CU MBA SEM IV -COMPENSATION AND REWARDS MANAGEMENT

7.4 SALARY SURVEYS A salary survey is a part of research done more often by the staff specialists to find out the prevailing trends of compensation in the market and the competitors in the same industry. Salary survey depends on the region, age structure, economic conditions and size of the organizations. Salary surveys are important for an organization to be in line with the practices of legal compliance of the remuneration policies laid down by the government. These surveys include average compensation packages of the organizations, compensation budgets of the organizations, inflationary indicators of the economy. Fig 7.7 and 7.8 are some examples of the results of salary surveys. Fig 7.7 (Ref: https://www.augi.com/articles/detail/surveys-article-salary-survey-correction-pay-by-education) 101 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 7.8 7.5 THE WAGE CURVE, PAY GRADES AND RATE RANGES Wage Curve: Wage curve is the graphical representation of the relationship between the worth of a job with the provided pay rates. Wage curves are formulated while assessing job evaluation systems to ensure fairness of the remuneration matching with the productivity of the employee. Pay Grades: Pay grades are the standards of the compensation systems that determines the remuneration amount an employee will receive at different levels of the job. 102 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 7.9 Rate ranges: Rate ranges determine the series of wage rates with the pay variables of a particular job profile. It determines the lower limit and the upper limit of a same job’s remuneration package. Fig 7.10 103 CU IDOL SELF LEARNING MATERIAL (SLM)

7.6 SUMMARY 1. The term wage means any kind of remuneration offered to the employee in terms of monetary value which is in exchange of the labor and services provided by the employee to the organization. 2. Variation in wages depends upon the difference in the aspects of region, time and industry. 3. Depending upon the fluctuations in the business cycle, wage rates change according to the timely and prevailing trend of the economy to sustain in the business. 4. The differences in the wage level as per the region due to several prominent factors such as demographic, geographic and inflationary rates of that particular region. 5. The wage rate difference of two or more industries in the same region is known to be industry variation in wage. 6. Minimum wages are the bare minimum amount to be paid to the employee as per their efficiency or work. The minimum wages act determines minimum standards of payments beyond which the organization cannot pay less for the said job profile. 7. Fair wage is the average of minimum wage and living wage. 8. Living wages are considered to be the wage amount that would be sufficient for the cost of necessities as well as the affordability of increasing a relatively higher standard of living. 9. A salary survey is a part of research done more often by the staff specialists to find out the prevailing trends of compensation in the market and the competitors in the same industry. 10. Wage curve is the graphical representation of the relationship between the worth of a job with the provided pay rates. 11. Pay grades are the standards of the compensation systems that determines the remuneration amount an employee will receive at different levels of the job. 12. Rate ranges determine the series of wage rates with the pay variables of a particular job profile. It determines the lower limit and the upper limit of a same job’s remuneration package. 104 CU IDOL SELF LEARNING MATERIAL (SLM)

7.7 KEYWORDS • Wage differentials: variation in wages • Cost of living index: standard of living index in terms of inflation • Wage curve: graphical representation of wage structure • Compensation taskforce: stakeholders involved in the team of compensation system • Rate ranges:determines the lower limit and the upper limit of a same job’s remuneration package. • Salary survey: research done more often by the staff specialists to find out the prevailing trends of compensation 7.8 LEARNING ACTIVITY 1. Based on the financial crisis of COVID 19 pandemic, conduct a salary survey of a hospitality and hotel industry on the executive, middle level management and top management levels. ________________________________________________________________________ ________________________________________________________________________ 2. Depict a graphical representation of the results of your survey. Prepare a questionnaire of the same. ________________________________________________________________________ ________________________________________________________________________ 7.9 UNIT END QUESTIONS 105 A. Descriptive Questions Short Questions: CU IDOL SELF LEARNING MATERIAL (SLM)

1. What is meant by wage concept? 2. What are the types of wage differentials? 3. What is meant by salary survey? 4. What is forced labor? 5. Differentiate between minimum wage and living wage. Long Questions: 1. What are the factors determining fair wage? 2. Write a short note on salary survey. 3. ‘Pay grades are the standards of the compensation systems.’ Justify the statement with the help of an example. 4. Explain the concepts of pay grades and rate ranges. 5. Why are wage curves developed? B. Multiple Choice Questions 1. _____in wages depends upon the difference in the aspects of region, time and industry. a. Variation b. Rates ranges c. Changes d. Pay grades 2. The wage rate difference of two or more industries in the same region is known to be _________ variation in wage. a. deflationary values b. industry c. time d. region 3. _________ wages are the bare minimum amount to be paid to the employee as per their efficiency or work. a. living b. non poverty c. fair 106 CU IDOL SELF LEARNING MATERIAL (SLM)

