Designing Approaches For Preparing Salary Matrix IBM

Mini Project In the Course Compensation Management Course Code: 10MB62H4

K L U Business School

K L University
Submitted By Bhagya Sree M Reg No:12251020, II MBA
Signature of the Faculty: Marks:

Acknowledgement
I have taken efforts in this project. However, it would not have been possible without the kind support and help of many individuals and organizations. I would like to extend my sincere thanks to all of them. I am highly indebted to M. Kalpana for her guidance and constant supervision as well as for providing necessary information regarding the project & also for their support in completing the project. I would like to express my special gratitude and thanks to industry persons for giving me such attention and time. I am extremely thankful and pay my gratitude to my faculty Mr. Vasudeva Reddy for his valuable guidance and support on completion of this project. I extend my gratitude to KL University for giving me this opportunity. At last but not least gratitude goes to all of my friends who directly or indirectly helped me to complete this project report. Thank You Bhagya Sree M

Table of Contents

S.No

Topic

Page No

Introduction

Company Profile

Concept Relevance

Findings

Suggestions

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References

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Introduction
Compensation Management is more than just the means to attract and retain talented employees. In todays competitive labor market, organizations need to fully leverage their human capital to sustain a competitive position. This requires integrating employee processes, information and programs with organizational processes and strategies to achieve optimal organizational results.

It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation includes payments such as bonuses, profit sharing, overtime pay, recognition rewards and sales commission. Compensation can also include non-monetary perks such as a companypaid car, company-paid housing and stock options. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

The ideal compensation management policy ensures that the best talent will remain with the organization while attracting new talent and minimizing turnover. In conjunction with benefits administration and workforce analytics, an effective compensation

management policy steers employees toward behaviors that enhance personal wellbeing and minimize the risk of burnout.

Salary Matrix
A chart that can be used to determine the annual salary award and rate of salary progression of an individual employee. A salary matrix allows two variables to be taken into account in deciding the level of an award: the individual's performance rating and the position already attained within the salary range. It is essential to prepare salary matrix in any organization as it consists of different grades of employees and they are to be rewarded accordingly based on their performance or any other criteria which makes them to retain with the company for a long period time.
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IT Industry
Information Technology (IT) is defined as the design, development, implementation and management of computer-based information systems, particularly software applications and computer hardware. Today, it has grown to cover most aspects of computing and technology. The largest firms globally include IBM, HP, Dell and Microsoft.

The IT sector includes IT services, engineering design and R&D services, ITES (IT enabled services) or BPO and hardware. Today IT and ITeS sectors lead the economic growth in terms of employment, export promotion, revenue generation and standards of living. As per NASSCOM estimates, IT sector (excluding hardware) revenues are estimated at USD 87.6 billion in FY 2011-12; and the industry is expected to grow by 19 per cent during FY 2012-13. The IT sector has led to employment opportunities, both direct and indirect, of nearly 2.8 million and around 8.9 million respectively. This growth is expected to increase to more than 14 million (direct and indirect) by 2015 and to around 30 million by 2030.

The market size of the industry is expected to rise to USD 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint. IT industry has led India's economic growth and this sector's contribution to the national GDP has risen from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in 2011-12. IT industries are highly localized and clustered in seven cities as of today. These are: Bangalore, Hyderabad, Chennai, Gurgaon, Noida, New Delhi, Kolkata, Mumbai and Pune. Infrastructure limits and scarcity of land has recently led to expansion to newer places like Ahmedabad, Bhubaneshwar, Chandigarh, Coimbatore, Jaipur, Kochi, Madurai, Mangalore, Mysore and Trivandrum.

