Compensation on POLICY IN INDIAN INDUSTRISES

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TERM PAPEROF

HUMAN RESOURCE MANAGEMENT

ON

COMPENSATION POLICY IN

INDIAN INDUSTRISES

SUBMITTED TO:-

SUBMITTED BY:-

LOVELY PROFESSIONAL UNIVERSITY

LOVELY INSTITUTE OF MANAGEMENT (LIM)

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FIRST AND FORE MOST I WOULD LIKE TO THANK

MY SIRDr. GUPTA FOR GIVING ME THE OPERTUNITY

TO SHOW MY CAPABILITIES.

I EXPRESS MY GRATITUDE TO MY PARENTS FOR

BEING A CONTINUOUS SOURCE OF ENCOURAGEMENT

AND FOR ALL THERE FINANCIAL AID GIVEN TO ME.

I WOULD LIKE TO ACKNOELEDGE THE

ASSISTANCE PROVIDED TO ME BY MY LIBRARY STAFF

OF LIM (LOVELY INSTITUTION OF MANAGEMENT).

MY HEART FELT GRATITUDE TO MY FRIENDS FORHELPING ME TO COMPLETE MY WORK IN TIME.

Arun Guleria

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INDEX

ARUN GULERIA | [email protected]

S.No.

Particular PAGENO.

REMARKS

1. Acknowledgement 2

2. Introduction Of Compensation 3

3. Remuneration 3

4. Planning The Compensation Strategy 4

5. Compensation Strategies 5

6. Workers' CompensationLaw for compensation(Compensation Act)

6

7. Analysis And Summary Of SearchArticle

8

8. COMPENSATION STRATEGIES ININDIAN INDUSTRY

16

9. Bibliography 20

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COMPENSATION

Compensation can refer to...Compensation is a systematic approach to providing monetary value to employees in exchange

for work performed. Compensation may achieve several purposes assisting in recruitment, jobperformance, and job satisfaction.Damages - legal term referring to the financial compensation recoverable by reason of another'sbreach of duty; the money paid or awarded to a plaintiffWorkers' compensation, to protect employees who have incurred work-related injuries. Exampleis the Radiation Exposure Compensation Act. Remuneration, such as a wage or salary to paypeople for their work

DIFFERENT TYPES OF COMPENSATION INCLUDE: Base Pay

Commissions

Overtime Pay Bonuses, Profit Sharing, Merit Pay

Stock Options

Travel/Meal/Housing Allowance

Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

REMUNERATIONRemuneration is pay or salary, typically monetary payment for services rendered, as in an

employment. Usage is considered formal. Employee compensation and benefits package can bethe deciding factor for many potential employees. And it's not just the money. To make yourcompany competitive and attractive to job candidates, you have to offer an exceptional totalbenefits package. That makes it a very important part of your business planning and managementprocess hope to hire (and keep) top employees..

SETTING UP COMPENSATION STRUCTUREAlthough money isn't everything, it certainly is one of the top issues potential employees

look at when interviewing new companies. Whether you're offering a straight basic salarystructure or an incentive-based pay structure may make or break you in the eyes of top jobcandidates. Let's look at how each system works.

STANDARD SALARY STRUCTUREA standard base pay program offers fixed salary ranges for each position type foremployees performing the standard duties of their jobs. Set up minimum and maximum levelswithin those pay ranges to account for variations in experience and skill levels. When setting thebase pay structure, determine where your company falls within your own industry as well ascompeting industries that may also offer job opportunities for your employees. Set up your paylevels to be competitive, or else you risk losing employees. You can use the Internet to findindustry-standard salary levels for specific jobs in specific geographical areas.

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Once your base pay structure is in place, most companies then set up a merit pay programthat will take the employee through the salary range for their position at a performance-drivenspeed. This comes into play when the employee's managers do annual employee performancereviews. The downside of this is that employees may begin to see it as a given that they will get asalary increase after each evaluation, and it ceases to be a motivation to perform better in their

jobs. For this reason, more companies are moving toward more of a reward-based compensationstyle, also called Incentive Compensation.

INCENTIVE COMPENSATIONIncentive-based compensation is becoming much more common because of the increased

emphasis on performance and competition for talent. This type of compensation structuresignificantly helps motivate employees to perform well. Hiring bonuses are also frequently usednow, even for new college graduates. However, you might want to tie in a specific time periodprior to the employee collecting this bonus -- for example, one-half after six months and theremainder after one year of employment. Otherwise, you could run the risk of the employeedeparting after that first check, which would defeat your purpose.

