Master of Business Administration- MBA Semester 4

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PUJA GUHA 571112609 01637 15-02-2013

MU0015 Compensation Benefits

Q1. List the various elements of compensation. Ans. The various elements of compensation are as follows: Basic salary - It is the monthly amount paid to an employee as a valuation of his skill and experience as well as the level of his authority and responsibility. Therefore, a Head of Marketing will receive a higher basic salary than either a Regional Marketing Head or a Salesman . Bonus. Bonuses can be paid when a job is accepted (sign-on bonus), as part of a merit-based plan (performance bonus) or as part of company-wide plan (profit-sharing bonus). Salespeople or other commission-based jobs may get bonuses for meeting certain targets. Even if the type of job isnt normally eligible for a bonus, people ask for one when they go above and beyond their current responsibilities. Ownership stakes. Some people, typically the highest executives, get outright equity. Some companies give out options that are tied to the value of the company, so it is not ownership in the legal sense of the word, but the financial fate is tied to the companys. Benefits and insurance. Medical, dental, life insurance, and disability are just some of the benefits some people get in their compensation package. Some plans allow to take their benefits elsewhere (this is portability, and there is a fee but it does provide flexibility Employee perks. Discounted movie tickets, free admission to cultural venues, discounted cell phone plans, and employee assistance hotlines are some perks that many employees overlook. These represent significant savings and therefore real money. Lifestyle and flexibility. Its not just about working from home. It might be to ask for a four-day schedule or full-time but different start and end times or a sabbatical. Companies often make these arrangements on a case-by-case basis, but many times there is something outlined about the broad policy.

Q2. What is CTC? What are the components of CTC? Ans. Cost to Company (CTC) is a term used to describe an investment without return. Travel expenditures, interviewing, spending time with potential customers can all be interpreted as CTC's. Cost to Company can also be used to refer to the total cost that an organization is spending towards their employee including the Salary, Perks, Cost related to benefits, Cost related to hiring, Training, Retrials, Statutory Contributions etc. Here is more input:

Cost to Company is a buzz word to describe how the company can slowly pay you less and less, and remove all your benefits, until you are "self funded" - in other words you pay for all your "benefits" yourself, while the company receives the tax benefits for these payments. This improves their profit ratio, and if this system is extrapolated, you will eventually pay the company to work there. So you'll need a second job to fund this. :-)

CTC - Cost to company is a trick of a company and HR department, to show we are paying a big salary, but unfortunately it is just bubble. They overload total expenses of human resources on salary, and show that they are paying this much salary to the staff. But actually they pay less and show more. For example....your salary is 6.00 Lacs p.a. Means ... you are getting 50,000/- per month. But actually person gets only 25,000/- per month...all other money is deducted for facilities.. Means we are paying for getting facilities, but company shows they are giving us good facilities in the organization. In short, we pay from our salary for getting facilities, but company says they are giving good facilities to their staff. So you are paying for even unwanted facilities which you don't need. Before deciding CTC, ask for breakup of facilities. Components of CTC: Following are the components of CTC. a. Basic b. Dearness Allowance (DA) c. House Rent Allowance (HRA) d. Medical Allowance e. Conveyance Allowance f. Special Allowance g. Vehicle Allowance h. Incentives or bonuses i. Leave Travel Allowance or Concession (LTA / LTC) j. Telephone / Mobile Phone Allowance. Q3. Explain the link between employee satisfaction and compensation. Ans. Linking employee satisfaction to compensation is being practiced since long time in most of the organisations. Compensation designs based on this link usually measure performance from a relatively objective side, such as sales or revenues, stock price, productivity gains and so on. The example of this effort in recent times is embedded in labour contracts recently negotiated at United Airlines (UAL). The unions were able to push for a major new approach in part because they own 65 percent of UALs stock. Under the terms of agreement more than half of the bonus pay received by the top 625 UAL managers was determined by criteria like time performance and employee satisfaction. While time performance is clearly an objective measure of performance, employee satisfaction is less objective and more unusual. In fact, only a small handful of other firms use satisfaction to determine executive pay. Employee satisfaction has to be measured and evaluated before a new compensation plan can be implemented. Usually, an outside survey firm is hired to perform the annual survey for employees. The results of this survey is shared through out the company. Thus, the top management will get to know how employees feel about the compensation. Employee satisfaction towards compensation is the most important discourse for any company, because it is directly related to the performance that can be achieved by employees. The more an employee is satisfied and happy with their compensation, the better they perform. In turn, this will influence the company performance too. Thus companies should strive to bring in a fair compensation plan so as to increase employee satisfaction. Employee satisfaction with respect to compensation and rewards depends on the level of intrinsic and extrinsic results and how the employee views those results. These results have different values for different employees. For most of the employees, a responsible and challenging job may have neutral or even negative value depending on their education and previous experience by work providing intrinsic results. These employees might have a higher value for monetary rewards, whereas for a few others, a responsible and challenging position or the learning involved in the job may have very high positive values.

