Compensation Management

Group 3
Submitted to: Prof. Francis Castelino Group Members: Barun Nanda Sumedh Kiran Vijayakar Pallavi Tewari Ankur Upadhyay Vibhav Kumar u108015 u108056 u108121 u108067 u108117

PGP-2 9/15/2009

Table of Contents
Introduction ............................................................................................................................................ 1 Components of Compensation System............................................................................................... 1 Need for Compensation Management ............................................................................................... 1 Components of compensation............................................................................................................ 2 Background ............................................................................................................................................. 5 IT and Education Industry ................................................................................................................ 5 IT and E-Governance ......................................................................................................................... 5 Industry Overview............................................................................................................................. 6 Characteristics ................................................................................................................................... 7 KalingaSoft .............................................................................................................................................. 8 General Description ............................................................................................................................ 8 Existing System ....................................................................................................................................... 9 Proposed System .................................................................................................................................. 10 Scope ................................................................................................................................................. 10 Technology ........................................................................................................................................ 10 Cost Benefit Analysis ......................................................................................................................... 11 Costs involved ............................................................................................................................... 11 Benefits obtained .......................................................................................................................... 11 Context Diagram ............................................................................................................................... 11 Data Flow Diagram ............................................................................................................................ 12 Level 1 ........................................................................................................................................... 12 Level 2 ........................................................................................................................................... 13 ER Diagram ........................................................................................................................................ 14 Input-Output Forms .......................................................................................................................... 15 System Output Forms ....................................................................................................................... 19

Introduction
Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and non-monetary benefits to employees. Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness.

Components of Compensation System

Compensation systems are designed keeping in minds the strategic goals and business objectives. Compensation system is designed on the basis of certain factors after analysing the job work and responsibilities. Components of a compensation system are as follows:

Need for Compensation Management

A good compensation package is important to motivate the employees to increase the organizational productivity.

Unless compensation is provided, no one will come and work for the organization. Thus, compensation helps in running an organization effectively and accomplishing its goals.

Salary is just a part of the compensation system, the employees have other psychological and self-actualization needs to fulfil. Thus, compensation serves the purpose.

The most competitive compensation will help the organization to attract and sustain the best talent. The compensation package should be as per industry standards.

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Components of compensation
Basic wages/Salaries These refer to the cash component of the wage structure based on which other elements of compensation may be structured. It is normally a fixed amount which is subject to changes based on annual increments or subject to periodical pay hikes. It is structured based on the position of an individual in the organization and differs from grades to grades. Dearness allowance The payment of dearness allowance facilitates employees and workers to face the price increase or inflation of prices of goods and services consumed by him. The onslaught of price increase has a major bearing on the living conditions of the labour. The increasing prices reduce the compensation to nothing and the money's worth is coming down based on the level of inflation. The payment of dearness allowance, which may be a fixed percentage on the basic wage, enables the employees to face the increasing prices. Bonus The bonus can be paid in different ways. It can be fixed percentage on the basic wage paid annually or in proportion to the profitability. The Government also prescribes a minimum statutory bonus for all employees and workers. There is also a bonus plan which compensates the Managers and employees based on the sales revenue or Profit margin achieved. Bonus plans can also be based on piece wages but depends upon the productivity of labour. Commissions Commission to Managers and employees may be based on the sales revenue or profits of the

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company. It is always a fixed percentage on the target achieved. For taxation purposes, commission is again a taxable component of compensation. The payment of commission as a component of commission is practised heavily on target based sales. Depending upon the targets achieved, companies may pay a commission on a monthly or periodical basis. Mixed plans Companies may also pay employees and others a combination of pay as well as commissions. This plan is called combination or mixed plan. Apart from the salaries paid, the employees may be eligible for a fixed percentage of commission upon achievement of fixed target of sales or profits or Performance objectives. Nowadays, most of the corporate sector is following this practice. This is also termed as variable component of compensation. Piece rate wages Piece rate wages are prevalent in the manufacturing wages. The labourers are paid wages for each of the quantity produced by them. The gross earnings of the labour would be equivalent to number of goods produced by them. Piece rate wages improves productivity and is an absolute measurement of productivity to wage structure. The fairness of compensation is totally based on the productivity and not by other qualitative factors. The GANTT productivity planning and Taylor's plan of wages are examples of piece rate wages and the related consequences. Sign on Bonuses The latest trend in the compensation planning is the lump sum bonus for the incoming employee. A person, who accepts the offer, is paid a lump sum as a bonus. Even though this practice is not prevalent in most of the industries, Equity research and investment banking companies are paying this to attract the scarce talent. Profit sharing payments Profit sharing is again a novel concept nowadays. This can be paid through payment of cash or through ESOPS. The structuring of wages may be done in such a way that, it attracts competitiveness and improved productivity.