Setting up an incentive-based compensation program requires the same research into yourindustry as the base pay program. You'll still establish base pay levels, but it may be slightlylower and you will build into that base the annual or quarterly (or any other interval) bonuses,commissions, or other types of shared cash compensation.

NON-CASH COMPENSATIONIn addition to regular benefits packages that include health insurance, vacation, and

retirement plans, employees seem to be actively seeking companies who offer more of the thingsthey value. Balancing their lives is becoming more important than ever. Because of this, otherbenefits like flexible schedules, relaxed atmospheres, childcare and other lifestyle benefits are

becoming almost as important as salaries. In fact, according to data compiled by Work Life.More than one-fourth of surveyed workers said that balancing work and family is more importantthan a competitive salary, job security or support for an advanced degree. But these other perks,as well as other intrinsic rewards, can definitely have a strong effect on how employees feelabout their employer and their work environment, and can help retain employees who mightotherwise leave. We'll talk more about fringe and other added benefits throughout this article.

PLANNING THE COMPENSATION STRATEGYMost senior managers wish, at least at times, that they could ignore compensation. No

other organizational system is so weighed with values and emotions, so visible to employees orso much the subject of internal dissent. Nearly everyone has opinionsusually strong opinions

about rewards. Any change in compensation usually attracts loud complaints from employeeswho feel disadvantaged by the change.

The topic of rewards is rife with myths that are widely accepted but contradicted byextensive research. In view of these difficulties, can busy senior managers safely take the easyway out and leave compensation decisions to their compensation specialists? Or should theydevote significant personal attention to compensation? Senior managers should be heavily

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involved in getting the strategic direction for compensation, and there are some fundamentalchoices senior managers need to make during this process.

Compensation systems demanded less senior management attention only a few years ago.At that time, senior managers generally left the design of employee compensation systems to

technical specialists. This was possible partly because professionally managed compensationsystems looked very much alike from one company to another.

For most firms, the goal of compensation design was simply to avoid a competitivedisadvantage by keeping labour costs in line with those of competitors, and the goal ofcompensation administration was to keep employee noise down.

The picture has changed greatly during the past decade, as companies throughout theeconomy have begun to rethink their compensation systems in search for competitive advantage.

Base pay, incentives, benefits and pay for corporate performance all have changed

dramatically. Studies of Fortune 1000 firms from 1986 to 1997 show large increases in thepercentage of Fortune 1000 using a variety of compensation innovations.

For example, there has been a 50 percent increase in companies using pay for skills,knowledge and competencies. A 50 percent increase in companies using work group or teamincentives; and a 100 percent increase in firms using flexible benefit systems.

The strategic demands of new competitive forces, new organizational forms, and increase inknowledge work and recognition of the importance of compensation to organizationaleffectiveness have largely driven these changes. Top managers can no longer afford to leavecompensation solely in the hands of compensation professionals.

There are some basic principles of compensation strategy senior managers need tounderstand. The alignment of compensation with business needs, the goals of the compensationsystem, reward system levers and basic choice managers need to make are among these principles. A foundation of knowledge will help senior managers use compensation as animportant tool for managing the business.

COMPENSATION STRATEGIESEntrepreneurs have a significant opportunity to minimize overall corporate and personal

taxes by adjusting the mix of salary and dividends they receive from the business. The right mix

of compensation will depend on a variety of factors. These include, among others, the financialrequirements of the individual family members and the business, the tax rate of the corporation,the shareholders' retirement (i.e. RRSP), estate planning and succession objectives and thefinancial covenants placed on the business by outside financing sources. An effectivecompensation strategy can maximize the after tax funds available to both the entrepreneur and thebusiness.

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WORKERS' COMPENSATION

Workers' Compensation laws are designed to ensure that employees who are injured ordisabled on the job are provided with fixed monetary awards, eliminating the need for litigation.These laws also provide benefits for dependents of those workers who are killed because of

work-related accidents or illnesses. Some laws also protect employers and fellow workers bylimiting the amount an injured employee can recover from an employer and by eliminating theliability of co-workers in most accidents. State Workers Compensation statutes establish thisframework for most employment. Federal statutes are limited to federal employees or thoseworkers employed in some significant aspect of interstate commerce.

