In the case CEL, a choice basically needs to be made between Operational and Financial Risk.

In this
case Compensation plays a lead or Catalyst role in overall HR Strategy. The following is priority order
for the company : Attraction, labour cost, motivation. Fairness

There were basically three options available with the company:

 Either pay Ron Grubb less salary and have the risk of losing him(operational risk). Because of
the less salary, he might turn down the offer but It will help in showing whether he is a good
culture fit for the orgnanisation or not. The operational risk posed here is huge.. Since this is
not a very general role, searching for another candidate in case Grubb rejects the offer can
pose a great harm to the organisation in terms of revenue, time and administrative efforts.
There will be a delay in hiring and business loss to the company.
 Pay him higher salary as demanded. This will ensure us that Ron Grubb will join the company
but will pose the risk of upsetting other employees if they know it(better to tell them). Their
morale can go down and then their performance can also be affected. They might leave the
organisation.

There is the problem or case of internal equity in this case. We should ensure this that employees
don’t find it on their known wrong information. The Company should somehow disclose this that the
responsibilities of this new role is quite different, hence the salary. The following are the situations
or options that can result:

o If people find out, will it affect their morale? (this may depend on their prior experience and
expectations from their employer i.e., the psychological contract or the culture of the firm).
o If it affects their morale, to what extent will it affect their output? (this may depend on the
extent of discretion that they have).
o Will they low morale employees quit? (this may depend on the kind of market opportunities
available to them)
o If they quit, can we get replacements easily? (this depends on the kind of skills they have, at
times you may be able to get replacements at a lower cost, and thereby benefit from their
quitting!).
o Will the benefit from hiring the new joinees at higher salary offset the damages caused by
low morale?
o Are there any cultural or reputational costs of this decision?
o How long will the situation endure? How soon can it be corrected? (if a salary revision is due,
some correction in the existing members' salaries can be done and some of the internal
equity issues can be rapidly addressed).

When we are focusing or chosing this option it means that the main aim of the company is Attraction
of talent and not fairness or equity. An option here is that they will not keep the entire Policies open
and disclose to all the levels.

 Revamp the entire pay structure(financial risk). The company might not be having the
resources to support the increased salary.

The basic tension in this case is that between external and internal equity. Th erole in question
here is completely new one. Hence, benchmarking earlier roles’ salaries for this new role is not a
good option. This is the tension is between Option A (CAD 85k) and Option B (CAD 100k). The
tension between these two options is essentially a tension between internal equity and external
 equity. Many companies have compromised internal equity for the sake of external equity. In
the technology sector it is not uncommon to find new joinees "out-earning" their seniors. During
talent crunch companies have offered BMW Bikes and iPhones to new joinees and others go so
far as to offer employees Rs.1-5,000 just to appear for the assessment. So the question to ask
here would be - "In what circumstances would it be desirable to compromise on internal equity
for the sake of external equity?" OR "What can be done to offset the damage to internal equity
as a result of emphasizing external equity?"

Suggestions to Jeff Arvidson:

 Provide Grubb the salary that he is demanding, that is chose the option B. The role being in
question here, ”Pipe Stress Analyst” is a unique role and hence its salary can’t be decided
according to earlier salaries being paid. The best way here for the President would be to
follow a Secret Policy of Management on Compensation because it might lead to
dissatisfaction and attrition in case of Open System.
 The Company should clearly position itself as one following a Person based System rather
than Job Based System. With this it can easily defend its choice of paying Grubb a higher
salary than another Employees at same level
 When doing External Benchamrking also, the biggest support is for option B, because the
company is paying less than other competitors. So while hiring for an extremely competitive,
only a leading Compensation structure ewill benefit

According to J Stacy Adam’s Equity Theory (1963) Employees compare their inputs and outputs ratio
with those of other. But here it’s a situation where the inputs of the new role will be completely
different to that of the previous roles. Hence, keeping their outputs that is salary at exactly same
level is not suggestive. Grubb will pay for himself in his new role.

 Jeff can also put a condition whereby he will mandate a fixed profit for the new department
(in maybe next financial cycle) as a pre-requisite criteria for Grubb to continue at the same
pay level
 Another suggestion for Jeff would be to offer Grubb the company average of $85,000 as cash
component and stock or ESOP option that would mature after 5 years and will have a return
of $ 20,000 per year. Which will be higher than the salary demanded but will definitely help
in ensuring Employee Retention.
2)

In the case of Colgate Palmolive the organisation has to recruit for 14 job roles from the available 5
candidates that are available for the same.

Job based pay structure is basically designed in situation when the roles and responsibilities are
strictly defined for a given role and additional responsibilities are not being assigned. Each individual
in the organisation is strictly responsible to work within his defined set of job descriptions. Here
individuals are recruited as per vacancy in specific jobs. In this situation Salaries increase when…

• Employee takes on additional role/responsibility

• Employee is promoted to higher level job based on vacancy

Skill based structure is where the roles and responsibilities/ duties are not defined strictly. Each
employee can work on a multitude of projects and roles and even depending on the skills acquired
the salary of the person is increased. Salaries increase when…

• Employee masters additional skills (breadth)

• Employee becomes more proficient in existing skills (depth)

We should focus on Job based structure, the individual skills or capabilities might be truly
exaggerated in these situation and whenever there is a choice between job duties and job
specifications, more focus should be on job duties and responsibilities

In the case of Colpal, an entire new plant has to be set up . The categories or positions had clearly
defined Job duties which didn’t had any additional responsibilities. The Company is also well
established and has been shown in the case many people have even applied for lower roles just to
get into the company. These people will be working just according to the job duties being specified
but if we have a Skill based Pay in the company, then we will be over – paying these employees if we
hire them.

