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Allied Electronics Corporation Ltd:Linking

Compensation to Sustainability Metrics


Case Study

Submitted to :Prof.Manoranjan Submitted by: Aditi Jain


Roll no –EPGCHRM-06-002
Introduction to Altron Familiness
 Altron Electronics Corporation ,headquartered in Johannesburg,South Africa.
 Comprised of Three Principle subsidiaries : Allied digital ltd(Altech),Bytes
Technology Group(Bytes),and Power technologies(Pty) Limted (Powertech).
 In total group controlled more than 200 companies in
Africa,Europe,U.S.,Australia,U.K. and Far East.
 More than 14,000 employees designed developed, manufactured and
marketed a range of telecommunications, electronics ,power electronics and
information technology systems and products.
 Altron was a family owned and closely controlled group .
 The company was founded as Allied Electronic in 1965 by Dr.Bill Ventor who
guided the company from its beginning as a small electronics firm with only 5
employees to a position where it was one of the leaders in South Africa’s high
tech industry.
 Dr.Ventor was a rare combination of entrepreneur and disciplined business
manager.
 The company ensured that its mission and values were updated annually. Its
code of ethics were revisited all year around.
Critically analyze the Compensation
Strategy by Altron??
Compensation Strategy

 Altron was committed to a compensation philosophy that


focused on rewarding consistent, long term individual and
corporate performance that directed employees 'energies and
activities towards key business goals.
 They aimed to ensure appropriate alignment between interest of
shareholders and the operational requirements, strategic
direction and business specific value drivers of the group.
 The compensation practices had been structured to be
competitive in the rapidly evolving industries in which the
company operated and to ensure that the group could attract
,motivate, reward and retain the high caliber people needed to
effectively run the group and its subsidiary companies.
 To achieve this simple ,transparent and credible executive
compensation scheme was needed.
Altron Policies Supporting
Compensation Stategy
 Policy on guaranteed Pay
Guaranteed packages within the Altron group were structured to
be in line with the median of the market but with the provision of
key talent ,both professional and executive to be positioned closer
to or at the upper quartile level of peer companies.
With effect from 1st March,2007,the Altron group adopted a total
cost of employement(TCOE) Policy –which incorporates base pay
,car allowance ,pension medical aid and other optional benifits
opposing earlier cash package approach
 Policy on performance based pay
Altron had a formal framework for performance mangement linked
with the annual incentive scheme.The subsidiaries had tailor made
performance score cards to measure group,business unit,team and
individual performance.The performance score cards and the
assesment process were also used for individual career
development plans .
 Policy on Pay mix for top 50 managers
Altron adopted a pay mix policy supporting the philosophy that the
performance based pay of senior executives(the top 50 managers)
should form a greater portion of their total compensation than
guaranteed pay, and that within performance based pay an
appropriate balance should be targeted between rewarding long term
performance(though long term and /or share based incentives) and
rewarding short term operational performance through bonuses.
 Policy on long term and short term share based incentives for top
50 managers
Hybrid share incentive plan that contained share appreciation rights,
performance shares and bonus share elements.
 Policy on bonuses for top 50 managers
KPIs were used to assess the performance and determine the bonuses
of the top 50 managers. Each executives had 10-15 KPIs that he /she
was measured against. The KPIs were set and assessed individually.
Is the Compensation policy
properly aligned to Strategy as per
changing business environment?
 Facing the changing context in the business environment,Altron had
reshaped its corporate strategy .Altron had also committed to
communicating through integrated reporting.
 Through the case study we came to know that there were some
changes required to be made in Altron .
 Firstly they had tailor made scorecards without taking behavioral
aspects in consideration which cannot be same to all employees
creating inequity and difference of opinion for performance based pay.
 The policy of pay mix was a good decision but it was also been
controlled by external factors which the employee cannot control and it
was affecting severely in their remuneration. The rewards from share
based incentives also varied year to year depending on vesting and
exercise patterns ,and the impact on share price performance.
 Policy on bonuses for top 50 managers was measured on 10-15 KPI’s of
the managers. They were assessed individually .In recent past they
changed it to financial KPI’s 70 percent and non financial KPI’s only 30
percent.This was not a good decision as they preferred more financial
and less non financial performance indicators. They should have
emphasized equally on both for Bonuses.
Would you like to recommend
some changes???
Recommended Changes

 Firstly the company should emphasize on giving more Guaranteed


pay as we came to know from appendix 5 Pay mix that 42% only
comprises of Guaranteed pay and major part is variable pay
.Atleast a definite portion of salary should be at least 50-60%.
 Secondly ,they should set Financial and non financial KPI’s by
defining the competencies in form of Poor, Adequate ,and Superior
levels as prescribed in a detailed manner by defining each
competencies specifically and measure it with all employees with
equal emphasis on financial and non financial performance
indicators(50-50) weightage.
 Thirdly the situation in Altron is building the stress on higher
management so they should significantly try to reduce the
tremendous pressure by altering their compensation policies
otherwise it will lead to dissatisfaction among the higher
managerial people.
Critically analyze the Pay mix of
Altron??
Pay Mix of Top 50 Employees

 Altron made a pay-mix policy supporting performance based pay of


senior executives to form a greater portion of their total
compensation than Guaranteed pay and that within performance
based pay and the appropriate balance was targeted between
rewarding long term performance (through long term and share-
based incentives) and rewarding short term operational performance
through bonuses.
 An Altron standard was adopted for the group,recognizing that the
different nature of three major subsidiaries within Altron might
require differential approaches.
 In practice,the mix would vary and annual cash incentives might be
less than or greater than those targeted should there be “poor”,or
“superior” financial performance in relation to the targeted level .
 The rewards from share based incentives would vary from year to
year depending on vesting and exercise patterns and the impact on
share price performance.
Would you like to recommend
some change's(add or delete of
any component)in the pay mix?
Our Analysis
 The major challenge with existing compensation policy of top 50 managers
at Altron was its adequacy in line with the strategic themes.
 Any redesign in the compensation strategy needed to incentivize the top 50
managers to deliver against the 11 strategic themes.
 In our view the 70/30 split between the financial and non financial KPI’s
were not right to achieve the sustainable value creation in long term.
 It was creating a tremendous pressure for top management to achieve their
targets.
 It was also many times been controlled by the external factors such as
market sentiments, interest rates ,commodity prices and exchange rates.
 In practice also the mix varied a lot and annual cash incentives might be less
than or greater than those targeted should there be “poor” or “superior”
financial performance in relations to the targeted level.
 There was no post implementation feedback procedure in the company to
counter challenge the strategic themes if they were not producing effective
results.
 There should be policy of bonuses for each and every employees
rather than stressing only the higher management .
 KPI’s should be set for each and every employee with proper
weightage to each and every aspect of job in the organization
rather than only emphasizing the top 50 employees.
 More emphasis should be given on fixed guaranteed pay to boost
the morale of employees rather than reducing their salaries due to
non performance of the market conditions.
 Efforts invested by employees should be awarded with non
monetary appraisals if they fail to meet the targets due to
uncontrollable conditions to boost the confidence.
 Brainstorming sessions should be planned to build the low morale
of employees.
Thank you !!