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The document describes the compensation strategy of Allied Electronics Corporation Ltd (Altron), a South African electronics company. Altron aimed to link compensation to sustainability metrics and reward consistent long-term performance. Key aspects of Altron's compensation policies included linking guaranteed pay to market levels, using performance scorecards to determine performance-based pay and bonuses, and implementing long and short-term share-based incentive plans for top managers. While the policies aimed to attract and retain talent, some changes may be needed to better align compensation with Altron's changing strategy and business environment.
The document describes the compensation strategy of Allied Electronics Corporation Ltd (Altron), a South African electronics company. Altron aimed to link compensation to sustainability metrics and reward consistent long-term performance. Key aspects of Altron's compensation policies included linking guaranteed pay to market levels, using performance scorecards to determine performance-based pay and bonuses, and implementing long and short-term share-based incentive plans for top managers. While the policies aimed to attract and retain talent, some changes may be needed to better align compensation with Altron's changing strategy and business environment.
The document describes the compensation strategy of Allied Electronics Corporation Ltd (Altron), a South African electronics company. Altron aimed to link compensation to sustainability metrics and reward consistent long-term performance. Key aspects of Altron's compensation policies included linking guaranteed pay to market levels, using performance scorecards to determine performance-based pay and bonuses, and implementing long and short-term share-based incentive plans for top managers. While the policies aimed to attract and retain talent, some changes may be needed to better align compensation with Altron's changing strategy and business environment.
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 !!
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