The Federal Employment Liability Act (FELA), while not a workers' compensation statute,provides that railroads engaged in interstate commerce are liable for injuries to their employees ifthey have been negligent.

The Merchant Marine Act (the Jones Act) provides seamen with the same protection from

employer negligence as FELA provides railroad workers.

Congress enacted the Long shore and Harbor Workers' Compensation Act (LHWCA) toprovide workers' compensation to specified employees of private maritime employers. The Officeof Workers' Compensation Programs administers the act.

The Black Lung Benefits Act provides compensation for miners suffering from "blacklung" (pneumoconiosis). The Act requires liable mine operators to pay disability payments andestablishes a fund administered by the Secretary of Labor providing disability payments tominers where the mine operator is unknown or unable to pay. The Office of Workers'Compensation Programs regulates the administration of the act.

California's Workers' Compensation Act provides an example of a comprehensive statecompensation program. It is applicable to most employers. The statute limits the liability of theemployer and fellow employees. California also requires employers to obtain insurance to coverpotential workers' compensation claims, and sets up a fund for claims that employers haveillegally failed to insure against.

Law for compensation (Compensation Act)

(1) Employed in any such capacity as is specified in Schedule II, whether the contract ofemployment was made before or after the passing of this Act and whether such contract is

expressed or implied, oral or in writing; but does not include any person working in the capacityof a member of the Armed Forces of the Union; and any reference to a workman who has beeninjured shall, where the workman is dead, include a reference to his dependants or any of them.

(2) The exercise and performance of the powers and duties of a local authority or of anydepartment acting on behalf of the Government shall, for the purposes of this Act, unless acontrary intention appears, be deemed to be the trade or business of such authority or department.

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(3) The Central Government or the State Government, by notification in the Official Gazette,after giving not less than three months' notice of its intention so to do, may, by a like notification,add to Schedule II any class of persons employed in any occupation which it is satisfied is ahazardous occupation, and the provisions of this Act shall thereupon apply, in case of anotification by the Central Government, within the territories to which the Act extends, or, in the

case of a notification by the State Government, within the State, to such classes of persons :

Provided that in making addition, the Central Government or the State Government, as thecase may be, may direct that the provisions of this Act shall apply to such classes of persons inrespect of specified injuries only.

METHOD OF CALCULATING WAGES FOLLOWED IN INDIAN

INDUSTRY: -

In this Act and for the purposes thereof the expression "monthly wages" means the amountof wages deemed to be payable for a month's service (whether the wages are payable by themonth or by whatever other period or at piece rates), and calculated as follows, namely:-

(a) where the workman has, during a continuous period of not less than twelve monthsimmediately preceding the accident, been in the service of the employer who is liable to paycompensation, the monthly wages of the workman shall be one-twelfth of the total wages whichhave fallen due for payment to him by the employer in the last twelve months of that period;

(b) where the whole of the continuous period of service immediately preceding the accidentduring which the workman was in the service of the employer who is liable to pay thecompensation was less than one month, the monthly wages of the workman shall be the averagemonthly amount which, during the twelve months immediately preceding the accident, was beingearned by a workman employed on the same work by the same employer, or, if there was no

workman so employed, by a workman employed on similar work in the same locality;

(c) in other cases [including cases in which it is not possible for want of necessary information tocalculate the monthly wages under clause (b), the monthly wages shall be thirty times the totalwages earned in respect of the last continuous period of service immediately preceding theaccident from the employer who is liable to pay compensation, divided by the number of dayscomprising such period.

Explanation: A period of service shall, for the purposes of this section be deemed to becontinuous which has not been interrupted by a period of absence from work exceeding fourteendays.

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ANALYSIS AND SUMMARY OFSEARCH ARTICLE

(Article 1)

FEDERAL COMPENSATION IS MORE THANJUST SALARY

By Ralph SmithThursday, March 29, 2007Source: - www.findartical.com

There is little doubt that many readers believe that federal employees receive considerablyless than those in the private sector. That is no doubt true in many cases. But one feature offederal employment that is sometimes not considered is that, in addition to the average salaryincrease that is reported every year, federal employees also have a number of other features in thefederal human resources program that also add to their average pay. For example, check out thestatistics below about the number of federal employees who receive cash awards, time offawards, or promotions or within-grade step increases during the year.