d. minimum 4. _______ wage is the payment of labor which is paid to the workers for their jobs having cost of efficiency, hardships and pain. a. living b. non poverty c. fair d. minimum 5. __________ include average compensation packages of the organizations, compensation budgets of the organizations, inflationary indicators of the economy. a. Salary Surveys b. ERP modules c. Performance Management System d. Management Information System Answers 1-a, 2-b, 3-d, 4-c, 5-a 7.10 REFERENCES Textual Reference: Wages and Salary Administration by A. M. Sharma Online References: • https://www.legalserviceindia.com/legal/article-1127-different-concepts-of- wages.html • https://blog.ipleaders.in/the-minimum-wages-act-1948/ • https://www.business-standard.com/article/economy-policy/expert-committee- suggests-rs-9-750-a-month-as-national-minimum-wage-119021500036_1.html • https://www.augi.com/articles/detail/surveys-article-salary-survey-correction-pay-by- education 107 CU IDOL SELF LEARNING MATERIAL (SLM)

108 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT8 JOB EVALUATION SYSTEMS STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Importance of Job Evaluation System 8.3 Process of Job Evaluation System 8.4 Methods of Job Evaluation System 8.5 Summary 8.6 Keywords 8.7Learning activity 8.8 Unit End Questions 8.9 References 8.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Explain the meaning of job evaluation systems - Describe the importance of job evaluation systems - Outline the process of job evaluation systems - Identify the methods of job evaluation systems 8.1 INTRODUCTION Meaning Of Job Evaluation Systems Job evaluation systems are a process of identifying the worth of relativity of job profiles among various jobs in the organizations. It helps in determining the factors which are required in formulating wages and salaries and standardizing the process of determining wages. It analyses and describes the job positions, group them with relative values in comparison with the duties and responsibilities of the jobs. 109 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 8.1 In the absence of job evaluation systems, the productivity of the organization may not grow as the high value jobs are sometimes under paid. Job evaluation is one of the initial processes of formulating the compensation system. A productive job evaluation system helps in setting up fair remuneration policies in the organization 110 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 8.2 8.2 IMPORTANCE OF JOB EVALUATION SYSTEMS Job evaluation systems plays a significant role in achievement better organizational roles and maintains good industrial relations. Following are the importance of Job Evaluation systems. • To develop a standard format of determining the fair relativity of worthiness of each job in exchange of its remuneration offered. • To develop equitable and fair rates of compensation of the jobs in the organization with respect to the industrial trends. • To promote reasonable considerations for employee transfer and promotions. • To formulate factual data of staff requirements and salary structures, training and development programmes and other wage related aspects of the organization. 111 CU IDOL SELF LEARNING MATERIAL (SLM)

• To develop a productive compensation system which would reduce the cost of recruitments. Fig 8.3 112 8.3 PROCESS OF JOB EVALUATION SYSTEMS CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 8.4 Job evaluation system is a flow of certain activities and events to execute an efficient compensation system Fig 8.4 depicts the process of a general job evaluation system of an organization. Gain acceptance of various job profiles, create a committee to evaluate different jobs, find the right jobs to be evaluated, analyses and prepare job descriptions, select appropriate method of job evaluation and classify them, execute the job evaluation system and review and monitor it regularly. 113 CU IDOL SELF LEARNING MATERIAL (SLM)

8.4 METHODS OF JOB EVALUATION SYSTEMS Job evaluation system methds are broadly classified into analytical (qualitative) and non analytical (quantitative) methods, which are further classified into factor comparison and point methods under analytical and ranking and classification method under non analytical aspects. Fig 8.5 Ranking Method: This method is one of the simplest job evaluation methods, where the jobs are ranked from the highest level to the lowest level based on the importance of the job profile in the organization. Under this method, the overall job is in comparison with the other job profiles on which a certain rank is given on the basis of its content and complexities in performing the job. 114 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 8.6 Classification Method: Under this method the jobs are classified on pro rata basis and then the job profiles are evaluated under the said categories. Such methods are often less subjective and generally accepted by the employees. The demerit of this method is that the content classifications may differ amongst the various jobs. Factor comparison method: This method evaluates the job on the basis of a variety of factors considering mental and physical health of the employees, working conditions, promotional skills, potentials of the employees, etc. This method is of consistent nature and less subjective. Fig 8.7 115 CU IDOL SELF LEARNING MATERIAL (SLM)