Appropriate type of compensation plans, rewards and benefits are important for employees. Financially, the employees must be satisfied that their salaries are justified and are according to their contribution to the company. In this respect, both employees and employer basically work towards the same goal for mutual benefit. Non financial rewards should also be given to employees for their contributions. For example, paid time off, recognition, employee of the month programs, nominations to training programs, career growth opportunities and so on. To provide incentives, these models support the existence of reward systems that structure compensation so that the employees expected value increases with observed employee productivity. Thus compensation can take many various forms, including appreciation from managers and coworkers, implicit promises of future promotion opportunities, feelings of self-esteem that come from superior achievement and recognition and current and future cash rewards related to performance

Q4. What are the major issues related to repatriation? Ans. The term repatriation refers to bringing the employees who are on an international assignment back to the home country. It is very important to manage repatriation of employees in a very careful way. A poorly managed repatriation can lead to a feeling of frustration and cynicism in the employees. These feelings can be worse than the culture shock experienced in the first weeks of the assignment. It requires transparency in repatriation policy, sharing information on the career progression path, degree and support from the organization during the international tenure and so on. Many organizations develop and share documented guidelines with respect to overseas assignment, so that the employees understand the rules and regulations and also know what to expect. Expatriate managers often return to the home office with a wealth of experience and perspectives. Yet, poor repatriation processes are blamed for underutilizing talent, losing human capital, and discouraging skilled managers from accepting overseas assignments (Gregersen and Black, 1995). Often the impact of repatriation for the employee is far greater than that of the original move to the host location. The move abroad is usually exciting, involving a promotion or at the very least, an increase in peer status. Also, the day to day impact of life in the new culture is more keenly felt by the spouse and children, who interact with it on a far more personal basis. Moreover, the employee will be chosen for a particular skill set, which are generally appreciated by the new team as an asset. As the project comes to an end, the expatriate starts the closure process of the post, probably handing over to a locally based team or manager. At this point, home country HR should be back in touch with the employee, to start the career planning for the home move. However, most companies provide no post assignment guarantees, and this has a dual impact on the employee. Firstly, they will feel deeply insecure since they may have taken their family away from extended family and friends, interrupted education programmes and careers. Another issue is the change in living standards. While settling down in a foreign country, they would have been offered financial incentives for the family to relocate from generous housing allowances to the payment of school fees. On returning home, these are taken away and the lifestyle that the family has become used to is radically reduced. This is particularly a factor for Europeans coming home from the USA, where living standards are very high in comparison with the cost of living in most European cities. It is the children of expatriates that the impact can be the most pronounced, and the most dramatic, especially for teenagers caught between school systems, deep friendships and hormonal angst! Where the assignment has been a long one, there is the risk of the child becoming a Third Culture Kid far more familiar with the host culture than the home one. For them the return is a far greater challenge, as they are already at home and will be going somewhere completely foreign. Not only will they face a profound

