Compensation ManagementA Strategic OverviewOld thinkingHR performance primarily administrative role.New thinking.HR performs primarily strategic roleMaintainingpersonnel filesCompensation/BenefitsBenefitsadministrationRelocationApproval cycles,exceptions, andpolicy interpretationRecruitEmployee lifecycle managementRetireHR RoleCorporatestrategy/objectivesLeadershipMatchingSkillsCultureRewards & Conse-quencesMotivationCross-functionalteamsOrganizationdesignHuman Resource as Business PartnerIndividualPerformancePlanIndividualPerformance Plan:PMP2001HROperationDirection Balanced ScorecardHRTacticalDirection Functional Guide/Matrix to HR Team 4 Roles and Key AccountabilitiesHR StrategicDirection HRs 4 Roles and Key AccountabilitiesCorporateStrategy And Goals HR Mission, Vision and Values StatementDay-to-Day Operational FocusFuture/Strategic FocusPeopleProcessesStrategic HR PlanningHR as Business PartnerCulture and ImageStrategicPartnerStaffingOrganizationalDesignSuccessionPlanningPerformance MeasurementTraining & DevelopmentEmployee RelationsLabor RelationsEnvironment, Health, Safety & SecurityVOW Survey Action PlanCompensationBenefitsHR Information SystemsComplianceAdministrative ExpertEmployee Relations ExpertChange AgentCOMPENSATION MANAGEMENTWe believe in paying competitive wages that commensurate with job size and individual performanceWELFARE MANAGEMENTWe believe in being a firm, fair and caring employer. We strive to make employees value their jobs and want to remain in the organization based on their abilities to contribute and grow.PERFORMANCE MANAGEMENTWe believe in equipping employees with the necessary skills to do a good job, providing them with the tools, the environment, the support and the information needed to excel in their jobs.CAREER MANAGEMENTWe believe in matching employees strengths and aptitudes to available jobs, developing them to their highest potential and offering them opportunities to advance in their careers.CULTURE/VALUE MANAGEMENTWe believe in instilling our corporate core values and promoting a corporate culture that emphasizes results, teamwork, learning, sharing, service quality and work excellence.q Need a balanced approach to maximize ability to attract, retain and compete effectively in this marketDollars:Economic EquitySENSE:Emotional EquityqLets look at what we are doing to develop and support stronger manager/employee relationshipsqHR Management - An OverviewqCurrent HR ChallengesqTotal CompensationqPhilosophyqT-Comp DriversqStrategies in CompensationqPolicies & PracticesqManaging Local Employees:Basic ComponentsTemplate for T-Comp DesignMeasuring Performance in MNCsqExpatriate Compensation: Managing Expatriate CompensationThe Balance-Sheet ApproachForeign Service PremiumHardship AllowanceCost of Living AllowanceAdditional PerksTax TreatmentqConclusion . and Some Points to PonderCompensation Mgt. T-Comp philosophy & design T-Comp planning & admin. Incentive plans (MIPs/LTB) Profit-sharing scheme Reward & recognition prog. Expatriate mgt.Manpower Mgt. Headcount management Recruitment strategies Sources of labor supply Selection process & tools Retention strategies & plans Staff deployment Staff orientation Employee Relations Mgt. Benefits administration Code of conduct & ethics Employee discipline Employee communications Staff social, sports & recreation Community services & relationsEHS&S Mgt. Environment mgt. Employee wellness Employee health services Loss prevention Asset management Safety mgt. Culture/Values Mgt. Corporate vision Corporate mission Culture building Teambuilding Habits buildingPerformance Mgt. (HRD) Staff training & development Succession planning Career planning Coaching & counseling Appraisal review/ranking Organization development Leadership developmentHuman Resource Admin. Records & information mgt. Personnel research HR policy review HR process improvements HR performance stds & audit Legal compliance Document controlIf you:qAre loyalqWork hardqDo as youre toldWell provide:qA secure jobqSteady pay increasesqFinancial securityAnd, youll be part of:qA safe, secure organizationqStayqDo your job plus someone elsesqVolunteer for task forcesqA job if we canqGestures that show we careqThe same payqA business struggling to competeDevelop skills we needApply them to help us winLive our valuesA challenging work environmentSupport for developmentReward for your contributionA progressive industry leaderThe New Deal in Employment Relationships1980s and 1990s2000 and beyondqConstant organizational change and the need to adapt to new requirements;qGlobal workforce mobility vs. the ability to develop people and retain talents;qThe need to maintain / enhance its competitiveness vs. containing cost; andqThe social responsibility to provide for lifestyle improvements in an increasingly affluent society.InternalequityExternalequityEmployeeequityAdministrationConceptsCompensation