Point Method: Point method describes component and criteria ranks for every variable in the job description. Points are assigned to these factors. A cumulative point is then developed to assess the job profile. Key skills of the employee such as communication skills, convincing skills, social skills, etc. are ranked under this method. Fig 8.8 depicts Example of Job evaluation system for factory workers under point method. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

8.5 SUMMARY 1. Job evaluation systems are a process of identifying the worth of relativity of job profiles among various jobs in the organizations. It helps in determining the factors which are required in formulating wages and salaries and standardizing the process of determining wages. 2. To develop a standard format of determining the fair relativity of worthiness of each job in exchange of its remuneration offered. 3. To develop equitable and fair rates of compensation of the jobs in the organization with respect to the industrial trends. 4. To promote reasonable considerations for employee transfer and promotions. 5. To formulate factual data of staff requirements and salary structures, training and development programmes and other wage related aspects of the organization. 6. To develop a productive compensation system which would reduce the cost of recruitments. 7. Gain acceptance of various job profiles, create a committee to evaluate different jobs, find the right jobs to be evaluated, analyses and prepare job descriptions, select appropriate method of job evaluation and classify them, execute the job evaluation system and review and monitor it regularly. 8. Job evaluation system methds are broadly classified into analytical (qualitative) and non analytical (quantitative) methods, which are further classified into factor comparison and point methods under analytical and ranking and classification method under non analytical aspects. 9. Ranking method is the overall job is in comparison with the other job profiles on which a certain rank is given on the basis of its content and complexities in performing the job. 10. Under Classification methods the jobs are classified on pro rata basis and then the job profiles are evaluated under the said categories. 11. Factor method evaluates the job on the basis of a variety of factors considering mental and physical health of the employees, working conditions, promotional skills, potentials of the employees, etc. 117 CU IDOL SELF LEARNING MATERIAL (SLM)

8.6 KEYWORDS • Ranking method: ranks given to jobs on profile basis • Cost of living index: standard of living index in terms of inflation • Factor method: evaluates the job on the basis of a variety of factors • Compensation taskforce: stakeholders involved in the team of compensation system • Rate ranges:determines the lower limit and the upper limit of a same job’s remuneration package. • Salary survey: research done more often by the staff specialists to find out the prevailing trends of compensation 8.7 LEARNING ACTIVITY 1. Based on the financial crisis of COVID 19 pandemic, conduct a job evaluation of a hospitality and hotel industry on the executive, middle level management and top management levels. ________________________________________________________________________ ________________________________________________________________________ 2. Use all the four-methods job evaluation system. ________________________________________________________________________ ________________________________________________________________________ 8.8 UNIT END QUESTIONS (MCQ) 118 A. Descriptive Questions Short Questions: 1. What is meant by job evaluation system? 2. What are the objectives of job evaluation system? 3. What does standard format of job evaluation system do? 4. What are the factors comparison method of job evaluation? CU IDOL SELF LEARNING MATERIAL (SLM)

5. Differentiate between ranking method and point method. Long Questions: 1. How absence of job evaluation systems will affect the organization? 2. Explain the importance of job evaluation system. 3. Describe the process of job evaluation system. 4. Explain the methods of job evaluation system. 5. ‘A productive job evaluation system helps in setting up fair remuneration policies in the organization’ Justify the statement. B. Multiple Choice Questions 1. ___________ are a process of identifying the worth of relativity of job profiles among various jobs in the organizations. a. job descriptions b. Job evaluation systems c. job analysis d. job rotation 2. The jobs are ranked from the highest level to the lowest level based on the importance of the job profile in the organization. This method is known as ____________ a. ranking method b. point method c. classification method d. factor comparison method 3 Under this method the jobs are classified on pro rata basis and then the job profiles are evaluated under the said categories. a. ranking method b. point method c. classification method d. factor comparison method 4 This method evaluates the job on the basis of a variety of factors 119 a. ranking method CU IDOL SELF LEARNING MATERIAL (SLM)