The result of this human resources activity is an occasional report describing the federalworkforce along the lines of an "Elite Island" with high pay, high benefits and employmentsecurity that is unique in the American workforce. The report noted in the previous sentence alsocites the "pay gap" between federal workers and the rest of the economy as one that is gettingwider. "Since 1990, average compensation has increased 115 percent in the government and 69percent in the private sector, while average wages have increased 104 percent in the governmentand 65 percent in the private sector."

While you ponder that statement, here are a few statistics from a new report issued by theCongressional Budget Office on the pay of the federal workforce. The CBO examined the 1.4million or so civilian, federal employees, excluding those who work for the Postal Service, whofill full-time permanent positions in the executive branch. As might be expected in a document ofthis nature, the report is largely statistical and the narrative is written in a dry, bland style.

Here are some statistics you can use to compare your situation with the "average" federalemployee from 2005. The executive branch workforce represents a little more than one-half of all

civilian government employees. The average full-time civilian federal employee is 47 years oldand has about 16 years of federal service. The average federal employee retires at age 59. InDecember 2005, the average federal employee salary was $63,431. The average federalprofessional employee on the GS pay scale makes $79,802. The average clerical employee on theGS pay scale makes $35,405. The average senior executive makes $146,848 In 2005, agenciesawarded about 49,000 quality step increases that, on average, raised an employees basic pay byabout $1,800. in 2005, there were about 178,000 promotions among full-time permanent federalcivilian employees. The average pay increase as a result of a promotion was about $4000. About

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56 percent of the federal workforce received a cash award averaging $1300 in 2005. 195,000federal employees received time off awards during the year.

The average time off: 26 hours About 111,000 employees in 2005 received cash awards(of about $700 each, on average) for exceptional performance as part of a group. About 400

federal employees were denied a within-grade increase in 2005. A substantial portion of a federalemployee's compensation package is the benefits provided. Depending on factors such as anemployee's age, length of service and retirement system, the federal benefits package amounts tobetween 26% and 50% of an employee's salary.

(Article 2)

EMPLOYEE COMPENSATIONWritten by Carter McNamara, MBA, and LLC.15 Jan 2008

www.businessartical.com

Compensation includes topics in regard to wage and/or salary programs and structures,for example, salary ranges for job descriptions, merit-based programs, and bonus-basedprograms, commission-based programs, etc.

Compensation is payment to an employee in return for their contribution to theorganization, that is, for doing their job. The most common forms of compensation are wages,salaries and tips.

Compensation is usually provided as base pay and/or variable pay. Base pay is based on

the role in the organization and the market for the expertise required conducting that role.Variable pay is based on the performance of the person in that role, for example, for how wellthat person achieved his or her goals for the year. Incentive plans, for example, bonus plans, are aform of variable pay. (Some people might consider bonuses as a benefit, rather than a form ofcompensation.) Some programs include a base pay and a variable pay.

Organizations usually associate compensation/pay ranges with job descriptions in theorganization. The ranges include the minimum and the maximum amount of money that can beearned per year in that role.

Employees have certain monies withheld from their payroll checks, usually including

federal income tax, state income tax, FICA (social security) contributions, and employeecontributions to the costs of certain benefits (often medical insurance and retirement).

Exempt and Non-ExemptJobs in organizations have two classifications, exempt and non-exempt.

Professional, management and other types of skilled jobs are classified as exempt. Exempt jobsget a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month.It's not uncommon for exempt positions to receive higher compensation and benefits than non-

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exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply byworking more hours.

Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobsusually get a wage, or an amount of money per hour. Non-exempt jobs also get paid over-time,

that is, extra pay for hours worked over 40 hours a week or on certain days of the week or onholidays. Each job must have the same pay range for anyone performing that job, that is, oneperson can't have a higher maximum pay than someone else doing that same job.

(Article 3)

COMPENSATION STRATEGIES

By Sanjay Gupta & Yashvendra SinghMonday, May 21, 2007

Source: - www.findartical.com

Networking vendor D-Link wants its partners to focus on its existing customers, besideslooking at new ones. The partners should look at what else they can offer to their existingcustomers. With an already established customer base, this is a time to re-tune the network andadd further value to it through new products and how the benefits from the network can bemaximized.

