Master of Business Administration - MBA Semester 4

MU0015-Compensation and Benefits

(Book ID: B1859)
Assignment (60 Marks)
Note: Answer all questions must be written within 300 to 400 words each.
Each Question carries 10 marks 6 X 10=60.
Q1. Discuss the contents of Job evaluation. Describe the process of Job
evaluation.
Answer. Contents of Job Evaluation
The contents of job evaluation are as follows:
1. Job Analysis
It is a process through which required information about various aspects of jobs can be
obtained. Job analysis involves two dimensions:
i. Job description
Under job description, a profile of job information is prepared indicating the duties,
responsibilities and working condition of work. It explains about what the job entails.
ii. Job specification
Job specification indicates preparation of a specification statement which explains the
necessary skills, knowledge and abilities required to perform the job.
2. Job Rating
Job rating includes the process of using same methods to study job descriptions and
specifications in order to assign a relative worth for each job. Some of job rating
methods are: ranking, point rating factor comparison, and so on.
3. Money Allocation
After rating the worthiness of each job, a pay structure is determined and the money
for each job is allocated. It means, it is the arrangement of paying
rewards/compensation for each job according to its worth or value.
4. Job Classification
Job classification is the last step of job evaluation which is concerned with the
categorization of jobs according to their pay scale. For example, high paying jobs are
represented at the top of the hierarchy.
The process of job evaluation involves the following steps:
Gaining acceptance: Before undertaking job evaluation, top management must
explain the aims) and uses of the programme to the employees and unions. To

elaborate the program further, oral presentations could be made. Letters, booklets
could be used to classify all relevant aspects of the job evaluation programme.
Creating job evaluation committee: It is not possible for a single person to
evaluate all the key jobs in an organization. Usually a job evaluation committee
consisting of experienced employees, union representatives and HR experts is created
to set the ball rolling.
Finding the jobs to be evaluated: Every job need not be evaluated, this may be
too taxing and costly. Certain key jobs in each department may be identified. While
picking up the jobs, care must be taken to ensure that they represent the type of work
performed in that department.
Analysing and preparing job description: This requires the preparation of a job
description and also an analysis of job needs for successful performance.
Selecting the method of evaluation: The most important method of evaluating the
jobs must be identified now, keeping the job factors as well as organisational demands
in mind.
Classifying jobs: The relative worth of various jobs in an organisation may be found
out after arranging jobs in order of importance using criteria such as skill
requirements, experience needed, under which conditions job is performed, type of
responsibilities to be shouldered, degree of supervision needed, the amount of stress
caused by the job, etc. Weights can be assigned to each such factor. When we finally
add all the weights, the worth of a job is determined. The points may then be
converted into monetary values.

Q2. Suppose you are a HR Manager and you are asked to develop an
effective Incentive Scheme for your organization. What are the prerequisites you will consider while developing an Effective Incentive Scheme?
Discuss the merits of Incentives.
Answer. Pre-requisites of Effective Incentive Schemes
You can conclude by now that for all firms a well-designed system of wage payment
can yield a number of advantages. But it is also true that to realize these advantages
there must be some safeguards known as pre-requistions of effective incentive plans.
These pre-requisites are as under:
The workers co-operation is mandatory in execution of incentive schemes.
The co-operation is required in respect of methods adopted for analysis of
result or output on basis of which payment is done, the setting wage rate
methods for different work categories and pre-requisites relating to job
security, earnings and dispute settlement regarding work standards.
The incentive scheme must be influenced by scientific work measurement
like the standards set must be practical and inspiring. In addition, the