b. point method c. classification method d. factor comparison method 5. __________ describes component and criteria ranks for every variable in the job description. Points are assigned to these factors. a. ranking method b. point method c. classification method d. factor comparison method Answers 1-b, 2-a, 3-c,4-d, 5-b 8.9 REFERENCES Textual Reference: Wages and Salary Administration by A. M. Sharma Online References: • https://www.economicsdiscussion.net/human-resource-management/job- evaluation/job-evaluation/32350 • https://blog.ipleaders.in/the-minimum-wages-act-1948/ • https://www.business-standard.com/article/economy-policy/expert-committee- suggests-rs-9-750-a-month-as-national-minimum-wage-119021500036_1.html • https://www.augi.com/articles/detail/surveys-article-salary-survey-correction-pay-by- education 120 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT9COMPENSATION AND VARIABLE PAY STRUCTURE 9.0 Learning Objectives 9.1 Introduction 9.2 Importance of Variable Pay 9.3 Team Rewards/ Incentives 9.4 Summary 9.5 Keywords 9.6Learning activity 9.7 Unit End Questions 9.8 References 9.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Explain the meaning of compensation and variable pay - Describe the importance of team rewards/ incentives - Outline the sources of variable pay - Identify the methods of team rewards/incentives 9.1 INTRODUCTION Meaning Of Compensation and Variable Pay Compensation includes any direct or indirect payments to employees such as wages, salaries, bonuses, stock option schemes, perks, incentives, commissions and other fringe benefits. Ehrenberg and Milkovich (1987) have defined pay level as the “average compensation paid by affirm relative to that paid by its competitors”. Compensation is considered as a value-added approach in terms of reward to provide monetary benefits to the employees in exchange of their work performed. Whereas Variable Pay is a part of total compensation given to the employee which depends 121 CU IDOL SELF LEARNING MATERIAL (SLM)

on the level of performance and efficiency of the employee in achieving a certain target. Variable Pay can be in the form of incentives, commissions, bonus, team or individual rewards, etc. Variable pay adds a considerable raise to the basic pay salary structure of the employee. It serves as a great motivational factor for the employee to perform better and eventually benefit the efficiency of the organization as well. Difference between compensation and variable pay Fig 9.1 9.2 IMPORTANCE OF VARIABLE PAY Variable pay is also known as performance pay, which is used to identify and reward employee performance and contribution greater than their regular and expected job requirements, towards organization’s productivity and profitability. Variable pay depends on two factors. It may be given at the time of better employee performance or if the organization is doing exceptionally well. 122 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 9.2 The percentage of variable pay depends on the level of hierarchy. It may range from 10% to 15 % at junior level to 30% to 45% at the senior most level. Variable pay has become a trending mode of compensation in most of the organizations. This can be observed highly in the fostering competitive business environment, where organizations are seeking to reduce their investment in fixed costs and grow the use of variable costs, since variable costs largely depend on the level of performance of the employees and the organization as a whole. Organizations frequently use variable pay to inculcate performance driven culture and attract and retain talent. 123 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 9.3 Successful and effective variable pay plans depend on certain key aspects like to find out if the variable pay plan actually fits the compensation philosophy of the organization, does the variable pay plan is fair and just in rewarding right efforts of the employees, and if the variable pay plan is executed and monitored effectively in the organization. Variable pay is categorised under three groups, viz individual, team and organisational. Fig 9.4 124 CU IDOL SELF LEARNING MATERIAL (SLM)

9.3 TEAM REWARDS/ INCENTIVES With more practices of businesses than ever, adopting team-based working pattern, team- based reward/ incentive programs have become necessary. These types of incentive programmes are mostly performance focused and can be monetary or non-monetary, but the goal of the organization is to encourage team participation and motivate productivity. The following methods of incentive programmes have proven more effective in team-based reward systems. 1. Goal based incentive plans: These goal-based incentive plans can be of short-term or long-term goals includes targets like achieving a considerate number of sales, certain contracts within a particular time frame, or eliminating waste and optimally utilizing resources. These plans are highly effective in motivating teamwork. 2. Merit based incentives plans: Merit based incentive plans are determined on the key skills and outstanding potentials and deliverables by the employees. They are often decided and supervised by the seniors of the team or the team leaders. 3. Gain Shares incentives plans: When the entire team is rewarded by some profitable gains in the organization, the members of the team are entitled to share a gain in the profits allotted to the particular team. Bonuses are often considered to be an example of gain share incentive plans. 125 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 9.5 126 CU IDOL SELF LEARNING MATERIAL (SLM)

9.4 SUMMARY 1. Compensation is considered as a value-added approach in terms of reward to provide monetary benefits to the employees in exchange of their work performed. 2. Variable Pay is a part of total compensation given to the employee which depends on the level of performance and efficiency of the employee in achieving a certain target. Variable Pay can be in the form of incentives, commissions, bonus, team or individual rewards, etc. 3. Variable pay depends on two factors. It may be given at the time of better employee performance or if the organization is doing exceptionally well. 4. The percentage of variable pay depends on the level of hierarchy. It may range from 10% to 15 % at junior level to 30% to 45% at the senior most level. 5. Organizations frequently use variable pay to inculcate performance driven culture and attract and retain talent. 6. Variable pay is categorised under three groups, viz individual, team and organisational. 7. With more practices of businesses than ever, adopting team-based working pattern, team-based reward/ incentive programs have become necessary. 8. These goal-based incentive plans can be of short-term or long-term goals includes targets like achieving a considerate number of sales, certain contracts within a particular time frame, or eliminating waste and optimally utilizing resources. 9. Merit based incentive plans are determined on the key skills and outstanding potentials and deliverables by the employees. 10. Bonuses are often considered to be an example of gain share incentive plans. 9.5 KEYWORDS • Variable Pay: rewards in the form of incentives, commissions, bonus to the team or individual 127 CU IDOL SELF LEARNING MATERIAL (SLM)

