Lecture 2

Shares A Case in the Chat Buy More 101 Case

Rationale is to distribute - The way you distribute would be our discussion for this class
Numbers don’t matter to me, I just want to know how you think

● Wanted to explain the concept of Tournament Theory -

The difference between salaries would increase as we move up the ladder.

He liked the assumptions that Mayan’s and Sanishtha’s group had made -
● Difference in between the CEO & VPs was more than VPs and Chiefs
● As no data was their, they did not give preference to ay department
● Tejas’s & Anwesha’s group had different pay amongst the chiefs and VPs
● He said he’s fine with whatever numbers you put, if he likes your assumptions. He wants
a rationale. If you can convince him the Earth is Flat, he would consider that as answer
● Shreya & Prabhat - Fixed Pay same for all depts. Introduce a variable pay based on
performance
● Equitable Compensation -Higher the designation, higher the salary (Do not confuse with
equality), Equity means, there is a difference in pay, a valid difference that you are able to
justify
● Overall objective is to be fair
● Equity v/s Equality -
o In this case we are taking decisions in an HR environment not in IR environment
o In IR you go equality, you want to pay them equal, otherwise there would be
conflicts, why doesn’t such a conflict arise in HR?
o Saanchi - HR- Individual & IR - Collective - something like that - Guru (Laughs) -
Leave Something like that to me
o You bother about unions in IR and not in an HR setup
o Arnav - Sir HR is more individualistic and IR is more collective
o Guru - Right. But the question is why?
o The answer is the level of dispensability of the job, in an IR setup the workers
are despensibile and are in abundance, but in an HR setup the resources cannot
be easily replaced because they are a scarce talent.This would always happen
when supply is less than demand. Exception - Why pilots are unionised
o In HR, I am willing to differentiate and focus on equity because it is an individual
setup. In IR, the power lies in the Collective
● When there is no data, then pay equally. Otherwise you’ll end up with a biased decision.
Should we differentiate to show equity? Degree of Equity is different across
organizations
Lecture 6_24 Nov:
1. Pay Mix is essentially a control mechanism employed by companies. It does not take into
account value fit. Value fit comes later into the system, to look at employees companies
can trust. Explanation:
a. Pay hike control targets:
i. If you use pay hike and focus on variable component relating it to
achievement of targets, you can make sure employees are performing.
ii. If you do use it as guaranteed pay, you are simply saying we trust the
employee and hence we want to conserve him
 b. Value fit: Another way to manage compensation. Not everyone can meet targets.
But we still laud an employee’s effort and compensate him for the same
2. In entry level jobs, colleges come into picture. However, as one advances in the career, at
VP levels, a person’s college does not matter. There are exceptions to this though. For
example, a startup hiring CHRO only from XLRI to signal to the investors that we
appreciate quality.
3. Work experience is a powerful proxy for talent and organizations put a price on it. Hence
they tend to have threshold level of work experience for posts.

Loyalty argument:
1. Organizations do not value loyalty when the market is not active.Conversely, they value
loyalty if the market is active.
2. Organizations do not value loyalty when they want diversification as well. It signals this
by offering higher salaries to people who leave, diversify and then come back.

Advantages of Organization Specific Skills:

Organizations need to work with intangibles (such as culture, values). It rewards people who are
good at dealing with these things. Eg: Union leaders good at simmering down a crowd. However,
payment for Organization Specific Skills is very industry dependent.

Most companies do not look at achievement of last year’s targets to look at pay mix. Also, in
retail, certain companies value loyalty department wise. As an example, an expert on furniture
will be rewarded more than a shopfloor worker if he chooses to stay

Lecture 10 Dec 8th

PAY- MIX

● Basic - > position

o > Adjustments according to potential, which generates a pay range
● Comparative ratio = actual salary/ ideal salary. Its not industry/market median. Its in
reference to what you pay.
● What is the criteria for moving from minimum to maximum ? - > change in potential
● Performance management system - > what will be the characteristic?
● See Performance is data on capabilities which can be interpreted in many ways - >
increasing basic
● Rating is data about behavior but its interpretation is competency
● PMS - > competency - > basic pay
● Guaranteed salary goes up, basic pay goes up, basic goes up if competencies
increase/merit based pay
● 360 degree feedback (multi rated system) - > a lot of factors are involved so this is very
subjective
● At senior level amount of money is more, so you can play with variable pay
● What should the organization do ? Fairness and aptness to the context should be kept in
mind
● Organizations select the data of your selection to compare increasing competencies
● When you reach middle and senior level, you have more data about the person
● When they dont have data, organization use proxies, like giving another chance etc.
● In the pay range (minimum) is usually lets say around P30 , it is when you are yet to
prove yourself, lower than the ideal pay, P60 is around the middle(ideal pay), P75 is the
 max -> very competent/ good performance at this level but not worth promoting to next
level
● Minimum and maximum emerges from the ideal pay
● Percentage increase keeps going down because the organization is signalling/
communicate
o There is a better job for you
o We cant really invest so much
o Orgn wants to delay reaching the max
o Expectations change over time
● The rate at which this tapers is dependent on the organization
● Compa ratio makes sense only if there is transparency in pay
● Job/ designation/department based compa ratio
● Compa ratio matters for individual, but its more useful for asking questions
● It can help you look into trends, if you know what data(extra) you want, you can get
answers
● Movement in a particular pay range - In India, you get promoted til you reach the
maximum of your competency
ALLOWANCES & BENEFITS
● Earlier - small basic + large allowances
● Now - > 50 - 50 both
● Allowances are temporary, there is no PF on allowance except DA.
● Lecture 11
● December 10 th