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Profit sharing can also be in the form of deferred compensation at the time of retirement. At the time of retirement, the employees may be paid a lump sum or retiral benefits. Fringe benefits The provision of fringe benefits does not attract any explanation. These include a) Company cars b) Paid vacations c) Membership of social/cultural clubs d) Entertainment tickets/allowances e) Discounted travel tickets f) Family vacation packages.

Reimbursements Employees, depending upon their gradations in the organization may get reimbursements based on the Expenses incurred and substantiated. Certain expenses are also paid based on expenses incurred during the course of business. In many cases, employers provide advances to the employees for incurring certain expenses that are incurred during the course of the business. Some examples are a) Travel expenses b) Entertainment expenses c) Out of pocket expenses d) Refreshments expenses during office routine outside office premises. Sickness benefits/pregnancy The increasing social consciousness of corporate citizens has resulted in the payment of sickness benefit to the Employees of companies. This also includes payments during pregnancy of women employees. The expenses incurred due to injury or illness are compensated or reimbursed to the employees. In certain companies, the death of an employee is compensated financially. Companies are also providing supporting financial benefits to the family of the bereaved employees. However, companies covering these cost through appropriate insurance policies like, Medical and life insurance.

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Background
IT and Education Industry
Education is one of Indias prime industries. While its contribution to nations development has always been the topic of discussion yet the commercial value is not something that has been fully explored. On an approximate basis it is estimated to be almost 20,000 crore worth. To explain the importance of this number the domestic software industry or automobile industry has a turnover of much less. Along with the huge commercial value attached to it, it is also one of the fastest growing sectors. So, on a whole it can be regarded as one of the most attractive industry in the country today. But with these rapid progresses the issues of increasing complexity also need to be addressed. Today educational institutions are becoming more and more complex organizations. Instead of limiting themselves to just imparting quality education they have grown into organizations that have to manage a wide range of issues starting form marketing of themselves to get better students for admission and corporate for campus placements to manage internal operations, sophisticated financial planning and proper co-ordination with regulatory authorities etc. In this age of information an efficient MIS that facilitates cost reduction, responsive and effective decisions and brand image enhancement is the call of the time. Also across sectors most of the organizations today go for intensive automation of work processes that give significant improvements in terms of cost and accuracy. But educational sector has lagged behind in this respect till now. With the advent of newer ERP technology and solutions they have also taken the plunge. The software industry though slowly yet have come to recognize the latent demands of educational industry. A few facts that the institutes should keep in mind while going for an ERP package are: Integrated Software Internet based Product Multi User Decision Support System

IT and E-Governance
Citizens expect their public administration to provide services of quality, adapted to the most recent developments in the political, economic, social, and technological environments, and at the lowest cost. It is generally in response to these expectations that methods, techniques, or practices that 5|Page

appears promising in the private sector, are made use of in the public sector. This is particularly true in the area of information technology (IT). Given that each sector is confronted with specific environmental constraints, the transfer of IT practices from the private to the public sector would not occur automatically. This has been confirmed by prior empirical studies showing differences between private and public organizations with regard to IT management. These studies indicate, among other things, that in contrast to private firms that implement IT applications as competitive weapons and protect their specific IT competencies, public agencies must often share their applications and competencies with other agencies that have similar activities or functions. Also, given that resources are allocated by budgetary processes rather than by market mechanisms as in the private sector, IT planning in the public sector must often bow to political pressure and is thus mostly oriented in the short term. E-government has raised operational, functional and strategic issues in regard to the transformation of public organizations and their implementation of new technologies. On the more specific issue of Enterprise Resources Planning (ERP) systems, the need to develop a body of knowledge specific to public organizations is appreciated more and more. In order to provide more efficient government and better services to citizens, public administrations and agencies have invested in Enterprise Resource Planning (ERP) systems as their basic technological infrastructure for e-government.

Industry Overview
According to a NASSCOM-McKinsey report, annual revenue projections for Indias IT industry in 2008 are US $ 87 billion and market openings are emerging across four broad sectors, IT services, software products, IT enabled services, and e-businesses thus creating a number of opportunities for Indian companies. In addition to the export market, all of these segments have a domestic market component as well. Other key findings of this report are:

Software & Services will contribute over 7.5 % of the overall GDP growth of India IT Exports will account for 35% of the total exports from India Potential for 2.2 million jobs in IT by 2008 IT industry will attract Foreign Direct Investment (FDI) of U.S. $ 4-5 billion Market capitalization of IT shares will be around U.S. $ 225 billion

Government of India has taken a major step towards promoting the domestic industry and achieving the full potential of the Indian IT entrepreneurs with the formation of a new ministry for IT. So there

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lies enormous opportunity to grow and also because of low barrier to entry, there could be high competition ahead in this sector.