Microsoft wants its partners to grow and evolve. The vendor emphasizes on the need to havea strong human resources policy. Microsoft encourages its partners to invest in retaining talent

and offering talented employees avenues for future growth, besides consistently helping themdevelop their skills. Encourage our partners to develop vertical specific competencies whichwould help them grow their business. Partners need to be on top of technology in todayscompetitive market and look at providing value added services around the core software. Also,for each segment of the industry such as manufacturing, retail, etc., the partners should first lookat their peculiar needs and bring in solutions that meet those needs. There are certain technologyareas that offer good promise of profits to the partners, such as managed switches, IP surveillancecameras, VoIP and security and a lot of new products are expected in these areas.

To ensure growth in the market, the channel must adopt best customer practices, ensureadoption of industry best practices focused on Return on Investment (RoI) rather than absolutemargins on products, and differentiate them from the competition. There are two ways they canlook at the value additions provided by vendors: continue to crib or make the most from the

benefits to maximize whatever little profits they can garner.

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(Article 4)

COMPENSATION FORPERFORMANCE

By: Karen Kroll

Published November 2004Source: - www.businessnewes.com

Back in 1999, Dhiman Products Co. implemented a bonus plan. The 65 manufacturingemployees at the Mishawaka, Ind., maker of parts for hydraulic systems would be evaluated onthese criteria: meeting production schedules; maintaining their machines; and reducing overtime,

scrap, and shipping errors. Productivity surged, and some employees added as much as 15% totheir paychecks.

Then the economy took an unexpected U-turn, and so did Dhiman's sales, plunging some20%. Forget about bonuses. The company went into survival mode, cutting about 20 jobs. Andafter just one year, Daman Products put its bonus program on indefinite hold.

The story is all too familiar. After all, you can't share the wealth if there's no wealth toshare. Fortunately, that's beginning to change. After several years of offering skimpy bonuses --or, like Daman, none at all -- businesses large and small are expected to reopen their checkbooksin the months ahead, says Tom Shea, a Boston-based managing director with compensation

consulting firm Pearl Meyer & Partners. For senior executives, payouts are up about 20% thisyear, Shea says.

Rather than simply handing out checks, many entrepreneurs will be linking bonusesdirectly to how well their employees performed. Some 77% of employers currently linkcompensation to performance, up from 66% in 2001, according to World at Work, a professionalassociation in Scottsdale, Ariz. But getting pay for performance right is no easy task. Only 17%of employers, for example, reported that their incentive programs were "very successful" inhelping boost financial performance, retain top employees, and increase customer service,according to a recent survey by World at Work and consulting firm Hewitt Associates.

The biggest problem, the experts say, is that too few employers put adequate energy intodevising their bonus programs. It's common, for instance, for businesses to simply divide thebonus pool so that high, midrange, and poor performers get 5%, 3%, and 2%, respectively. As aresult, some top employees are left wondering if their contributions really are being recognized.

There's nothing mysterious about the system at the Reliance Group, an Indias one of thebig industry. The 10 employees know that they're being judged on seven qualities -- productivityand quality, loyalty, team building, creativity, management, ownership of job, and ownership of

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company. In fact, workers are encouraged to ask for advice on how to increase their bonuses. Theidea is to get employees to behave like owners. "A salary pays you to do your job. One engineer,for example, developed a new software tool to help state highway agencies analyze road-qualitydata. Some employees, of course, aren't in a position to develop new lines of business. Butadministrative assistant, for example, boosted her score by volunteering to prepare PowerPoint

presentations for the engineers, saving those hours each month.

Each year, Reliance distributes between 25% and 50% of profits to employees, some ofwhom add as much as 10% to their annual salaries. That's a considerable sum, both sales andprofits have jumped about 20% in each of the past three years -- something Reliance creditsmostly to the incentive program.

Daman Products hopes to see similar results over the next few years. The company, whichweathered the downturn by boosting productivity via a wholesale reorganization of itsmanufacturing process, is finally seeing profits again. As a result, it plans to reinstate its incentivecompensation program by the middle of next year. Use the same measures. That part worked. It's

just that the company needs to make money in the first place.

(ARTICLE 5)

WORKERS COMPENSATIONATTORNEYS

www.chrmlearing.comCommunity for Human Resource Management

Workers Compensation Attorneys comprise the specific class of lawyers who devotetheir legal practice to handling workers compensation claims. Workers compensation refers to

the insurance or compensation provided to cover any personal or physical injury, medical

reimbursements, loss or death in workplace or within the employment tenure. These laws for

workers compensation are a result of long fought battles by trade unions and still in the 21stcentury Workers compensation or Worker insurance are characteristics of very advanced and

developed societies.