● - Pay levels and flat organization structures are different. Job doesn’t change with pay
level change. This is in regard to tenure promotions. The initials promotions are based
on tenure, the job doesn’t change, role doesn’t change, it is just to recognize the
employee’s work.
● - Even in government organizations, in most cases, pay level keeps changing
periodically but the job is unattached to it. Such a scenario could also be because of less
available promotion opportunities.
● - Organization is paying someone the highest pay for that job (highest in that pay
range) and the others are being paid less than that. This brings in differentiation. The
one with more pay is being rewarded for his/her performance. At this point, this
employee has to move up in his job otherwise the cost to company is increasing.
Consider, opportunities are there but the employee is not capable enough for next job
level.
● - Now the options with organization are –
● i) Promote the person (even if he is not capable)
● ii) Ghost pay range (will not promote will not throw out, it is a signal to people that
the org has high performing employees, high talent)
● iii) Signalling the slowing of pay hike to the employee beyond the current P80 level.
The options also depend on the how scarcely is that talent available in the market. The
organization can also look at training the employee in order to retain and promote to
next level.
● - In some cases, the high performing employee may not be eligible for the next job level
due to lack of competencies so the next best performer or the next best with required
competencies for the next level is promoted. This can be taken wrongly by the
employees. Different organizations follow different methods. Some go with promoting
the best performer even if they lack competencies, which is a mistake. Some say we pay
best performers very high, but promotion is different and depends on required
competencies. These are some challenges in compensation and promotions.
● - For creating promotions, the employees in the above level should be promoted to
signal to the high performing employee at the below level that he/she will be promoted
in the future when opportunity arises.
● - Allowances & Benefits –
● - Generally -> Small basic + Large allowances. Discussion is on to make 50% basic and
50% allowances.
● - If basic goes up PF (12% of basic) goes up and Gratuity goes up. To balance this
growth other allowances will be reduced. In the future, this finally reduces the take
home with less increments to keep the CTC same.
● - Allowances are primarily to reduce the PF and Gratuity burden and it provides tax
benefits to employees.
● - HRA – Makes sense only in a transferable job. But most organizations only give HRA
because of the tax benefit (IT Companies).
● - HRA, TA, night shift are allowances.
● - Allowances depend on a lot of factors – whether it is temporary, its context. If the
need for allowance is permanent, then it would be included in the basic itself.
● - Since allowances are temporary the company can withdraw it as per the need.
● - PF, Gratuity, Meal coupons - Benefits
● - Benefits are not seen in cash by the employee, but it adds to the company’s costs.
● - Specific end is taken care of. For example – medical expenses.
● - For allowances, organization doesn’t care what the employee spends that amount on.
But for benefits the organization only wants to compensate specific ends
(requirements). Organization want to show that it cares about its employees through
benefits.
● - If the organization says that they will pay the house rent directly to the owner on
submission of bills, then it is a benefit.
● - Reimbursements (on submission of bills of a specific requirement like medical, fuel
etc.) are also benefits.
● - Through benefits the organization can decide where or what the money goes for.
● - Reasons why benefits started –
● · Long term uncertainty – Employees can’t handle or plan for the long-term uncertainty
on their own. (PF, Gratuity) They are called income insurance. Hence, governments tend
to provide tax exemptions to organizations and employees on these benefits that take
care of long-term uncertainty.
● · Encouraging behaviours – Perquisites: Club memberships, Certifications for specific
skills etc.
● · Efficiency advantage – leave travel concession, take holidays at company owned
properties etc. Low cost for employees for doing certain activities.
●
● - Tata motors case –
● - HRA should be location driven if it is a transferable job. HRA should be made part of
basic if it is a permanent factor in Tata motors. It also needs a PCA to some specific
locations like Pantnagar.
● - If it is a one-off situation, then the company can have a dual policy – from Pantnagar,
to Pantnagar.
● - HRA should be a benefit it solves the transferable job problem. The company just
ensures that the employees stay is taken care.
 ● - Career transfers, culture transfers can solve the problem as it is for career
progression or learning in which case the employee cannot ask for cash or allowance as
it is needed as part of his career path.