culture shock, they will also struggle with a sense of loss of identity as they leave their friends and peers behind. Q5. Write short notes on the following economic theories of wages: a. Residual claimant theory b. Subsistence theory Ans. a. Residual claimant theory: - This theory was advanced by the American economist Walker. As per walker, wages are the remainder left in excess of after the other factors of creations have had been remunerated. The American economist Walker states that interest and rents are administrated by contracts, income are dogged by explicit ideology and that there are no comparable philosophy operating in regard to wages. Out of the total production, therefore, when real, interest and profits have been paid; the remainder goes to the human resources as wages. As compared with the other theories, this theory is quite optimistic. It holds out to the workers a likelihood of growing their wages and then bettering their lot if they worked hard. If by working more they produce more, then, according to this theory, the whole of the extra production will go to them. The Residual Claimant Theory acknowledges the opportunity of boost in wages through superior competence of labor. In this logic, it is a positive theory, whereas the other two theories wages fund theory and the subsistence theories are negative. b. Subsistence theory: - The subsistence theory of wage is also known as iron law of wage. It was so named by Lassalle, a German economist. This theory was first put forward by Quesnay, a member of physiocratic school of economists and developed by David Ricardo. The theory of population, expounded by Malthus was based on this iron law. According to this theory, wages tend to remain at the subsistence level. It will provide the workers only with bare subsistence. If wages rises above this level, this leads to an increase in the population. Because, the increased prosperity will encourage the people to marry and increase population. This will increase labour supply. The increased competition among workers for employment causes wages to fall again to the subsistence level. Likewise, if the wages fall below the subsistence level, malnutrition raises the death rate. People do not have interest in marriage. Fewer children are born. This will reduce the supply of labour. The competition for employment is reduced and wages tend to rise to the subsistence level. Finally, the wages remain at the subsistence level. The French School of economists, as the physiocrats, looked upon this theory of wages as a natural law. Quesnay had said, Wages are fixed and reduced to the lowest level by the extreme competition of the workers. Q6. Mr.Sarvesh is the HR Manager of First Source Pvt. Ltd. He found that many of the employees have been doing the same work for a long period of time. He decided to enrich some of their jobs. List some of the strategies which can be used by Mr.Senthil to enrich jobs in organisations? Ans. Job enrichment is a way to motivate employees by giving them increased responsibility and variety in their jobs. Many employers traditionally believed that money was the only true motivating factor for employees and that if you wanted to get more work out of employees, offering them more money was the only way to do it. While that may be true for a small group of people, the majority of workers today

like to work and to be appreciated for the work they do. Job enrichment allowing the employees to have more control in planning their work and deciding how the work should be accomplished s one way to tap into the natural desire most employees have to do a good job, to be appreciated for their contributions to the company, and to feel more a part of the company team. Job enrichment has two separate dimensions which contribute to an employee's behavior at work. The first dimension, known as hygiene factors, involves the presence or absence of job dissatisfacters, such as wages, working environment, rules and regulations, and supervisors. When these factors are poor, work is dissatisfying and employees are not motivated. However, having positive hygiene factors does not cause employees to be motivated; it simply keeps them from being dissatisfied. The second dimension of Herzberg's theory refers to motivators, which are factors that satisfy higher-level needs such as recognition for doing a good job, achievement, and the opportunity for growth and responsibility. These motivators are what actually increase job satisfaction and performance. Job enrichment becomes an important strategy at this point because enriching employees' jobs can help meet some of their motivational needs. There are basically five areas that are believed to affect an individual employee's motivation and job performance: skill variety, task identity, task significance, autonomy, and feedback. Job enrichment seeks to find positive ways to address each of these areas and therefore improve employee motivation and personal satisfaction. Skill variety involves the number of different types of skills that are used to do a job. This area is important because using only one skill to do the same task repeatedly can be quite boring, typically causing the employee's productivity to decrease after a period of time. However, using a variety of skills in a job will tend to keep the employee more interested in the job and more motivated. One way businesses are focusing on this area is through job rotation, that is, moving employees from job to job within the company, thereby allowing employees a variety of tasks in their work and helping prevent boredom. While this process can be costly to the company because employees must be trained in several different areas, the cost tends to be balanced by the increase in morale and productivity. Job rotation also gives each employee the opportunity to see how the different jobs of a company fit together and gives the company more flexibility in covering tasks when workers are absent. However, while job rotation is a good way to enrich employees' jobs, it can also hinder performance: Having to know several different jobs in order to rotate, can prevent employees from becoming proficient at any of the jobs. Therefore, the advantages and disadvantages of job rotation as an enrichment strategy have to be carefully weighed. Task identity is a matter of realizing a visible outcome from performing a task. Being able to see the end result of the work they do is an important motivator for employees. One way to make task identity clearer is through job enlargement, which means adding more tasks and responsibilities to an existing job. For example, instead of building just one component part of a humidifier, a team of employees builds the entire product from start to finish. When using job enlargement as an enrichment strategy, it is important that enlarging the job gives the employee more responsibility and more variety, not just more work. Task significance involves how important the task is to others in the company, which is important in showing employees how the work they do fits in with that done in the rest of the organization. If employees can see how their work affects others, it will be a motivator to do the best job they can. Many companies take new employees on a tour of the company and provide training sessions on how each part of the company works together with the other parts. In order to accept and handle responsibility, it is important that employees know how the various areas of the company work