• Merit based incentive plans: determined on the key skills and outstanding potentials • Direct compensation: direct monetary benefits in terms of cash or kind. • Indirect compensation: indirect monetary benefits including allowances. • Ranking method: ranks given to jobs on profile basis • Cost of living index: standard of living index in terms of inflation • Factor method: evaluates the job on the basis of a variety of factors • Compensation taskforce: stakeholders involved in the team of compensation system • Rate ranges:determines the lower limit and the upper limit of a same job’s remuneration package. 9.6 LEARNING ACTIVITY 1. Discuss the importance of variable pay plans in the time of inflation in the economy. _________________________________________________________________________ _________________________________________________________________________ 2. What factors will you consider to include in the variable pay plan of the total compensation structure of an organization in the FMCG industry? _________________________________________________________________________ _________________________________________________________________________ 9.7 UNIT END QUESTIONS 128 A. Descriptive Questions Short Questions: 1. What is meant by variable pay plan? 2. What are the categories of variable pay plan? 3. What are team rewards/ incentives? CU IDOL SELF LEARNING MATERIAL (SLM)

4. Differentiate between compensation plan and variable pay plan. 5. Describe the categories of variable pay plan. Long Questions: 1. How absence of variable pay plan will affect the organization? 2. How does effective incentive pay plans work? 3. Explain the importance of variable pay plan. 4. Explain the methods of team rewards/ incentives plan. 5. How does pay for performance help in motivating the employees in the organization? B. Multiple Choice Questions 1. ___________ is a part of total compensation given to the employee which depends on the level of performance and efficiency of the employee in achieving a certain target. a. fixed pay b. variable pays c. job analysis d. job rotation 2. The percentage of variable pay depends on the level of hierarchy. It may range from 10% to 15 % at junior level to _________at the senior most level. a. 30% to 45% b. 20% to 35% c. 10% to 25% d. 30% to 55% 3 Under this method the jobs are classified on pro rata basis and then the job profiles are evaluated under the said categories. a. ranking method b. point method c. classification method d. factor comparison method 4. Organizations frequently use variable pay to inculcate performance driven culture and _________ a. rank employees 129 CU IDOL SELF LEARNING MATERIAL (SLM)

b. compare talent c. promotes employees d. attracts and retain talent. 5.Variable pay is categorised under three groups, viz individual, team and ______________. a. behavioral b. organizational c. technical d. social Answer 1-b, 2-a, 3-c, 4-d, 5-b, 9.8 REFERENCES Textual Reference: Wages and Salary Administration by A. M. Sharma Online References: • https://economictimes.indiatimes.com/jobs/what-is-variable- pay/articleshow/15525050.cms?from=mdr • https://www.organizationalpsychologydegrees.com/lists/5-effective-team-based- rewards/ • https://www.business-standard.com/article/economy-policy/expert-committee-suggests-rs- 9-750-a-month-as-national-minimum-wage-119021500036_1.html • https://www.augi.com/articles/detail/surveys-article-salary-survey-correction-pay-by- education 130 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT10EXECUTIVE COMPENSATION STRUCTURE 10.0 Learning Objectives 10.1 Introduction 10.2 Components of Executive Compensation 10.3 Performance linked compensation, variable pay, team rewards/incentives 10.4 Summary 10.5 Keywords 10.6Learning activity 10.7 Unit End Questions 10.8 References 10.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Explain the meaning of executive compensation - Describe the components of executive compensation - Outline the sources of executive compensation - Identify the concept of performance linked compensation 10.1 INTRODUCTION Meaning Of Executive Compensation Executives play a major role in developing the economic growth of any organisation. Thus it is very important for any organisation to safeguard the compensation interests of their executives and foster their success, growth and productivity. 131 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 10.1 To achieve satisfaction of the executives, thus organisations have come up with a cumulative effect of compensation cost and have started a more systematic and proactive approach in designing the executive compensation system. Fig 10.2 132 CU IDOL SELF LEARNING MATERIAL (SLM)