TechniquesPlanning, Budgeting, Monitoring, EvaluatingJobAnalysisJobDescriptionJobEvaluationJobGradesMarketDefinitionsSalarySurveysPolicyLinesPayStructuresSeniorityIncreasesPerformanceEvaluationIncreaseGuidelinesCompensation ObjectivesRole clarity and accountability.Facilitates administration and performance management.Competitive wage policies and practices.Influence employees workattitudes and behaviour.Attract talents.Retain talents.Motivate employees.Comply with regulations.Consistency in policyadministration.The Strategic Compensation ModelqCompensation management essentially involves: nManaging employee perceptions and expectations;nUnderstanding the history and values of the organization; andnAligning programs to the companys business goals and strategies.qA major compensation theme today is Total Compensation, as variable pay is increasingly replacing traditional base pay increases. o Total Compensation philosophy and designo Total Compensation planning and administrationo Incentive schemeso Profit / gain-sharing schemeso Reward and recognition programso Expatriate management14The companys overall compensation philosophy is to pay performance relative to the market, focusing on total compensation. This helps to :- Attract outstanding external candidates- Retain high performing employees- Not retain low performing employees - Motivate employees to perform at their highest level- Focus each employee on specific contributions they make to the overall success- Put compensation decision-making in the hands of managers15Review Pay Philosophy Participate in ExternalSalary Surveys Verify BenchmarkJob Matches in SurveysCollect & EvaluateSurvey DataDevelop SalaryStructuresEvaluate Cost &Develop Merit GridsDistribute CommunicationPacketManagement prepares and submitsperformance reviews as appropriate* qDo we wish to pay salaries to employees based on their job sizes? Concept of internal equityqHow do we link individual contribution and performance to pay?Concept of meritocracyqWho do we need to benchmark against to ensure pay levels and practices are competitive?Concept of external equityJob sizePerformanceMarket ratesSalariesBonuses & incentivesBenefitsqSet guidelines that underline the philosophy of the Companys T-Comp pertaining to:nThe direction of the organization - evolving from where we are today to where we want to be.nThe positioning of individual components relative to market norms.nThe design of value-added cost-effective program with maximum motivational effect at minimum cost increase.qExternalnGovernment legislationn3rd party interventionnCompetitor practicesnNew entrantsnLabor supply shortage / brain drainnEconomy, including employment conditionsqInternalnCostnCompetencenCommitmentnBusiness needsnOrganization structure and valuesqAlign strategically to business goals.qPosition competitivelynTo remain comparable with external community practices; andnTo enhance ability to attract and retain people.qStreamline salary practicesnFor internal equity; andnTo create promotion opportunities / career commitment.qMerit-based compensation systemsnTo reward and recognize good and sustained performance for both individuals and work teams.qDeferred compensationnTo share in company successes / achievement of long-range goals.qProgram cohesivenessnTo integrate and streamline Compensation programs with other HR systems and policies; andnTo manage expectations and measure program effectivenessqAnnual base salary12 months base salary, regular cash allowances + year-end 13th monthqTotal CashAnnual base salary + bonuses & cash incentives.qTotal EarningsTotal cash + other non-cash components and incentives.qTotal CompensationTotal earnings + value of benefits, both in cash and in kind, including pension funds.BaseTotalCashTotalEarningsTotalCompensationBase, allowances & AWSBonuses and cash incentivesBenefits & perks0102030405060708090100BaseTotalCashTotalEarningsTotalCompensationOther non-cash components / incentivesIndividualComponentsLinkageSystemsCulture/ValuesBase Salary Job size / skills Performance-based Communitypractices Job evaluation Job grades PerformanceAppraisal Salary surveys Open Open active PositioningstrategyVariable Pay Companysprofitability Performance index Mgt Incentive Plan Profit-sharing Variable Bonus Long-Term Bonus Team based Individual basedOther CashEquivalents Seniority inhierarchy Performancebased Stock options Incentive schemes Employeepurchase prog. Partially Open CloseStaff Benefits Seniority inhierarchy Seniority in service Core Benefits Flexible benefits Foreign service Open Open activePerquisites Seniority inhierarchy Certain job grades Specialappointments Partially open CloseqBy production output / service resultsnProduct quality, yield and cycle timenBTO/CTO and time-to-market technologynOn-time deliveries (95/5) and Service QualitynScrap, waste, cost of reject / non-conformanceqBy financial performancenProfitability (GM) / Return Measures (ROIC / EVA)nEarnings Per SharenRevenue Growth/Territory PenetrationnMarket Share/Product MixnExpense control / cost savingsExample