In common, employers enjoy the liberty of deciding where to give worker benefits or

compensation. In California, however, the law states that the employer needs to carry Workers

Compensation Insurance or be qualified for self insurance to cover any on-the-job injuries. Work

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related injuries or illnesses include limb disorders, heart and lung diseases, hypertension or

severe accidents in workplace that even make individuals cripple for life. In these cases, workers

compensation benefits may allow for money for time off during recovery of an injury,

reimbursements of medical expenses or compensation for a long term disability or permanent

impairment.

Getting the deserving compensation in the right way is not very easy and simple.

Determining your eligibility to get compensation in many cases gives rise to complex issues

which may lead to disputes denying your compensation or injury claims. Such situations get out

of your control and what you need is a professional legal assistance of a Workers Compensation

Attorney.

Employment laws and legal rules binding employment issues are continuously changing in

an effort to keep pace with the changing modern society. Workers Compensation Attorneys are

the appropriate persons who are updated and well informed with the latest employment laws and

can help you making you aware of your specific rights and obligations as an employee.

If you search for Workers Compensation Attorney, you will find very few Law firms or

lawyers devoting their practice to this field of law. Selecting the right attorney for your case may

be an uphill task. Make certain necessary considerations while choosing your lawyer which

includes the following: your Worker Compensation Lawyer must be patient and tolerant and a

good listener, he or she must be able to analyze and understand the case by listening to you

without doing any research or survey, he or she should demonstrate enough confidence to

convince you that he or she is capable of handling your case and last and not the least is the fees

he will charge for your case are based on the law and usually will not exceed 15% of yourpermanent disability settlement recovery.

(ARTICLE 6)

COMPENSATION AND BENEFITS IN

INDIAN INDUSTRIESPublication: HRMagazine

Date: Friday, August 1 2008

Paychex Inc. has announced the addition of automatic enrollment as an optional feature of itsplan offering. The service will allow employers to automatically enroll their employees in the

company, potentially increasing overall plan participation. With the enrollment service,

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employers have the option to automatically enroll all eligible employees or only those who

become newly eligible for a retirement plan once it takes effect. Paychex's service will manage

the complete enrollment process, from notifying the plan sponsor when newly hired employees

become eligible to automatically enrolling employees. This service reduces an employer's

paperwork and helps business owners stay focused on running theirbusinesses

(Article 7)

ALTERNATIVE COMPENSATION

STRATEGIES METHOD FOLLOWED IN

INDIAN INDUSTRYBy Sanjay Gupta &Yashvendra SinghMonday, May 21, 2007

www.findarticals.com

Networking vendor D-Link wants its partners to focus on its existing customers, besides

looking at new ones. The partners should look at what else they can offer to their existing

customers. With an already established customer base, this is a time to re-tune the network and

add further value to it through new products and how the benefits from the network can be

maximized.

Microsoft wants its partners to grow and evolve. The vendor emphasizes on the need to have a

strong human resources policy. Microsoft encourages its partners to invest in retaining talent and

offering talented employees avenues for future growth, besides consistently helping them develop

their skills. We would encourage our partners to develop vertical specific competencies which

would help them grow their business. Partners need to be on top of technology in todays

competitive market and look at providing value added services around the core software. Also,

for each segment of the industry such as manufacturing, retail, etc., the partners should first look

at their peculiar needs and bring in solutions that meet those needs. There are certain technology

areas that offer good promise of profits to the partners, such as managed switches, IP surveillance

cameras, VoIP and security and a lot of new products are expected in these areas.

To ensure growth in the market, the channel must adopt best customer practices, ensure

adoption of industry best practices focused on Return on Investment (RoI) rather than absolute

margins on products, and differentiate them from the competition. There are two ways they can

look at the value additions provided by vendors: continue to crib or make the most from the

benefits to maximize whatever little profits they can garner.

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(ARTICLE 8)

CAREFUL PLANNING BY INDIAN BANKINGINDUSTRY TO SUCCESSFULCOMPENSATION STRATEGY

Northwestern Financial Review,

Jul 1-Jul 14, 2004

Bankers should consider both long and short-term goals when determiningcompensation for directors and key bank personnel, according to experts from Clark Consulting,a Bloomington, Minn.-based consulting firm that specializes in compensation issues. Thecompany recently led an executive compensation discussion at a community bank peer groupmeeting in Savannah, Ga.