Executive compensation substantially differs from regular and typical compensation packages for laborers at hourly basis or salaried management and professionals. Here executive pay is mostly lopsided toward rewards for actual results. Thus, if an organization doesn’t perform well, the executives will receive a smaller proportion of their potential pay. Whereas, if a company achieves its annual targets and objectives and the stock price of the organization goes high, the executives will receive a much larger pay proportion. Factors affecting executive compensations are determined on the basis of the dynamic nature of the work culture of the organisation, the confidence that investors put in the organisation, setting up an effective benchmark for executive compensation, fostering growth of the executves by attracting and retaining high performing executives with good control and governance over the compensation policies of the organisation. Fig 10.3 133 CU IDOL SELF LEARNING MATERIAL (SLM)

10.2 COMPONENTS OF EXECUTIVE COMPENSATION An effective executive compensation should have key components that will help and encourage the executives to retain in the organization and sustain the risks of short term and long-term goals. Following are the components of executive compensation structure: Fig 10.4 Executive Salaries/ Base Pay of Executives: The basic salary of the executives are the fixed component in their pay structures irrespective of the performance and effeciency of the organisation. This is the sureshot amount that the executive will receive apart from the variable pay plan of their pay structure. Executive Benefits/ Perks: Executive benefits are those exclusive benenfits whch are enjoyed at a certain level of management heirarchy. These benefits are not entitled to be given to the emoloyees at the junior level of organisational heirarchy. Executive benefits often include company vehicles, membership of high end clubs, spouse travel allowances, house accomodations, etc. 134 CU IDOL SELF LEARNING MATERIAL (SLM)

Annual bonuses: Some organisations announce annual bonuses on attaining super profits. Only the executives at a certain strata of the organisation are entitled to these bonuses and higher incentives. Short term and long term performance incentives: Executives are given short term performance incentives on succesfully completing a particular assignment or a project, where as long term incentives are rewarded annually to the executives on big projects. 10.3 PERFORMANCE LINKED COMPENSATION Performance linked compensation refers to additional incentive paid to employees that have performed more than their regular job requirements at an exceptionally well quality. Employees are benefited with performance linked compensation mostly in the form of bonus and stock options. Fig 10.5 135 CU IDOL SELF LEARNING MATERIAL (SLM)

Variable pay is also known as performance pay, which is used to identify and reward employee performance and contribution greater than their regular and expected job requirements, towards organization’s productivity and profitability. Variable pay depends on two factors. It may be given at the time of better employee performance or if the organization is doing exceptionally well. Variable pay has become a trending mode of compensation in most of the organizations. This can be observed highly in the fostering competitive business environment, where organizations are seeking to reduce their investment in fixed costs and grow the use of variable costs, since variable costs largely depend on the level of performance of the employees and the organization as a whole. Team based reward/ incentive: With more practices of businesses than ever, adopting team- based working pattern, team-based reward/ incentive programs have become necessary. These types of incentive programmes are mostly performance focused and can be monetary or non-monetary, but the goal of the organization is to encourage team participation and motivate productivity. The following methods of incentive programmes have proven more effective in team-based reward systems. 1. Goal based incentive plans 2. Merit based incentives plans 3. Gain Shares incentives plans 10.4 SUMMARY 1. To achieve satisfaction of the executives, thus organisations have come up with a cumulative effect of compensation cost and have started a more systematic and proactive approach in designing the executive compensation system. 2. Executive compensation substantially differs from regular and typical compensation packages for laborers at hourly basis or salaried management and professionals. Here executive pay is mostly lopsided toward rewards for actual results. 3. Factors affecting executive compensations are determined on the basis of the dynamic nature of the work culture of the organisation, the confidence that investors put in the organisation, setting up an effective benchmark for executive compensation, fostering growth of the executves by attracting and retaining high performing executives with good control and governance over the cmpensation policies of the organisation. 136 CU IDOL SELF LEARNING MATERIAL (SLM)

4. The basic salary of the executives are the fixed component in their pay structures irrespective of the performance and effeciency of the organisation. 5. Executive benefits often include company vehicles, membership of high end clubs, spouse travel allowances, house accomodations, etc. 6. Some organisations announce annual bonuses on attaining super profits. Only the executives at a certain strata of the organisation are entitled to these bonuses and higher incentives. 7. Executives are given short term performance incentives on succesfully completing a particular assignment or a project, where as long term incentives are rewarded annually to the executives on big projects. 8. Performance linked compensation refers to additional incentive paid to employees that have performed more than their regular job requirements at an exceptionally well quality. 9. Variable pay is also known as performance pay, which is used to identify and reward employee performance and contribution greater than their regular and expected job requirements, towards organization’s productivity and profitability. 10. With more practices of businesses than ever, adopting team-based working pattern, team-based reward/ incentive programs have become necessary. 10.5 KEYWORDS • Performance linked compensation: additional incentive paid to executives • Variable Pay: rewards in the form of incentives, commissions, bonus to the team or individual • Merit based incentive plans: determined on the key skills and outstanding potentials • Direct compensation: direct monetary benefits in terms of cash or kind. • Indirect compensation: indirect monetary benefits including allowances. • Ranking method: ranks given to jobs on profile basis • Cost of living index: standard of living index in terms of inflation • Factor method: evaluates the job on the basis of a variety of factors 137 CU IDOL SELF LEARNING MATERIAL (SLM)