of EPS-LCC Payout Matrix for Executive Bonus$ 4 .0 0$ 5 0 k(4 m th s )$ 7 5 k(6 m th s )$ 1 0 0 k(8 m th s )E P S$ 2 .0 0$ 2 5 k(2 m th s )$ 5 0 k(4 m th s )$ 7 5 k(6 m th s )0$ 2 5 k(2 m th s )$ 5 0 k(4 m th s )02 xL C C4 xE a rn in g P e r S h a re (E P S ): E a rn in g sS h a re C a p ita lL a b o r C o s t C o m p e titiv e n e s s (L C C ): V a lu e -A d d e dL a b o r C o s tBy customer satisfactionnCustomer satisfaction ratingsnCustomer complaints / returnsnVendor / supplier awardsqThe basic components of an expatriates compensation viz. base salary, variable pay, staff benefits and other perks (if any) are typically linked to home country practices.qHowever, companies needing to incent employees to relocate and compensate for:mExpatriation to host country;mHardship;mCost of living differentials;mTax differentials; andmRepatriation and re-adjustment to home country practices.qBasic principleTo allow the expatriate employee to maintain a compensation position equivalent to an average counterpart employee in the home country.i.e. Differences in housing costs, goods and services costs, education and taxes must be accounted for in deriving the net, after-tax compensation of the employee.qEffect of Balance Sheet ApproachHome CountryHost Country BaseBase salaryHousingGoods & Svcs. Hardship Foreign SalaryDifferentials Differentials AllowancePremiumRationale for paymentmIncent employee for taking the international service assignment.mReimburse for separation from home country and its ties, cultural adjustment, necessity to learn new language etc.qIt is NOT related to cost differentials, and therefore is not part of the package designed to maintain with the average counterpart in the home country.qRationale for paymentmTo recognize certain disadvantages or hardships during the assignment.qFactors of considerationmMedical / sanitary standards;mPolitical stability;mRecreational opportunities andmClimatic differences usually involving extremes.qLike Foreign Service Premium, it is NOT related to cost differentials.qBasic principlemTo pay for the differences in relative costs of goods and services between the home and host countries.qThere are established standards of measure of the basket of goods and services, after currency fluctuations have been taken into account.SporeOverseaslocationqFamily AllowancemMonthly allowances for family maintenance.qChildren EducationmSchool and lodging, where applicable, for childrens education at International School standards to facilitate future adaptation to local school curriculum.qHome tripsmForm of rest and recreation for employee and family, where applicable, to visit family member, relatives and friends at stated intervalsTwo most common practicesmTax equalizationThe tax burden of the expatriate employee is maintained at parity with what it would have been, had the employee remained in the home country at the same base pay.A hypothetical tax on the base pay will be deducted from the employee and any additional taxes will be borne by the companymTax protectionCompany reimburses expatriate employee for the excess of the employees actual foreign and local taxes.Overseas taxSingapore taxqWhat are the goals and long term direction of the organization with regard to Total Compensation?qWhat is the position of the individual components relative to market?nBase salarynVariable paynOther cash equivalentsnBenefits & perquisitesqWhat is the proportion of the individual components to base salary?qShould variable pay be linked to productivity or other performance indices?qWhat is the companys philosophy on the provision and packaging of its benefits?Managing people is essentially managingPAY,PERFORMANCE,andPERCEPTIONq“Human Resource Champions” by Dave Ulrich, Harvard Business School Press, 1997q“A Handbook of Human Resource Management Practice 7th Edition” by Michael Armstrong, Kogan Page 1999q“A Handbook on Compensation” by Milton L. Rock InternalequityExternalequityEmployeeequityAdministrationConceptsCompensation TechniquesPlanning, Budgeting, Monitoring, EvaluatingJobAnalysisJobDescriptionJobEvaluationJobGradesMarketDefinitionsSalarySurveysPolicyLinesPayStructuresSeniorityIncreasesPerformanceEvaluationIncreaseGuidelinesCompensation ObjectivesRole clarity and accountability.Facilitates administration and performance management.Competitive wage policies and practices.Influence employees workattitudes and behaviour.Attract talents.Retain talents.Motivate employees.Comply with regulations.Consistency in policyadministration.The Strategic Compensation ModelJob evaluation is a decision process of comparing one job with another job with the aim of establishing the relative importance of jobs within the organization.Job evaluation will provide an internally logical ranking of all jobs which will form the basis of the companys salary structure qEvaluating the job, not the job-holderqEvaluating the present job, not the future jobqJob is being carried out in a fully acceptable and competent