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DRIVE Spring 2017

SUBJECT CODE & NAME MU0015 Compensation and Benefits
BK BK ID B1859
Credit and Max. Marks 4 credits; 60 marks

Note Answer all questions. Kindly note that answers for 10 marks questions should be
approximately of 400 words. Each question is followed by evaluation scheme.

Q1. 1. Discuss the contents of Job Evaluation. Describe the process of Job evaluation
Answer : Content of job evaluation :
Job evaluations will determine the salary grade of a job and may occur at any time during the year.
The table below describes the most common reasons for a job evaluation and the corresponding

In the event that a department manager/supervisor would like to recommend a job evaluation, he or
she should contact his or her human resources representative to discuss the situation and process for
conducting the evaluation.

If the HR representative and department manager/supervisor reach agreement that an evaluation is

necessary, they will then complete a job (re)evaluation tool, obtain the necessary departmental
approvals for the review, and then forward the request to the Compensation unit for review.

Once the Compensation unit has reviewed the request, a recommendation will be sent back to the HR
representative. Any pay changes resulting from the Compensation unit's recommendation will follow
the salary increase guidelines.

Job evaluation is a step by step process which is completed after the successful completion of
following phases:

1. Job Analysis
It is a process through which required information about various aspects of jobs can be obtained. Job
analysis involves two dimensions:

i. Job description
Under job description, a profile of job information is prepared indicating the duties, responsibilities
and working condition of work. It explains about what the job entails.

ii. Job specification

Job specification indicates preparation of a specification statement which explains the necessary skills,
knowledge and abilities required to perform the job.

2. Job Rating
Job rating includes the process of using same methods to study job descriptions and specifications in
order to assign a relative worth for each job. Some of job rating methods are: ranking, point rating
factor comparison, and so on.
3. Money Allocation
After rating the worthiness of each job, a pay structure is determined and the money for each job is
allocated. It means, it is the arrangement of paying rewards/compensation for each job according to
its worth or value.

4. Job Classification
Job classification is the last step of job evaluation which is concerned with the categorization of jobs
according to their pay scale. For example, high paying jobs are represented at the top of the hierarchy.

Q2 Suppose you are a HR Manager and you are asked to develop an effective Incentive Scheme for
your organization. What are the pre-requisites you will consider while developing an Effective
Incentive Scheme? Discuss the merits and demerits of Incentives

Answer : A successful incentive compensation plan focuses on achieving company goals by driving the
right behaviors in employees. One of the biggest failures of incentive compensation programs is they
often do not take into account all the key drivers that will make the company successful. How does a
company determine if its incentive plan is effective? If the answer is no to any of the following
questions, chances are the company is not getting the most benefit out of its plan.

Is there a defined corporate strategy that is communicated to the rest of the organization so
employees understand what the company wants to accomplish?
Does the incentive plan drive behaviors that lead to the objectives outlined in the corporate
strategic and business plans?
Are there well-defined and communicated best practices?
Does management know what competitors are paying for base pay and incentive
compensation so the company can be competitive in its offerings?
Does the company have a threshold of financial performance that it must reach before a
bonus pool is created (to ensure shareholders are compensated for their risk first)?
Do employees know the company must reach a threshold of profitability, safety performance
and other goals before a bonus pool is created?
In addition to the companys performance, do employees know what specific individual
performance goals they must accomplish in to be paid all or a portion of their targeted bonus?
Do personnel receive periodic, objective feedback on their performance throughout the year
in an easy-to-administer employee review process?
Do employees know how well the company is doing throughout the year because of proactive
Des the company balance issues such as return on shareholders investment and profit as a
percent of revenues with the potential amounts that can be paid under a plan?

Merits of the Incentive System

Incentive system of wage distribution has following merits to its credit:
1. Incentive system is a healthy way to strengthen the productive front of the industry.
2. Employers as well as workers, both are at advantage.
3. Incentive system reduces the burden of heavy supervision costs.
4. It has been found that the cases of absenteeism arc comparatively lower than in other systems
. of wage payment.
5. It develops healthy industrial relations and reduces chances of disputes between the workers
and the employers.
6. Incentive system provides better scope for developing human ingenuity.
7. Incentive system develops the feeling of co-operation among the workers.
8. Supervision instead of acting as watch dogs, now act as individuals responsible for managing
machines and materials being employed.

Demerits of the Incentive System

1. Though it is expected that under incentive scheme production must go up, but there is equal
chance of contrary happenings. r
2. It is very difficult to consider and achieve the psychological and social dimensions.
3. Employment is uncertain.
4. It is difficult to measure the proportionate value of the extra work done.

Q3 Discuss the types of managerial remuneration. Explain the elements of a managerial


Answer : Managerial remuneration is compensation for services provided to a company in a

managerial capacity. This can include cash payments, along with benefits like stock options, health
insurance, and bonuses. Managers are typically paid more than the people they supervise, although
they tend to make less than the executives at the head of the company. Some pay structures are
transparent, making it easy to determine how much money managers make, while others may be

Elements of a managerial remuneration

For Group Management, total remuneration consists of fixed salary, short-term and long-term
variable remuneration, pension and other benefits. If the size of any one of these elements is
increased or decreased, at least one other element has to change where the competitive position
should remain unchanged.