Company Profile
International Business Machines Corporation (IBM) is an information technology (IT) company. IBM operates in five segments: Global Technology Services (GTS), Global Business Services (GBS), Software, Systems and Technology and Global Financing. GTS primarily provides IT infrastructure services and business process services. GBS provides professional services and application management services. Software consists primarily of middleware and operating systems software. Systems and Technology provides clients with business solutions requiring advanced computing power and storage capabilities. Global Financing invests in financing assets, leverages with debt and manages the associated risks. In March 2014, the Company acquired Cloudant Inc, a privately held database-as-a-service (DBaaS) provider that enables developers to easily and quickly create next generation mobile and web apps.

IBM

India

Private

Limited is

the Indian subsidiary

of IBM.

It

has

facilities

in Bangalore, Delhi, Kolkata, Mumbai, Chennai, Pune,Gurgaon, Noida, Chandigarh, Ind ore, Bhubaneshwar, Coimbatore, Visakhapatnam and Hyderabad. Between 2003 and 2007, IBM's head count in India has grown by almost 800%, from 9,000 in 2003 to nearly 74,000 in 2007. Since 2006, IBM has been the multinational with the largest number of employees in India. IBM is very secretive about the geographic distribution of its employees. By most estimates, it has close to a third of its 4.3 lakh employees in India, and it likely has more employees here than in the US.

IBM worldwide expects its revenues to be around $120 billion by 2010, of which nearly $86 billion (68%) would come from IBM Global Services alone, with an estimate of about 200,000 employees. IBM India would account for 90,000 of these. Roughly translated, IBM's Indian employees would generate $35 billion of IBM's revenues in 2010.

Concept Relevance

When supervisors determine which employees will get pay increases and how much they deserve, they are making or breaking your business. They do it by connecting performance to pay, or not, your managers tell your employees what sort of work ethic and attitude gets rewarded at your company. If company not already using one, they may want to consider creating a merit-based performance matrix (MBM). The meritbased, pay-for-performance matrix serves as a guide for supervisors so that they suggest pay increases that are fair and support business objectives. The merit matrix connects performance to market rate pay.

Before they get started, keep in mind that adopting a competitive, performance-based pay philosophy requires some extra work. In order to differentiate wages based upon the results or behaviors of your employees, you need to know what you want people to do, be able to sort out how they are performing and, based on that, differentiate their pay.

The benefit of this extra effort is that you can drive your funds towards rewarding highperforming employees who are paid less than the market. You will first look at your best-performing employees, and then within that category, push more money towards those who are paid less than the market.

Organizations develop and implement salary structures to provide a framework for administering their employee compensation programs. Effective administration of a compensation program requires a balance between the pay levels for employees inside the companyinternal equityand the pay levels those employees could command in the companys recruiting marketsexternal equity.

Salary Administration Programs are designed to provide competitive and equitable base pay to all employees, through the use of salary structures and formal policies and procedures. An effective Salary Administration Program allows a company to meet the basic objectives of compensation: focus, attract, retain, and motivate. In addition, the Program should be flexible to allow for changing conditions and fluctuations within the company and marketplace. Often, Salary Administration Programs are tied to a pay-forperformance philosophy, whereby annual increases are differentiated based on the evaluated performance of an employee, and may be further influenced by the employee's placement within his/her salary range.

Salary structures are an important component of the Salary Administration Program, which allow for a company to ensure that a position is properly compensated, both from an external competitiveness and internal equity perspective. Over the past few years, merit increases have been low or non-existent due to the poor economic conditions; in addition, many companies had hiring freezes. As a result, companies did not review or update salary structures. Today, companies are ready to provide merit increases again, as well as increase their staff.

Companies are seeking to ensure the effectiveness of their salary structures, as well as the overall Program. Therefore, it is important to conduct periodic audits to address the following:

Determine if the company's strategic goals, objectives, and compensation strategy are still aligned with the program.

As the job market improves, it is important to understand the current marketplace, in order to examine whether the Program is still meeting the basic objectives of compensation.

Many companies either downsized or completed a restructuring as a result of the recession. A review of the salary structures will determine if the number of grades and grade assignments are appropriate today.