mannerqProcess of evaluation is based on given facts in the job descriptions qSimple And Readily UnderstoodqInvolve Members By ParticipationqSense Of Justice And FairnessqExclude Market Factor From ConsiderationqAgreed Set Of Evaluation CriteriaqClear Guidelines For Change To New Salary StructureqFirm Has The Ability To PayqCan Be Implemented Within Reasonable Time FrameqPermits Quick Reaction To ChangesqReduces Leap-Frogging “A Task exists whenever human effort must be exerted for a specific purpose. When sufficient tasks accumulate to justify the employment of a person, a job position exists. Thus a position is an aggregation of duties, tasks and responsibilities requiring the services of an individual”A job may be defined as a group of positions which are similar in nature.A job description is a document which describes the duties, tasks, responsibilities and the results expected when the tasks are fulfilled.A job grade refers to a family of jobs whose tasks may be very different from one another, but whose job sizes are quite similar based on a given set of criteria for measure. qQualitative Method (an example is the Job Classification Method and the Job Comparison Method)qQuantifying the Qualitative Method (an example is the Point Method)qQuantitative Method (an example is the Guide Chart Profile Method) qJob Class A : Doctorate Degree with at least 10 years post doctoral experience plus relevant management experience (Faculty Head)qJob Class B : Doctoral Degree with at least 5 to 10 years post doctoral experience (Full Professor)qJob Class C : Doctoral Degree with less than 5 years post doctoral experience or Masters Degree with over 10 years post graduate experience (Associate Professor and Senior Lecturer)qJob Class D : Masters Degree with 5 to 10 years post graduate experience (Lecturer)q Job Class E : Masters Degree with 3 to 5 years experience (Assistant Lecturer)q Job Class F : Masters Degree with less than 3 years experience (Teaching or Research Assistant) qFirst developed by Merrill Lott in 1925.qMost popular method of Job Evaluation in the world. Widely used by many industries in different countries.qConsidered to be simple and objective by many people.qCan be done in-house without help of external consultants if there is budget constraint.Job Evaluation Process1. Form a Job Evaluation Steering Committee2. Draw up a workplan for the exercise3. Decide on the benchmark jobs4. Decide on the job factors for the evaluation5. Determine number of degrees for each factor6. Prepare job descriptions based on job-factor format7. Analyse each benchmark job in terms of factors and degrees8. Decide on the weights of each factor9. Determine the weighted score for each benchmark job10. Slot in all other jobs into the job gradesForm the Job Evaluation (JE) Steering Committeea. The Steering Committee should be chaired by the CEO with functional Managers/ Heads as members. The HR Manager should be the Secretary of the JE Steering Committee.b. If an external consultant is employed to assist in the exercise, then he should be designated as the advisor to the Steering Committee. The HR Manager should then double-up as the counterpart for internal skills transfer.Draw up a workplan for the exercisea. With the terms of reference and role of the Steering Committee defined, a decision is needed on the job groups to be evaluated.b. If the JE exercise is undertaken for the whole company, then the normal sequence of the exercise is:i. Senior Management jobsii. Middle Management jobsiii. Junior Management (including confidential staff)iv. Non-exempt staffDecide on the benchmark jobsa. Draw up a population density profile of jobsb. Select benchmark jobs based on:i. High population densityii. Representative jobs across functionsiii. Representative jobs across hierarchical levelsiv. Stable and well-defined jobsc. The following jobs should be avoided:i. Temporary job ii. Recently created jobs or new jobsiii. Jobs with peculiar requirements not normally needed in most jobsDecide on job factors for the evaluationa. The aim is to establish a proper basis or criteria to evaluate each job. Normally 8-10 factors are chosen. Too many factors will result in a over-complex scheme with excessive overlap and duplication between factors.b. Some common factors adopted are:i. Education ii. Experience iii. Interpersonal skillsiv. Kind of problem encounteredv. Size of unit supervised (supervision)vi. Decision making authorityvii. Work environment (hazards)viii. Impact on errorsix. Contacts and committees x. Resources controlled (value of assets) Determine number of degrees for each factora. Prepare a preliminary definition of each factor and divide it into degrees each of which is also defined.b. It is usual to restrict the number of degrees between five and eight. qA : High School LevelqB : Diploma LevelqC : Bachelor Degree LevelqD : Masters Degree LevelqE : Doctorate Degree LevelqA : Less than 2 years relevant work experienceqB : Between