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Compensation - Full Details
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"If you pick the right people and give them the opportunity to spread their wings - and put compensation and rewards as a carrier behind it - you almost don't have to manage them." -Jack Welch Compensation (meaning) Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction. How is compensation used? Compensation is a tool used by management for a variety of purposes to further the existence of the company. Compensation may be adjusted according the business needs, goals, and available resources. Compensation may be used to:
Morale and job satisfaction are affected by compensation. Often there is a balance (equity) that must be reached between the monetary values, the employer is willing to pay and the sentiments of worth felt be the employee. In an attempt to save money, employers may opt to freeze salaries or salary levels at the expense of satisfaction and morale. Conversely, an employer wishing to reduce employee turnover may seek to increase salaries and salary levels. Compensation may also be used as a reward for exceptional job performance. Examples of such plans include: bonuses, commissions, stock, profit sharing, gain sharing. What are the components of a compensation system? Compensation will be perceived by employees as fair if based on systematic components. Various compensation systems have developed to determine the value of positions. These systems utilize many similar components including job descriptions, salary ranges/structures, and written procedures. The components of a compensation system include:
Different types of compensation include:
Compensation Tips: Everything is Negotiable It's all negotiable. Every new job -- every performance review, in fact -- is an opportunity to negotiate base salary, various kinds of bonuses, benefits, stock options, and other incentives that add to job satisfaction and provide financial security. Taking control of your job search and conducting a smart search that takes into account more than just financial considerations can also lead to that elusive condition called happiness. Are you prepared to negotiate for happiness? The negotiation process is an opportunity to define, communicate, and achieve what you want. But to get the right job that pays what you deserve, you'll need to do your homework. The first step in the negotiation clinic is to understand the negotiation basics. Negotiation requires gathering information, planning your approach, considering different alternatives and viewpoints, communicating clearly and specifically, and making decisions to reach your goal. “The author Maryanne L. Wegerbauer” In her book, describes how each party in a negotiation can fulfill specific needs and wants of the other party, a concept called "relative power." According to Wegerbauer, understanding your strengths and resources; being able to respond to the needs of the other party; and knowing your competition enable you to assess your bargaining position more accurately. Learn the power factors What is your power over the other side of the table? Relative power, Wegerbauer says, is a function of the following. Business climate factors Overall state of the economy and the industry in which you compete Overall unemployment rate and the general employment picture Demand for industry- and profession-specific knowledge and s****s Company factors Profitability Position in the business cycle (startup, growing, stable, turnaround) Hiring manager factors Urgency of the company's need to fill the position Decision-making authority Staffing budget Applicant factors Other opportunities Technical expertise, unique knowledge/s**** set Resources (financial depth, networks, etc.) Level of competition/availability of other candidates Career risk Plan and communicate A negotiation is composed of two major steps: planning (research and strategy) and communication (information exchange and agreement. In the planning step, get as much information as you can up front and, using both the company's written and unwritten signals, map your s****s against what the company values. Give it time Timing is also important. Remember that the best time to negotiate is after a serious job offer has been made and before you have accepted it. Once you are clear about the initial offer, you can express interest and even enthusiasm, but ask for more time to consider the job offer. Wegerbauer suggests that this request is made "in light of the importance of the decision." Sometimes you can split up the negotiating session into two meetings: one to firm up the job design and responsibilities and the second to go over compensation and benefits. The key message here is not to make an impulsive decision. If they really want you, there's time. Consider the alternatives You should be prepared with a rationale for everything to strengthen your position. Counteroffers are an expected part of many negotiations, so be sure to remain flexible. Keep in mind that different companies can give negotiations more or less latitude. Smaller companies may be more flexible than large, bureaucratic companies. Unionized companies usually have very little room for individual negotiations. Negotiate for a win-win Remember that the negotiation is not about strong-arm tactics or win/lose. It is a two-way process where you and your prospective employer are each trying to get something you need. In a negotiation, you're both designing the terms of a transaction so that each of you will receive the maximum benefit from the final agreement. Above Source: By Linda Jenkins, Salary.com Compensation trends in India India’s transition to a market driven economy began in 1991 with the introduction of liberalization (pro-market economic reforms). Prior to 1991, the Government was (and still is) the biggest employer and job creator, accounting for over 85% of post-matriculation (High School) jobs. Pay was largely determined by high-level agreements between employee unions and the Government and was largely guaranteed in nature. A similar situation was prevalent in the private sector, where Government pay scales were often used as a benchmark in fixing and revising pay. Compensation packages were low on cash and high on fringe benefits such as accommodation, cars, and subsidized loans. Variable pay was largely restricted to top and senior management in few private sector enterprises. Grading systems were largely industry-wide and salary progression was purely determined by length of service. Current trends Productivity gains (4% in 2003-04), fast growth in real wages (40% over the last 5 years), a booming but extremely competitive economy (GDP growth of 6%), simplification of tax rules and emergence of knowledge-based industries such as Information Technology & Outsourcing Services, Healthcare etc are key factors that have influenced compensation in India post liberalization. Compensation is now characterized by a Total Cost of Employment approach, a rapid movement to flexible benefits, and increasing levels of variable pay (variable pay now forms about 7% - 35% of fixed pay). Grade structures have become organization specific and salary progression is driven by market forces and individual performance. Average salary increases over 2003-04 ranged from 5% - 20%. The average increase was 11%. While most organizations benchmark compensation nationally within a select group of competitors, a few organizations are beginning to benchmark themselves internationally at senior management levels. India has the fastest compensation increase rate in the Asian region at 11.7% and it also has the highest labour turnover in the region. Different compensation plans - how do they affect your financial results With the introduction of FRS 102 Share-based Payment, companies are required to recognize the expenses of employee equity compensation schemes with effect from 1 January 2005. This article highlights the major implications to the financial results of the three most common equity compensation schemes, namely share option scheme, performance shares scheme, and Share Appreciation Rights (SAR, also known as phantom share scheme). Key Characteristics The key characteristics of each scheme are as follows: Share option scheme
Share Appreciation Rights
Impact on net assets The three schemes have a different effect on the net asset values of companies. Under FRS 102, share option scheme and performance share scheme are considered “equity-settled”. This means that in recognizing an expense for the compensation costs, a corresponding increase in shareholders’ equity is recognized. Hence, the net asset position of the company is unchanged. In contrast, obligations under SAR schemes are considered liabilities of the company, as there would be a cash settlement when the right is exercised. The recognition of the compensation cost under SAR results in a decrease in the net asset of the company. |