Fixed salary
Fixed salaries are set to be competitive within an individuals home market. When setting fixed salaries
the Remuneration Committee considers the impact on total remuneration, including pension and
associated costs. The absolute levels are determined by the size and complexity of the position and
the year-to-year performance of the individual. Together with other elements of remuneration, Group
Management salaries are subject to an annual review by the Remuneration Committee, which
considers external pay data to ensure that levels of pay remain competitive and appropriate to the
remuneration policy.
Short-Term Variable remuneration
The annual variable remuneration is delivered through cash-based programs. Specific business targets
are derived from the annual business plan approved by the Board of Directors and, in turn, defined by
the Companys long-term strategy. Ericsson strives to grow faster than the market with best-in-class
margins and strong cash conversion and therefore the starting point is to have these as three core

Sales Growth
Operating Income
Cash Flow
Long-Term Variable remuneration
Share-based long-term variable remuneration plans are submitted each year for approval by
shareholders at the Annual General Meeting. All long-term variable remuneration plans are designed
to form part of a well-balanced total remuneration and span over a minimum of three years. As these
are variable plans, outcomes are unknown and rewards depend on long-term personal investment,
corporate performance and resulting share price performance.

Total remuneration
When we consider the remuneration of an individual, it is the total remuneration that matters. We
first consider the total annual cash compensation, looking at target level of short-term variable
compensation plus fixed salary. We then add target long-term variable remuneration to get total
target remuneration and, finally, pension and other benefits to arrive at the total package.

4. Define Pay Structure. What are its objectives? Explain the major decisions involved in designing
and setting competitive pay structures

Answer : : Pay structure : A pay structure is a collection of pay rates or pay ranges. Structure setting
and adjustment is the process of developing, adjusting, and maintaining a pay structure. Salary
structures are a necessary part of effective management. They help make sure that the pay levels are
externally competitive and internally fair.

Reason for developing a proper pay structure :

Salary structures are a necessary part of effective management. They help make sure that the pay
levels are externally competitive and internally fair. Salary structures also allow companies to reward
performance and development while controlling cost. Well-designed salary structures will attract
highly skilled people to your company and keep them motivated within the organization.

Several factors are taken into consideration when designing salary structures. This includes job
analysis, and salary surveys. One of the key factors when designing salary structures is the balance
between internal and external pay equity. Internal pay equity refers to the employees pay compared
with those in similar positions within an organization. External pay equity refers to employees pay
compared with those with similar positions outside of the company.

Generally, companies employ two types of salary structures- Traditional and Broadband salary

Factors :
1.The traditional pay model may offer consistency and the perception of fairness, but it can have
unintended, counterproductive results.
2.A competency-based pay structure requires practices to commit to ongoing staff training and can
entail higher costs.
3.In practice, merit-pay systems often fail to create a link between pay and job performance.
4.The practice-effectiveness model includes base salaries as well as variable pay based on the
practice's success.

Steps :
1.Establish your compensation philosophy: Each employer needs a policy which outlines their desired
market position. A well-articulated compensation policy provides valuable guidance for the
development of a salary structure.
2.Gather market data: Identify surveys with your desired comparators (as specified in your comp
policy). Most employers prefer at least two survey sources. In international markets this can be
challenging, especially in developing countries and smaller markets.
3. Identify benchmark jobs. Benchmark jobs are those that are representative of roles found across
many organizations standard roles such as Manager, Accountant, Payroll Administrator, Secretary,
Clerk and Driver.
4. Measure your market position. There are several ways to do this. If you have a lot of benchmark
jobs, tabulate the average of all of the roles in the same internal level or grade.
5.Calculate the comp-ratio. This is the ratio of your data to the market 100 means fully comparable,
while a ratio under 100 indicates a below market position, and over 100, above market. There are
different approaches to summarizing the data by position, by grade, etc.Whatever approach you
6. Check your budget. This is a critical step. In Step 5 you can calculate the average difference
between your current scale and the market. This indicates about how much of an increase would be
required to make your scales fully comparable to the market.
7.Final adjustments. Once you have built your new scale and matched it to the market as closely as
possible, and within your budget, give it a once over.

5 Explain the criterias considered for rewarding the employees for their good service
Explanation of the criterias responsible for rewarding the employees

Answer : Managers who want to recognize employees for good work have many tools at their disposal.
One of the more traditional ways to reward a top performer is to give her a promotion or raise or
both. But how can you know whether someone is truly ready for the next challenge or deserving of
that bump up in pay?

HR policies and company culture often dictate when and how people move up in a company. However,
managers in most companies have a good deal of input into the decision, and in some cases they are
the ultimate decision makers. Whether you have this authority or not, promotions and raises need to
be part of an ongoing discussion with employees about their performance.

Assess current performance using multiple sources

As a first step, you need to be sure the employee is able to do the job you are considering promoting
her into. Take a look at her performance. It is especially important to seek input from people who
interact with the employees in ways that you dont. Talk to peers, team members, and people she
manages. In some cases, you may find that shes already doing parts of the new job.