together; without this knowledge, it is very difficult for them to handle decision-making responsibilities. Putting employees from different areas of the company into planning teams can also help them see the significance of the tasks they perform. Autonomy involves the degree of freedom, independence, and decision-making ability the employee has in completing assigned tasks. Most people like to be given responsibility; it demonstrates trust and helps motivate employees to live up to that trust. Responsibility can also help speed up work processes by enabling the employee to make decisions without having to wait for management approval. Autonomy is a very important part of job enrichment because it gives the employee power and a feeling of importance. A type of job enrichment that restructures work to best match the employee to the job is job redesign. Job redesign can focus on combining existing jobs, forming work groups, and/or allowing closer contact between employees and individual suppliers or customers. The idea behind job redesign is to match employees with a job they like and are best qualified to perform. Self-managed teams are a type of job design whereby employees are grouped into teams and given certain guidelines to follow as well as goals to accomplishand then left alone to accomplish those goals. Self-managed teams demonstrate the company's faith in the employees and give employees a feeling of power and pride in the work they accomplish. Feedback describes how much and what type of information about job performance is received by the employee. It is one of the most important areas for motivation. Without feedback, employees have no way of knowing whether they are doing things correctly or incorrectly. Positive feedback helps to motivate employees by recognizing the efforts they have put into their work. While monetary rewards for doing a good job can be a strong incentive, sometimes saying "you did a really good job on that project" can mean just as much. Corrective feedback is also important because it lets employees know what areas need improvement There are many different types of job-enrichment activities and programs that companies can implement to encourage worker participation and enhance motivation. The team atmosphere is one way to enrich jobs. Grouping employees into teams and allowing the team the freedom to plan, make decisions, and accomplish their goals gives employees a feeling of importance and responsibility. It can also help employees come up with creative ideas on ways to improve work activities by giving them the opportunity to work closely with others. Asking for and encouraging employees to give input on company strategies and plans is another way to enrich jobs. Often times employees have the best input because they are the ones actually performing the activity on a daily basis. Holding company award ceremonies can also help to enrich jobs and motivate employees by recognizing individual employees for their contributions to the company. The purpose of job enrichment is to improve the quality of an employee's job and therefore motivate the employee to accomplish more. However, in order for job enrichment to work, the employee has to desire and accept new ways of accomplishing tasks. Some employees lack the skills and knowledge required to perform enriched jobs, while others are quite happy doing routine jobs because they feel the current work situation is relatively stress-free. It is likely that these types of employees would not like job-enrichment activities and would not accept the new way of doing things. Therefore, asking for employee input and keeping communication lines open is essential to the success of job-enrichment programs.