10.6 LEARNING ACTIVITY 1. Discuss the importance of executive compensation in the time of inflation in the economy. _________________________________________________________________________ _________________________________________________________________________ 2. What factors will you consider to include executive compensation structure of an organization in the automobile industry? _________________________________________________________________________ _________________________________________________________________________ 10.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. What is meant by executive compensation? 2. What are the key components of fixed pay of executive compensation? 3. What are team rewards/ incentives? 4. Describe the factors of executive compensation. 5. Describe the ways of developing a successful executive performance pay plan. Long Questions: 1. Why executive compensation plays a major role in the organization? 2. How does executive compensation differ from the typical employee compensation? 3. Explain the components of executive compensation. 4. ‘To achieve satisfaction of the executives, thus organisations have come up with a cumulative effect of compensation cost and have started a more systematic and proactive approach in designing the executive compensation system.’ Justify the statement. 5. How does performance linked compensation help in motivating the executives in the organization? 138 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. ___________substantially differs from regular and typical compensation packages for laborers at hourly basis or salaried management and professionals. a. fixed pay b. variable pays c. Executive compensation d. Total compensation 2. _________ is the sureshot amount that the executive will receive apart from the variable pay plan of their pay structure. a. Base Pay of executives b. executive perks c. annual bonus d. long term incentive 3 Executive benefits are those exclusive benenfits whch are enjoyed at a certain level of management heirarchy. a. Base Pay of executives b. executive perks c. annual bonus d. long term incentive 4. ______ are rewarded annually to the executives on big projects. a. Base Pay of executives b. executive perks c. annual bonus d. long term incentive 5. __________refers to additional incentive paid to employees that have performed more than their regular job requirements at an exceptionally well quality. a. Performance linked compensation b. executive perks c. annual bonus d. long term incentive Answers 1-c, 2-a, 3-b, 4-d, 5-a 139 CU IDOL SELF LEARNING MATERIAL (SLM)

10.8 REFERENCES Textual Reference: Wages and Salary Administration by A. M. Sharma Online References: • https://economictimes.indiatimes.com/jobs/what-is-variable- pay/articleshow/15525050.cms?from=mdr • https://www.organizationalpsychologydegrees.com/lists/5-effective-team-based- rewards/ • http://www.thegarnergrp.com/blog/bid/94565/The-5-Most-Important-Elements-of- Executive-Compensation-Packages • https://www.investopedia.com/terms/p/performancecompensation.asp 140 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT11RETENTION STRATEGIES STRUCTURE 11.0 Learning Objectives 11.1 Introduction 11.2 Importance of employee retention 11.3 Retention Strategies 11.4 Summary 11.5 Keywords 11.6Learning activity 11.7 Unit End Questions 11.8 References 11.0 LEARNING OBJECTIVES After studying this unit, you should be ableto - Explain the meaning of employee retention - Describe the types of retention strategies - Outline the importance of employee retention - Identify the way to retain employees 11.1 INTRODUCTION Meaning Of Retention Employee’s job satisfaction and loyalty is a vital factor in the success and productivity of any organization. Retention of employees is a prime source and outcome of job satisfaction of employees. Absence of employee turnover, reducing absenteeism, employee’s stability in tenure helps in maintain the retention aspect of any successful organization. A retention strategy is the effective plan of formulated by the organizations to minimize employee turnover and absenteeism, reduce attrition, stabilize retention and promotes employee growth in the organization. 141 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.1 It is the sign of a proactive approach of the organization to maintain balance between frequent the process of recruitment and employee retention. Absence of employee retention increases the cost of recruitment, training and development programmes and creates an unhealthy working environment for the employees as well as for the management. Employee turnover can be of voluntary or involuntary nature. Violation of rules and regulation of the organization may contribute to involuntary employee turnover, whereas mismanagement of the organization, overload or underload of work profiles may give rise to voluntary employee turnover. Factors affecting employee retention can be seen in Fig 11.2 142 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.2 143 CU IDOL SELF LEARNING MATERIAL (SLM)