Consider the competence-challenge balance

A good indicator that you may need to promote someone is if he is expressing a desire to learn more
and take on a new challenge. People who are particularly good at their jobs may quickly master them
and need to be stretched.

Make sure there is a match

Before promoting someone into a new role, consider whether its something she will enjoy doing.
Many managers fail to consider that just because someone is good at a job, doesnt mean she will take
pleasure in it.
Experiment before making the new job permanent
Occasionally, you may need more information to judge the employees expected performance in a
new role. Be transparent with the employee about this experiment. Make it short-term and outline
clear success criteria and an evaluation timeline. Be careful though you dont want to invisibly
promote your people without recognizing their contributions. Providing more responsibility without
a corresponding change in title or raise can sap motivation.

How much of a raise?

With some promotions, it may be obvious how much of a raise you should give based on how much
others doing the same job are paid. However, many job changes are not as clear cut. The employee
may be retaining some of her former responsibilities while taking on new ones. Create a job
description for the new role. Take a look at all of her duties and try to benchmark them against other
jobs in the company or in the broader employment market.

When you have to say no

If your employee raises the idea of a promotion but you worry hes not ready, have an open discussion
to hear his reasoning and share your concerns. Be clear about what competencies or experiences he
needs to gain in order to be promoted and create an action plan for how he can do that. Provide him
with the tasks and assignments he needs to expand his skills.

Remember, there are other ways to motivate

Due to a limited budget, you may have to say no to someone who is deserving. There also may not be
the right opportunity. These can be tough conversations. Be honest and transparent. Explain the
rationale and be sure the employee understands that you value him. Give him stretch goals that help
prepare him for the future when the company is better positioned to give him a promotion or raise.

6 Write a short note on the following:

a) Wage Policy Plan in India

Answer : Minimum wages need to be fixed in sweated industries & fair wage agreements need to be
promoted in the more organized industries. Equal pay should be ensured for equal work. Wage
differentials should be provided. Remuneration should be linked to productivity.

1) Fixing of minimum wages: The appropriate government shall fix the minimum rates of wages
payable to employees employed in the industries specified in the schedule. Revision can take place
once in five years. The minimum wage may be fixed at a rate.
2) Minimum rate of wages: It consists of A basic rate of wages & a cost of living allowance. A
basic rate of wages & a cost of living allowance & the cash value of the concessions in respect of
supplies of essential commodities of concession rates.
3) Working hours: The Government has fixed 48 hours per week.
4) Overtime: Where an employee works on any day in excess of the number of hours constituting
a normal day, the employer should pay him the overtime rate as three times the daily wage.
5) Employers obligation: Once the minimum wages are fixed or revised according to the
procedure, it becomes the legal obligation of the employers to pay the rates. They cannot plead the
incapacity of the industry to pay.
6) Exemptions: The government may direct that the provisions of this Act shall not apply in
relation to the wages payable to disabled employees.
7) Content of minimum wages: The Fair Wages Committee viewed that the minimum wages
must provide not merely for the bare subsistence of life but also for the preservation of the worker
efficiency by providing for some measure of education, medical aid & amenities.
8) Different categories: The Act permits fixation of different minimum rates of wages for
different classes of work in the same scheduled employment. Payment of minimum bonus: Every
employer shall be bound to pay every employee in respect of any accounting year a minimum bonus
of 8.33% of the salary earned by him in the whole year.
9) Computation of working days: An employee shall be deemed to have worked on the days on
which he/she had been laid off under an agreement, standing orders, or the Industrial Disputes Act
was on leave with salary was absent due to temporary disablement caused by an accident arising out

b)Voluntary Retirement Scheme(VRS)

Answer : In the present globalised scenario, right sizing of the manpower employed in an organisation
has become an important management strategy in order to meet the increased competition. The
voluntary retirement scheme(VRS) is the most humane technique to provide overall reduction in the
existing strength of the employees. It is a technique used by companies for trimming the workforce
employed in the industrial unit. It is now a commonly method used to dispense off the excess
manpower and thus improve the performance of the organisation. It is a generous,tax-free severance
payment to persuade the employees to voluntarily retire from the company. It is also known as
'Golden Handshake' as it is the golden route to retrenchment.

In India, the Industrial Disputes Act,1947 puts restrictions on employers in the matter of reducing
excess staff by retrenchment, by closures of establishment and the retrenchment process involved lot
of legalities and complex procedures. Also, any plans of retrenchment and reduction of staff and
workforce are subjected to strong opposition by trade unions. Hence, VRS was introduced as an
alternative legal solution to solve this problem. It allowed employers including those in the
government undertakings, to offer voluntary retirement schemes to off-load the surplus manpower
and no pressure is put on any employee to exit. The voluntary retirement schemes were also not
subjected to not vehement opposition by the Unions, because the very nature of its being voluntary
and not using any compulsion. It was introduced in both the public and private sectors. Public sector
undertakings, however, have to obtain prior approval of the government before offering and
implementing the VRS.

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