Characteristics

The marginal cost of each unit of additional unit of software or hardware is insignificant in comparison to the value addition because of this.

Its is a knowledge based industry Efficient use of human resource is very much required for success and growth. Entry barrier is low. The companies in this organization enjoy tax exemption and that helps in growth of the firms.

The firms have low fixed asset and the majority of the firms asset is intangible (e.g. Human resource)

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KalingaSoft
General Description
Kalinga Software Private Limited (KalingaSoft), an ISO 9001 certified company, has been promoted by academicians and education experts with a vision to create a sustained competitive edge for its clients through innovative and need centric solutions to facilitate effective education management. KalingaSoft is an innovator and thought leader in the area of education management and has delivered world-class products and services to its customers. KalingaSoft's leadership is built on a deep understanding of the education sector, extensive experience and ability to deploy the best of class solutions to solve customer problems individually or through its partners. KalingaSoft has been identified as an ISV partner by IBM for its institute management system solutions Advanced Level status. Since its inception 10 years back KalingaSoft has provided end to end education consulting and technology implementation support to the entire spectrum of education domain. KalingaSoft has implemented its best of the breed educational ERP packages "Greycells" and "e-IMS" in more than 75 educational institutes including universities, colleges and schools. KalingaSoft is focused in building its products and taking them closer to prospective users. In that sense, KalingaSoft has significant interests in educational technology (espl. education web ERP) space, corporate solutions, office automation and healthcare. KalingaSoft has multiple strength areas including education sector, web technology, corporate solutions, healthcare, office automation, e-governance, network consulting, training (man power development). It is currently focusing on expanding its operations by offering multiple service domains including product development, maintenance support, re-engineering, package implementation and network consulting etc. to meet the end-to-end needs of its clients and develop as a single-window shop for its customers. KalingaSoft constantly works towards innovating on technologies profitably used in corporate sectors and adapting them in manner that enhances the quality and ROI of education delivery and management. Since 2003, KalingaSoft has introduced a wide range of solutions within the e-Campus offering, including the popular education ERP - e-IMS.

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Existing System
Attendance System is automated: Magnetic Swipe card system has been implemented to ease the attendance process. It is dynamic in nature and can provide all details of employees presence like in-time, out-time, employee details etc. Spreadsheet based payroll model: Earlier the payroll process was manual in nature and there was no standardized model. So a spreadsheet based model was implemented with Tax solutions to reduce time consumption and make the process easier and efficient. Spreadsheet model for performance management and appraisal. Spreadsheet model to keep a track of monthly cost, revenue, resource allocation and other management processes. KalingaSoft is currently comprehending the options of using low cost software solutions to automate the existing processes. So they are planning to implement HRIS so tackle the issues related to HR.

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Proposed System
Scope
Compensation formalizes as a system the relationship between wages and performance. Trends in Compensation o o o Task based compensation to Skill Based Appraisal Individual Job Descriptions to Group Task Descriptions Individual Job Evaluation Schemes to compensate (pay) for Performance Schemes.

Technology
Considering the requirements of scalability and flexibility, we recommend that the proposed solution be built on a web based technology, which would enable the user to access the application on a regular web browser. The 4-tier architecture presents itself as the best alternative to build this kind of an application. The browser on Tier4 becomes the thin client, processing only HTML and other scripting languages (JavaScript etc) to perform user validations and basic processing. The Web server on Tier3 and the Application server on Tier 2 form the brain of the application, performing all the processing logic and data access. The Database forms the Tier1, and fulfils the data access requirements of the application.

The 4 tier architecture presents the best option in management of the client server applications. With a browser as the standard client, there is never a need to update the client if there are changes at the server side. Moreover, the application can be made available to the external users too (outside the companys network). Hence, it will allow employees to access it from their homes, or if they are travelling. The company could deploy any of the Web based technologies (ASP.net, VB.net or SharePoint portal)

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Cost Benefit Analysis

Costs involved High upfront cost: HRIS package generally is expensive and is one of the main reasons why the companies keep away from using them. Training costs: The present employees have to be trained as to how to use the system for better performance. The other systems need to be upgraded too so as to work in tandem with the new system. Benefits obtained Reduced time: With the help of HRIS in evaluation of compensation the total time required for collecting needs from different departments and coming up with the compensation package is reduced. Reduces paper work: In line with most IT systems, HRIS reduces the paper work involved in collection of information. Reduces Employee costs: Reduces human costs involved in collection of data. Increases Efficiency of the process: As possibility of human errors is reduced overall efficiency of the system is improved.

Context Diagram

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Data Flow Diagram

Level 1

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Level 2

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ER Diagram

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Input-Output Forms

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Level 1 Manager

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Level 2 Manager

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System Output Forms

Report for Level 2 Managers

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Report for Level 2 Managers

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Report for Line Managers

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