EFFECTIVE COMPENSATION BUILDING COMPETITIVE

ADVANTAGE: IT AND FINANCIAL SERVICES SECTORS IN INDIA

Done by: -
Sruthi S Kuruvilla
1621040
 CHAPTER 1
INTRODUCTION

1.1 IMPORTANCE OF COMPENSATION

Organizations are suffering with the task of preserving the best of their talent and turning to
innovative retention strategies to make people stay in the organization. Compensation and benefits
becomes a vital part of the rewards strategy in this endeavor, and has intense impact on employee
commitment and retention. Especially in an open market, where the talented few have a number
of job opportunities to choose from and the threat of attrition is always apparent. The employer-
employee agreement today is therefore a psychological bond, wherein employees should feel
valued for their offerings, and the company is required to show this value by rewarding the
employee in a tailored way.

1.2 CURRENT COMPENSATION TOOLS

Many organizations utilize restricted remuneration apparatuses that are not connected with their
key designs. Base pay rates, rewards, and stock proprietorship are outstanding pay techniques.
Base pay rates will dependably be a mainstay of enlisting and maintenance techniques, however
associations are unable to attract professionals based on that alone.

Generally, job offers are not shared with existing employers until the professionals give in their
resignations. The managers defense is to try and convince employees to look at their longevity
and sojourn with the company. But, these employees do not have any motivation to stay if they do
not see a direct connection to their future with the company from a compensation standpoint.

Bonuses and stock options have their advantages, but here also, these approaches of compensation
do not always have an obvious construction to hiring and retention policies. Bonuses bank on on
temporary corporate success. Most important employee contributions do not yield instantaneous
results that the company may regard worthy of bonuses. Brilliant individuals are told that they are
functioning at an extraordinary level and that promotions are on the way, but are not monetarily
rewarded for their donations, which increases the threat of competitors wooing them.
Executives of ESOP-based companies devote a great amount of energy creating ownership, and
risk and reward programs that are spread so widely that their full consequences are harder to bring
to the front. Possibly the biggest challenge with ESOPs is that real monetary rewards that
employees could get which could be decades away. Best performers leave organizations in order
to trade their stock, as they have no other option to regain their value.

Another issues with depending on on base compensation, incentive compensation, and ESOPs is
that the same set of assets is being used for both rudimentary performance and for hiring and
retention.

1.3 DEFINING A COMPENSATION PHILOSOPHY

Does a growing business adhere to a philosophy that rewards those that contribute to its success?
The best-run firms as well as little ones consciously build and support a culture that claims,
We acknowledge and reward exceptional effort and results, and systematically emphasize the
link between company profitableness and compensation.
These firms additionally invest the trouble to form a proper compensation strategy. As a result of
payroll is one in all the biggest expenditures for a corporation, and senior managers are clear on
their expectations for realizing a considerable come back on it investment.
An effective compensation arrangement ensures that pay is systematically and properly directed
to the roles and people that contribute to the organizations success. It's supported internal equity
and external competitiveness. A well-designed arrangement additionally acknowledges the
importance of non-cash components adore an array of insurances, paid break day and different
edges, and perks adore cell phones and cars.
1.4 THE BUILDING BLOCKS OF A SOUND COMPENSATION PLAN

Designing and implementing an efficient arrangement generally involves many steps: -

i. Formalize job descriptions- Job descriptions are the inspiration on that compensation
plans are based mostly. Once making a compensation structure, positions are evaluated
supported their contribution to the organization. Therefore, the primary step within the
method is to make sure job descriptions are updated and accurately replicate the essential
functions of the positions.
ii. Evaluate jobs- Solely once jobs are evaluated supported their contributions to the
organization will a compensation structure be engineered. Many analysis ways are often
effective; some organizations merely rank the roles so as of importance. Different firms
use an additional advanced system involving weighted points. As an example, sure paying
factors adore education, relevant expertise, error margin and scope of superintendence -
clearly impact the organizations success. As jobs are evaluated, these factors are weighted
and appointed points. The positions are then graded so as of their price to the organization
and their relationships to at least one another.
iii. Benchmark key positions- Using native, industry-related and personal surveys, market
rates are established. Key jobs are aforethought against market-rate matches, and different
jobs are slotted between the market-rate points. This ensures external competitiveness.
iv. Design a compensation structure-Using the results of the task analysis and
benchmarking, remuneration ranges are created and positions are slotted among the ranges.
Pay strategy, compensation philosophy, supposed use of base pay and payroll prices should
be thought-about before finalizing the arrangement.
v. Develop a phased-in arrangement- Once the new compensation structure is in place,
selections should be created for the way to best pay the agency without being underpaid or
overpaid. This gap analysis should incorporate budget issues and planned time frames.
1.5 CONCLUSION

Companies, these days produce strategic plans that look at three, five or even ten years.
When executives are faced with the difficulty of making substantial investments in markets,
locations, mergers, or new competitive strategies, they could use mid-term incentive programs to
guarantee achievement in investments of capital, resources, and brand.

The crucial decision is to make use of compensation strategies that would inspire employees while
supporting their behaviors and job performance with organizational goals. Whether corporate
goals are temporary or longstanding, the goals of the proprietors should drive the compensation
strategy. The strategy could include a mixture of plans for diverse levels of employees and
positions. For example, positions inclined to greater turnover would be better suited for bonus
incentive plans. Other positions would be better suited for long-standing reward programs.