employees must be provided with necessary resources to meet these

standards.
All indirect staff like foremen, helpers, supervisors, and canteen staff
charge hands etc. should also be roofed under incentive schemes.
A management commitment to oversee the outlay and schedule the
proper administration of plans should be formed.
An incentive plan should be first planned properly and then implemented
carefully to achieve desired results.
Merits of Incentives:
Motivation
Incentive plans were created for the express purpose of urging employees to motivate
themselves to higher achievement levels. Incentive plans that reward employees for
reaching pre-established goals provide encouragement and give staffers something to
aim for. The advantage to the employer is increased levels of productivity.
Increased Earnings
Most incentive plans are tied to earnings. The more revenue an employee generates
for a business, the more he is rewarded through his incentive plan. Businesses
providing incentive plans have the advantage of seeing their bottom line rise in direct
proportion to the sales their employees generate. In this sense, incentive plans can be
self-supporting, in that the business essentially pays for performance.
Loyalty
Employees who have the ability to positively impact their earning potential through
incentive plans are more likely to be loyal to the company they represent. This is
especially true if incentive plans have residual value. For example, if an insurance
company employee gets a bonus for signing up a new client, and then gets a residual
bonus for every subsequent year that client renews, earnings can increase over the
life of his employment. It becomes an advantage to the employee and employer for
there to be longevity in the professional relationship.
Reduced Turnover
Employees often look for new employment opportunities when they feel they are
under-compensated or unappreciated. Incentive plans are a way of rewarding topperforming employees and showing them you appreciate their contributions to the
business. The advantage to the employer is reduced turnover, which also results in
time and money savings related to recruiting new hires. Businesses may also attract
more well-qualified candidates by offering incentive plans.
Q3. Discuss the types of managerial remuneration. Explain the elements of a
managerial remuneration
Answer. Managerial remuneration is compensation for services provided to a
company in a managerial capacity. This can include cash payments, along with
benefits like stock options, health insurance, and bonuses. Managers are typically paid
more than the people they supervise, although they tend to make less than the
executives at the head of the company. Some pay structures are transparent, making

it easy to determine how much money managers make, while others may be
confidential.
Types of managerial remuneration
Managerial remuneration comprises of two important pays which are as
follows:
Managerial remuneration is compensation for services provided to a company in a
managerial capacity. This can include cash payments, along with benefits like stock
options, health insurance, and bonuses. Managers are typically paid more than the
people they supervise, although they tend to make less than the executives at the
head of the company. Some pay structures are transparent, making it easy to
determine how much money managers make, while others may be confidential.
People in management usually sign employment contracts with the terms of their
employment clearly outlined, and these contracts can include a discussion of
remuneration. A salary or hourly wage can be part of the compensation package along
with any benefits. Performance-linked benefits are common for managers, to
encourage them to up efficiency and production. People may get extra payments for
meeting production targets, for example, or could receive a bonus based on overall
company profits for the year.
As managers rise in the ranks and acquire seniority, their pay can increase. Publicly
traded companies and government agencies may be subject to caps on managerial
remuneration, and these stipulations ensure that employees do not receive
unreasonable compensation for working in management positions. They can be
applied by legislation or through shareholder votes, in the case of a public company.
Shareholders might, for example, decide to cut paid vacation benefits or payments to
life insurance policies.
Elements of a managerial remuneration
For Group Management, total remuneration consists of fixed salary, short-term and
long-term variable remuneration, pension and other benefits. If the size of any one of
these elements is increased or decreased, at least one other element has to change
where the competitive position should remain unchanged.
FIXED SALARY,
SHORT-TERM AND LONG-TERM VARIABLE
REMUNERATION AS PERCENT OF TOTAL TARGET REMUNERATION
Fixed salary
Fixed salaries are set to be competitive within an individuals home market. When
setting fixed salaries the Remuneration Committee considers the impact on total
remuneration, including pension and associated costs. The absolute levels are
determined by the size and complexity of the position and the year-to-year

performance of the individual. Together with other elements of remuneration, Group

