The objective was to highlight the functional competencies in the area of Compensation & Benefit

• As this impacts all employees , it is essential to have adequate knowledge to get maximum advantage by better Compensation and benefit management

• It is important to periodically benchmark across business and functions to attract and retain good talent

Thank You