"The bankers' main concern was finding affordable strategies for retaining their key

people," commented Mike Blanchard, vice president in the firm's compensation group. Heexplained that, although each bank has unique compensation planning needs, the basic principlesof a successful compensation program are universal. Banks must design a program aligned withbank objectives that includes both short- and long-term incentives to keep top executives focusedon achieving the bank's overall strategic goals. Since a director's role is to provide long-termdirection for a bank, boards are discouraged from participating in annual incentive programs, hesaid. Therefore, the peer group also discussed how directors can be included in long-termincentive programs that reward them for their critical role while promoting long-range decision-making.

Questions regarding the specific needs of those banks in attendance were also addressed. For

example, Blanchard explained how synthetic equity is a useful tool for closely held banks andmutual companies since it is purely a cash transaction based on the increase of stock price anddoes not result in the allocation of actual shares. In addition, Blanchard emphasized that nomatter how competitive a bank's compensation package is today, it is imperative to benchmark itto the market every 18 months to two years in order to ascertain its continued effectiveness.

Besides examining the elements that comprise successful compensation packages, discussionsincluded bank-owned life insurance and its impact on benefit plans.

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The peer group consisted of community bank presidents and CEOs who regularly meet to discussindustry issues. Clark Consulting is a major provider of BOLI products and services.

COMPENSATION STRATEGIES IN INDIAN INDUSTRYWith the immense competition of attracting and retaining talented human resource, compensation package is the only motivation factor available with the organizations be it Indian originorganizations or foreign owned multinationals.

With the high attrition rate organizations are increasing their salary packages to attract and retain

talented human resource. In the race, India has begged first position followed by Lithuania andChina.

Average Salary increase (%) in 2006 for various countries

MARKET RESEARCH- SALARY SURVEYS

Organizations are conducting market research and purchasing the salary survey reports toformulate their own compensation strategy most competitive in the existing environment. Theyalso make sure that it is also as per the industry standards. The salary surveys reports the salary

status and compensation provided by the organization in different industries and as per the jobhierarchy in the organization.

COMPENSATION SYSTEM

The compensation includes monetary and non-monetary benefits provided to employees inseveral forms. Some organizations provide fixed pay with incentives and other benefits and someorganizations offer performance based pay that is variable in nature depending upon the

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performance of the employee. In India organizations follow the equal pay concept for jobs havingequal worth to the organizations.

Indian Industry Analysis

Indian industries are aiming for high growth and are looking for talented human resource. For thepurpose they are offering most competitive compensation packages. Besides the monetary andnon-monetary benefits some organizations also offer development benefits such as online degree programmes or certification courses. Insurance sector has succeeded in increasing thecompensation packages at highest rate followed by Banking and IT sectors.

Increase in compensation (%) provided by various sectors in Indian industryIn Indian industry rate of salary hike also depends on the job position in the organizationalhierarchy. During year 2006 technical and professional skill oriented jobs were offered moresalary hikes than the senior management.

Salary hikes (%) at various job levelsWith the technological developments taking place at a higher rate, the salary packages are too

increasing at a much higher rate. Pay packages in India have witnessed an increaseof more than 14% in 2006 over last years salary packages. The compensation packagecomprises of monetary and non-monetary benefits that includes salary, special allowances, house

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rent allowance, travel allowance, mobile allowance, employee stock options, club memberships,accommodations, retirement benefits and other benefits.Globalization is being considered as the cause for such salary hikes. The establishment ofmultinational companies and privatization has led the Indian industry to witness higher salarypackage.

COMPENSATION STRATEGIESA significant number of private equity fund management businesses, both captives andindependents, on the design and structure of their remuneration policies including annual bonusstructures, carried interest and co-investment plans, and other long-term incentive arrangements.Whilst the majority of private equity clients have been based in the UK, we have also advised onincentive arrangements in a number of overseas operations, for example in Europe (France,Switzerland, Germany, Italy and Greece), in the Middle East (Dubai and Saudi) and in the FarEast (Singapore and Hong Kong).The focus of attention has often been on developing suitable incentive plans and policies, which

are in line with market practice and as flexible and tax efficient as possible. Business contactswith professional advisers in other jurisdictions, for instance Germany, France, Italy, Spain,Greece and the Far East, have enabled MM & K to provide up to date compensation and fiscaladvice in the European and Asian arenas. We aim also to be innovative in the design and creationof new ideas, sometimes resulting in the setting of new market precedents in the private equityincentive compensation arena.