Developing salary structure in IBM

Most companies determine their employee pay levels by evaluating market pay levels for the majority of their jobs. Compensation professionals call these benchmark jobs. In contrast to benchmark jobs, non-benchmark jobs are not evaluated for the purpose of determining market pay levels, usually because market data is unavailable.

The market pay levels for all benchmark jobs can be arranged from highest to lowest to assess the relative value of each job. The companys non -benchmark jobs are then slotted in between comparable benchmark jobs to create a job-worth hierarchy that incorporates both the external value and the companys internal value for all jobs in relationship to each other. The job-worth hierarchy forms the basis for grouping jobs of similar value and establishing the classifications that compose the companys salary structure.

Business considerations for pay structure design

Business considerations for pay structure design include strategic issues, competitive practices, the organizational culture and the affordability of pay. The key strategic issues to consider are the objectives of the company and the extent to which salary will be used to attract and retain employees capable of achieving business success.

The number of ranges in a salary structure is a characteristic that describes the number of hierarchical levels needed to distinguish the value of jobs in the organization. The number of ranges required to compose a complete structure is determined by the following considerations: The number of skill and/or responsibility distinctions evident in the organizations companys

job-worth hierarchy. The number of supervisor-subordinate relationships in the

organizational structure.
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The degree of emphasis on career development and progression. The resources available to administer the pay program. Generally, the more range levels, the more administration required.

Broadband Structures

Broad banding is creating a salary structure that consolidates the relatively large number of ranges found in a traditional structure into fewer ranges. Because there are fewer ranges, a broadband salary structure has characteristics that distinguish it from a traditional structure. Broadband structures are characterized by fewer salary ranges that have wider range spreads, larger midpoint differentials and a lesser degree of overlap. Broadband structures tend to place greater emphasis on career development opportunities than employees otherwise would seek in the companys recruiting markets.

Performance Merit Matrix

It is most commonly used in organizations that do not have well defined salary grade structures. Compensation increases are based solely on performance there are no other considerations. The top performers fare best, receiving larger increases than lower performers. Salary increases are usually calculated as a percentage increase in base pay. The increase amount is fixed, although there is a bit of room for manager discretion. The primary drawback is that it allows for minimal differentiation between employees at the same performance level and at rates of pay that could be significantly different. The dollar amount varies by base pay and employees at the higher end of the range move rapidly toward the maximum salary for the range.

Broadband pay structures increases are based only on a predetermined percentage of salary range midpoint. High performers at the lower end of the range move more quickly through the range. Movement toward the maximum salary in the range is slowed for

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employees at the midpoint or above is the same for all employees, but the percentage increase varies for employees higher in the range.

Performance and position in range matrix Position in range, or range penetration, is defined as the level of an individuals pay compared to the total pay range. Any salary range can be divided into quartiles. Individuals with salaries that fall below the midpoint are rewarded at a higher rate than those whose salaries are above the midpoint. Level of performance also determines the increase rate. Top performers benefit the most, and lower performers are given minimal or no increase.

Creation of this matrix requires: An estimate of employees in each rating category Pay Rate - Minimum/Maximum - Minimum

Suggestions
The important point is that managers may end up with different matrices for different populations. Many organizations have a performance measurement matrix for their salaried/professional population, another for their hourly/entry-level population. Superiors need to take a look at your own organization and figure out what makes the most sense. Even though the pay-for-performance matrix provides a salary increase template, must establish a merit budget and that will be your ultimate limit.

Therefore,

no matter what your matrix shows, managers will not be able to

exceed the budget without extraordinary authorization.

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References
Articles

1. The Merit Matrix: An effective tool for driving pay for performance 2. Guide to creating salary administration plan 3. Compensation Today

http://info.shine.com/Industry-Information/IT/6.aspx http://www.answers.com/topic/salary-matrix http://www.kenexa.com http://www.compensationresources.com/press-room/importance-of-keeping-salaryadministration-programs-current.php

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