Job satisfaction, work culture, inter personal relationships, and certain external business environment contribute to the factors affecting employee retention in the organization. Organisations that don’t prioritize employee retention might pay a huge price. Organisations investing in improving employee retention and solving turnover issues reap better rewards. Increase in sales growth, improved productivity and efficiency, boosting higher employee morale become outcomes of employee retention plans. 144 CU IDOL SELF LEARNING MATERIAL (SLM)

11.2 IMPORTANCE OF EMPLOYEE RETENTION Employee retention is not only about reducing financial damage to the organization when employees leave, it also provides opportunities to improve efficiency in the workforce. The following are reasons to justify the importance of employee retention. Fig 11.3 Reduction in costs that will save finances in the process of recruitment and training. Boosting morale of the employees by providing job security in increasing the level of job satisfaction helps in retaining the experienced employees who will benefit the organization at the time of crisis and come out with effective solutions This will help in increasing the productivity and have better employee experience. All these factors will eventually lead to increase in the revenue of the organization. 145 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.4 11.3 RETENTION STRATEGIES Employees stay in the organization when they are felt involved and appreciated in the organization. It is a must for the organizations to look after the interests of the employees and make them retain in the firm. Following are some effective strategies that will help in retaining the employees in the organization. 146 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.5 • Develop a strong strategy on board: The plan to sustain long term retention of the employees should come into action from the orientation day of the new employees while joining the organization. It is very crucial to formulate the right working culture for the new employees and inculcate loyalty towards the organization from day one. New employees must be made familiar with the vision, mission and goals of the organization and relate with them. • Provide healthy working culture and environment: Most of the employees prefer to work in organizations that provide relaxed and positive work environment. Stressful and mentally exhausting working environment will fail to retain the most competent employees. Thus, organizations need to invest time and efforts in providing and enriching a good work environment that makes the employees feel safe and positive which enhances the performance and efficiency in the organization. • Offer rewards and recognition: The employees when well recognized in the organization through their efforts and good results and often rewarded with good perks and incentives tend to show loyalty towards the organizations and might seldom think of switching jobs. 147 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.6 • Encourage employee engagements: When the management allows feedbacks and suggestions from the employees, and also consider them in implementation, the employee feels motivated and important in the organization and feels to have job security. 148 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 11.7 • Unbiased growth: The exposure to regular growth opportunities and active plans of appraisals will help the organization to retain employees at a comparatively higher rate. Once the employee feels stagnant in the job position for a considerate amount of time, they will leave the organization and search for better growth opportunities outside the organization. • Fair Remuneration: Equitable and fair compensations will determine the honesty and the transparency of the organization towards the employees. A monetary satisfaction is always greater than the non-monetary satisfaction to the employees who seek to long term stability of tenure. 11.4 SUMMARY 1. Retention of employees is a prime source and outcome of job satisfaction of employees. Absence of employee turnover, reducing absenteeism, employee’s stability in tenure helps in maintain the retention aspect of any successful organization. 2. A retention strategy is the effective plan of formulated by the organizations to minimize 149 CU IDOL SELF LEARNING MATERIAL (SLM)

employee turnover and absenteeism, reduce attrition, stabilize retention and promotes employee growth in the organization. 3. Absence of employee retention increases the cost of recruitment, training and development programmes and creates an unhealthy working environment for the employees as well as for the management. 4. Job satisfaction, work culture, inter personal relationships, and certain external business environment contribute to the factors affecting employee retention in the organization. 5. Employee retention is not only about reducing financial damage to the organization when employees leave, it also provides opportunities to improve efficiency in the workforce. 6. Boosting morale of the employees by providing job security in increasing the level of job satisfaction helps in retaining the experienced employees who will benefit the organization at the time of crisis and come out with effective solutions. 7. It is very crucial to formulate the right working culture for the new employees and inculcate loyalty towards the organization from day one. 8. Organizations need to invest time and efforts in providing and enriching a good work environment that makes the employees feel safe and positive which enhances the performance and efficiency in the organization. 9. The employees when well recognized in the organization through their efforts and good results and often rewarded with good perks and incentives tend to show loyalty towards the organizations and might seldom think of switching jobs. 10. When the management allows feedbacks and suggestions from the employees, and also consider them in implementation, the employee feels motivated and important in the organization and feels to have job security. 11. The exposure to regular growth opportunities and active plans of appraisals will help the organization to retain employees at a comparatively higher rate. 12. Equitable and fair compensations will determine the honesty and the transparency of the organization towards the employees. 11.5 KEYWORDS 150 • Employee turnover: rate of employees leaving the jobs CU IDOL SELF LEARNING MATERIAL (SLM)