The design, structure and implementation of appropriate incentive plans as well as on basicremuneration policies. To work alongside other advisers, in particular lawyers, to develop andimplement new incentive arrangements and structures that we have initiated. Also worked onnumerous occasions with private equity houses in helping to structure remuneration and HR

policies within their investee companies. We see this as becoming an increasingly importantadded value component that we can help private equity firms bring to their investment andportfolio management process.

There are a variety of compensation strategies and programs that help banks attract, retain and

motivate executives. In order for banks to keep their best top dogs, they should keep in mind the

following overview of six strategies.

1. LOOK AT THE BIG PICTURE: OVERALL EXECUTIVE COMPENSATION.

Many bank executives and even a few compensation surveys focus primarily on base salary and

bonuses without much attention to long-term incentives or benefits when analyzingcompensation. However, the keys to a competitive executive compensation package typically lie

outside of cash compensation, in either stock option programs or retirement benefits.

An effective tool to help a bank become proactive on all five areas of remuneration is the overall

compensation review. A broad based review analyzes the entire compensation program for a

bank (including the five areas of compensation described above) and summarizes what's working

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and what isn't. For each of the five areas of compensation, the bank should use benchmarks that

show how their programs compare to industry trends. Also, a solid compensation review should

identify how your employees feel about particular programs. It should also be presented to your

Board of Directors to ensure their approval of new programs and changes to existing programs.

Just like any other program that is vital to your bank's ultimate success, an overall compensationreview is the first step in managing compensation. Once your executives' compensation levels

have been reviewed, your bank can develop a plan that lets you know where you stand, what

improvements you need to make, how long it will take you to accomplish your compensation

goals and what costs are associated with each component.

2. EXAMINE PERFORMANCE-BASED EXECUTIVE INCENTIVE PLANS.

Another compensation strategy that is prevalent in the banking industry is the "executiveincentive plan." Although it sounds complex, using incentive-based compensation for topexecutives in a bank is not complicated; it just takes some effort up front that will be repaid

through an increased bottom line. Instituting an incentive plan can be a boon for banks. "Ouremployees understand exactly what they need to do in order to be successful here, and exactlywhat their individual success means to the overall performance of the bank," explains RobertLewis, president and CEO of Bay State Savings Bank in Worchester, Mass. ACB member Lewisreports that his plan has helped turn his business around.

In short, incentive compensation is a reward to the executive who exceeds performance goals thatare within the executive's control. The most common approach for an executive incentive plan isto provide graduated levels of compensation as a reward for attaining levels of net income orROA. For example, if net income reaches the agreed upon target level, executives receive a setincentive payment. This incentive payment increases as net income reaches pre-determined levels

above the target. The following figure is a schematic model of an annual incentive plan that usesa tiered award system that incorporates both bank and individual goals.

Most incentive plans incorporate one or two other requirements based on the executive's position

in the bank. For example, the Chief Lending Officer may be graded against loan quality as well

as net loan growth; or the Chief Operations Officer may be responsible for non-interest expense

ratios. When multiple variables are used, weight factors are assigned to each variable to calculate

incentive payments. Weight factors are determined by how strongly the executive's performance

impacts the variable.

3. TRY STOCK-BASED INCENTIVES.

Stock-based incentives are becoming more and more common in the banking industry. Currently

approximately 80 to 90 percent of community banks with over $500 million in assets offer some

form of stock. In fact, a recent Towers Perrin study reported that a full 100 percent of all public

U.S. companies are expected to offer some form of stocks as a long-term incentive by 2003.

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Generally, there are two types of stock based incentives: stock equity and synthetic equity. Stock

equity results ultimately in the physical issuance of stock in some form. Even if the executive

opts to receive only cash, the benefit is based upon the fundamental use of real shares of stock.

Synthetic equity is based upon phantom stock issuance. While the stock performance is the same

in either stock or synthetic equity, the accounting treatment is very different.

BIBLIOGRAPHY

1. www.google.com

2. www.ask.com

3. www.businessarticles.com

4. www.hrmhelp.co.za

5. www.space.com

6. www.wikipedia.com

7. www.wiki.answers.com

8. www.allbusiness.com

9. www.witiger.com

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10. www.findarticles.com

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