Management salaries are subject to an annual review by the Remuneration
Committee, which considers external pay data to ensure that levels of pay remain
competitive and appropriate to the remuneration policy.
Short-Term Variable remuneration
The annual variable remuneration is delivered through cash-based programs. Specific
business targets are derived from the annual business plan approved by the Board of
Directors and, in turn, defined by the Companys long-term strategy. Ericsson strives
to grow faster than the market with best-in-class margins and strong cash conversion
and therefore the starting point is to have these as three core targets:
Sales Growth
Operating Income
Cash Flow
Long-Term Variable remuneration
Share-based long-term variable remuneration plans are submitted each year for
approval by shareholders at the Annual General Meeting. All long-term variable
remuneration plans are designed to form part of a well-balanced total remuneration
and span over a minimum of three years. As these are variable plans, outcomes are
unknown and rewards depend on long-term personal investment, corporate
performance and resulting share price performance.
Total remuneration
When we consider the remuneration of an individual, it is the total remuneration that
matters. We first consider the total annual cash compensation, looking at target level
of short-term variable compensation plus fixed salary. We then add target long-term
variable remuneration to get total target remuneration and, finally, pension and other
benefits to arrive at the total package.

Q4. Define Pay Structure. What are its objectives? Explain the major
decisions involved in designing and setting competitive pay structures.
Answer. A pay structure is a collection of pay rates or pay ranges. Structure setting
and adjustment is the process of developing, adjusting, and maintaining a pay
structure.
Pay structures are used to help organizations:
Maintain pay levels that are competitive with the external labor market,
maintain internal pay relationships among jobs,
recognize and reward differences in level of responsibility, skill,
performance, and

and

 Manage pay expenditures.

Structure setting and adjustment provides a systematic way to manage pay
structures.
The main objective of wage and salary administration is to establish and maintain
an equitable wage and salary system. This is so because only a properly developed
compensation system enables an employer to attract, obtain, retain and motivate
people of required calibre and qualification in his/her organisation.
The compensation system should be duly aligned with the organisational need and
should also be flexible enough to modification in response to change.
Accordingly, the objectives of system should be to:
1. Enable an organisation to have the quantity and quality of staff it requires.
2. Retain the employees in the organisation.
3. Motivate employees for good performance for further improvement in performance.
4. Maintain equity and fairness in compensation for similar jobs.
5. Achieve flexibility in the system to accommodate organisational changes as and
when these take place.
6. Make the system cost-effective.
Major decisions in designing and setting competitive pay structures
1. Specifying the competitive pay policy of the employer with the help of surveys
which gives data for converting the pay policy into pay structures, pay levels and pay
mix.
2. Defining the purpose of survey which is conducted because of the following
reasons:
To analyse pay related problems and establish pay structure
To estimate labour price of services and product market competitors and
to select the market competitors which are based on similar skills, same
services and products as well as employees within the similar
geographical area.
3. Selection of jobs in the survey with the help of two approaches:
Low - high approach which identifies lowest and highest paid benchmark
jobs for the relevant competencies in the relevant market and to use the
salaries for these jobs as anchors basically for the skill based structures.
Benchmark job approach includes the entire structure of the job which
comprises of all the key functions and levels that can be matched with the
descriptions of the benchmark jobs.

4. Designing the survey with the help of three categories of data:

Providing information about the nature of the firm.
Providing information about the total pay system
Specifying compensation data on each incumbent in the jobs understudy
5. Interpreting the survey results by analysing and assessing the outcomes as well as
using statistics in order to construct the market line so as to check the accuracy of the
job matches, the anomalies, age of data and the nature of the firms.
6. Balance the competitiveness with internal alignment which includes use of bands,
ranges and flat rates which offer flexibility so as to deal with pressures from external
markets and differences among firms.