This is also a plant based role, with no role of customer service. There is a mass production activity
that is to be carried out and employees just need to be proficient in their own specific roles. No need
to do multi-tasking as in case of Service-based industry.

The case of COLPAL is one of high LABOR MARKET Characteristics. The high unemployment and
attracting talents from competitive firms make Job based Salary structure quite apt for this company

The circumstances in which I would offer an opposite suggestion to the one that is being
recommendined now:
 For offering an opposite structure, that is a skill based salary structure, we need a job or
culture just like Rohan’s Retreat, whereby the salary and overall employee motivation
depended on the skillsets that the employee possesses.
 Also if the company had Product Market Characteristics( like in the situation of a Startup fim)
, Person Based Salary structure would have been suggested.
 In case the company offered ESOP or other employee ownership options, Skill based
structure would have been preferred because in that situation the employees would have a
stake in improving the output or productivity as they would have an ownership and a share
in overall profit.
  In case of a Service based industry, Skill based pay structure is an often preferred choice.
There are quite multitasking roles that are being demanded.
 Where employee retention is an issue, Skill based Pay will be chosen. As Job based pay often
leads to monotonous roles, hence customer dissatisfaction and attrition for highly skilled
workers.

3)

Incumbent Min of Pay Max of Pay Range Range Width

salary) Range Range Penetration

₹ ₹ 4,00,000 ₹ 4,78,005 0% 20%

4,00,000
₹ ₹ 4,20,000 ₹ 5,01,905 24% 20%
4,40,000
₹ ₹ 4,41,000 ₹ 5,27,000 50% 20%
4,84,000

We have taken the minimum pay range to be 400000

Taking the yearly increase in pay range to be 5 % we calculate the minimum of pay range for year 2
and 3

The incumbent salary is taken to be 400000, with an increase of 10% the salary for the year 2 and 3
has been calculated to be 440000 and 484000 respectively

Given he becomes fully functional in his or her role by 3 years, it means range penetration
becomes 50%. The maximum salary is calculated for year 3 by the range penetration
formula= (Incumbent salary-range min)/(max salary-min salary)
This comes out to be 527000
Now Range width is calculated by formula = (Range max-range min)/range min, =20%

The range width is 20% and upper limit of pay range for grade 1 for year 1 is 478005

While the final upper limit of Pay Range is 5,27,000 which is for the year 3
Q5] Comment on this statement with suitable examples – “All organizations have an
incentive system. The main question is – does the incentive system enhance value
creation?” [10 marks]

All the organisations have an incentive system. But the incentive system should enhance the overall
value creation in the company. The reward strategy must emerge from the overall business strategy
and must align with all elements of the HR. The incentive plan should have an overall Signalling
effect for the value proposition of the company.

The best example for this can be shown by the company Egon Zehnder which is an Executive
Search (headhunting). The business strategy of the company is :
 Sales based on trust & individual networks

• Intuition-based assessments

• Globally mobile talent & globally volatile market.

The business strategy of the company is “Nothing comes in the way of providing our clients

with the best candidate for the job (not even our internal systems)”

Their value proposition is to bring individual strengths together to form one powerful global team.
They position themselves to bring their collective power to every client

Hence, the company has designed its Incentive system in such a way that it just focuses on overall
business of the firm and individual performance is given least importance in the organisation. The
overall incentive or reward that is paid to the employees just depends on two factors: the tenure.

and the company overall profit. Individual team or office profits is not given any importance in the
company.

They have flat fees that is not dependent on the salary of the incumbent. Through their incentive
structure they focus on loyalty and collaboration.

 The second example can be shown from the case of Proposed Merit pay Program by Thomas
R. Miller. The university was in the path to design a new incentive system whereby only the
top 20-25% of the professors would be getting a hike based on their performance.

The system of Incetive in the company was also aligned with its values and business proposition.
Caroll State was a Research oriented university from the last 20 years faculty members who were
strong publishers always received top ratings and hence pay raises with a rare exception of one or
two.

While designing the new incentive the same point was being kept in mind.

 The third example is of the case Chung and Das Gupta, which though follows a quite rigorous
performance evaluation, yet the difference in pay increase is quite less. The Performance
ratings main role comes during promotion to the role of Partners. The strategy of the
company is SORTING. Only those consultants who view themselves as capable enough to be
promoted to the level of Partners are motivated to stay in the company
Q6] Summarize your main learnings from the Egon Zehnder case? [5 marks]

 The reward strategy of any company must emerge from the overall business strategy and
must be aligned with all elements of HR. The reward strategy must carry an overall Signalling
effect in the organisation
 The basic or first step to sorting and ensuring culture fit is during the hiring process.
 If recruitment and sorting is done right, then that will show in its overall business results
 Whether to give team or individual incentives should depend on the overall bigger business
purpose and value proposition of the firm
 If the company is such that team work and trust between staff is of utmost importance and
self aggrandizement is at backseat, then it should focus on team based incentives.
 The company incorporated its sorting strategy in its pay structure. The pay hike for
associates was very less until they got promoted to Partners.