Q5. Explain the criterions considered for rewarding the employees for their
good service.
Answer. In a business world where fewer workers are doing more, employers have
"fallen way short of giving employees the recognition deserved and expected for a job
well done, Guld says. Providing that recognition requires developing award criteria.
Step 1
Form an award-program development committee to guide the creation of your
recognition initiative and its criteria. Formal, ongoing feedback from several
colleagues will help you adopt useful, fair criteria.
Step 2
Conduct an employee opinion survey. Ask workers for suggestions on award criteria,
and the types of awards they prefer. Do they want criteria that emphasize measurable
goals, such as sales or performance quotas, or would they prefer criteria that focus on
intangibles such as creativity, teamwork or a positive attitude? Implement their ideas
for a recognition program that reflects employee values. Do not assume. Ask people
how they want to be recognized, advises David Russell, a human resources and
management consultant in California, author of The Company Culture Challenge and
vice president and general manager of manage to win Software. Involve the work
force in criteria development as well, because recognition and its power vary greatly
by personality, according to Alan Weiss, a management consultant and president of
Summit Consulting Group in East Greenwich, R.I.
Step 3
Evaluate your companys or departments mission. Understanding corporate goals will
help tie your recognition program to those objectives. That makes for a more
meaningful awards program, say human resources experts at the University of
Washington. For example, if your division is responsible for sales, consider award
criteria such as highest new lead generation or most effective customer service.
Recognition should reinforce your companys culture.

Step 4
Choose criteria that apply to all workers. Dont exclude employees based on rank,
position or duties. Selective guidelines that leave out employees hurt work-place
morale. Make it possible for everyone to win, rather than having winners and losers,
Weiss recommends.
Step 5
Inform employees about the recognition programs purpose and criteria. Written
memos sent to individual workers explaining the program can help, as can posted
memos in common office areas such as cafeterias. Managers should also consider a
company or department meeting to kick off the award program.

Q6. Write a short note on the following:

A) Wage Policy Plan in India
B) Voluntary Retirement Scheme (VRS)
(Wage Policy Plan in India, Voluntary Retirement scheme)
Answer. a) Wage Policy Plan in India
The term wage policy here refers to legislation or government action calculated to
affect the level or structure of wages or both, for the purpose of attaining specific
objectives of social and economic policy.
1. To eliminate malpractices in the payment of wages.
2. To set minimum wages for workers, whose bargaining position is weak due to the
fact that they are either un-organised or inefficiently organised? In other words, to
reduce wage differential between the organised and unorganised sectors.
3. To rationalise inter-occupational, inter-industrial and inter-regional wage differentials
in such a way that disparities are reduced in a phased manner.
4. To ensure reduction of disparities of wages and salaries between the private sector
and public sector in a phased manner.
5. To compensate workers for the raise in the cost of living in such a manner that in
the process, the ratio of disparity between the highest paid and the lowest paid worker
is reduced.
6. To provide for the promotion and growth of trade unions and collective bargaining.
7. To obtain for the workers a just share in the fruits of economic development.
8. To avoid following a policy of high wages to such an extent that it results in
substitution of capital for labour thereby reducing employment.

9. To prevent high profitability units with better capacity to pay a level of wages far in
excess of the prevailing level of wages in other sectors.
10. To permit bilateral collective bargaining within national framework so that high
wage islands are not created.
11. To encourage the development of incentive systems of payment with a view to
raising productivity and the real wages of workers.
12. To bring about a more efficient allocation and utilisation of man-power through
wage differentials and appropriate systems of payments. In order to achieve the
above objectives under the national wage policy, the following regulations have been
adopted by the state:
1. Prescribing minimum rates of wages.
2. Compulsory conciliation and arbitration.
3. Wage boards.
b) Voluntary Retirement Scheme (VRS)
This mode has come about in India as labour laws do not permit direct retrenchment
of unionized employees.
Definition: Voluntary retirement scheme is a method used by companies to reduce
surplus staff. This mode has come about in India as labour laws do not permit direct
retrenchment of unionized employees.
Description: VRS applies to an employee who has completed 10 years of service or is
above 40 years of age? It should apply to all employees (by whatever name called),
including workers and executives of a company or of an authority or of a co-operative
society, excepting directors of a company or a co-operative society.