Lecture 15(Jan 5)

JOB EVALUATION(COLPAL)

Job Evaluation - More about consistency and not policy making

● Purpose - Compare jobs and arrive at hierarchy.

● Method - Arrive at a scale which can be measurable. This will then be used to compare

We are talking about criticality of job which is a relative concept. Therefore, a common set of
parameters need to be used.
Generally the three compensable factors for evaluating a job can be - skills(input),
effort(process) and responsibility(outputs) -(Hay evaluation method).
Then they have to further split into subfactors. Eg: Skills could be further split into education,
experience, certification etc
A scale can then be created by further grading each subfactor i.e Education can have 5 grades →
1- 10th std, 2- 12th std, 3- Graduation, 4- Post Grad.

Some Issues to be kept in mind

● Never confuse people with jobs
● Scale should remain constant for all the factors

Job Evaluation depends on Job description. If certain factors like responsibility is not mentioned
in the JD then work with what you have.
The entire job evaluation is about comparison between jobs within the organization(and not
external).

When doing JE,ideally, the weights should remain constant throughout(eg, Skills -50%,
Effort-20%,Responsibility-30%) but the degree(eg:1,2,3,4,5) should change based on the job.
Weights are a bias that the organization adds to convey a message. In the above eg- That the
organization values skill over responsibility and effort.

JE - has an inherent subjectivity to it

How to reduce the subjectivity in the whole process ?

1. Use a multi-functional team(including diversity) - All of them come to consensus on
scale for each job eg: Assign ‘3’ on this job for education
2. Using an independent expert like a consultant - No bias since they are not from within
the organization but has a good idea of JE process

JE - Generally focuses only on guaranteed salary

Some ways in which orgs decide pay after evaluation. Suppose the final order after evaluation is
J3,J5,J2,J4,J1 :
 1. Pay J3 higher than market(eg-75th percentile) and J1(much lower than mkt) - Ready to
live with attrition at lower levels
2. Pay J3 P75 and J1 relatively low (P60)
3. Pay J3 high and J1 low. But ensure that next promotion will be filled internally therefore
making it a more career related issue.

In style 1. → Evident difference in skills of the different roles. J3 might be the most critical(takes
most burden), J1 is just helping J3.
In style 2. → Don't want to be seen as bad paymasters. J3 is still a support to J1 but J3 has to be
done well for J3 to perform well(highly dependent)
In style 3 → J3 most critical. Others are jobs in waiting to reach critical job.

Style 2 - used when company is in growth stage (doesnt mind extra salary).
Style 3 - Used in mature stage. Focus on careers.

How to do job evaluation ?

1. Do a proper job analysis . This will help you create an updated and robust Job
Description. This will also helps in selection, performance management(PMS) etc
2. Look for jobs that deviates → Decide whether you should pay them more

JE vs PMS
● Job vs Person
● JE - Typicality and PMS - Excellence
● PMS - Flexible eg: Ask emp to focus on innovation in one year. If it doesn't work then
regress back in the next. JE - Reasonable permanent
What started as an experiment in PMS → if its consistent over a span of time→ it becomes part
of the JD → then it impacts the JE
Technology could be another reason for change in JD
Lecture 16 - Jan 7

CASELET AND BREAKOUT ROOMS:

“Alpen Labs is leading pharmaceutical major with a strong Research and development arm and a
supporting sales team. The organization is organized into its functions viz Sales, HR, finance, and
R &D. The organization has five levels of hierarchy in any function. For example, in sales, starting
with assistant sales manager, Sales manager, area Sales manager, Regional Sales Manager and
Zonal sales manager are the five levels. These sales managers largely focus on sales, but their
chief behavior on a monthly basis is frequent visits to their doctors and maintaining good
relationships with them. Of course from the level of area sales managers maintaining a
harmonious sales team and reducing attrition in their team are also their responsibility. The
support team of HR and finance is a lean function but a very effective one. The HR team is
however organized by subsystem ie. The organization has a Recruitment Head, a compensation
head, a Performance management head, a Learning and Development Head and a Chief of HR.
Two assistants report to each of the above. Finance has three accountants and two finance
managers reporting to the chief of finance.
The organization has a R&D center, focused on fundamental Research and development.
Attrition rate in this center is very less, even lesser than the other wise low double digits
attrition rate of sales. Many employees in this center have been there for about 20 years. These
are the Super senior Researchers, jokingly referred to as superstars for their salary levels. They
are the team leaders of team of about 8-12 Senior Researchers (budding super stars) and then
there are the Researchers, assistant researchers forming an hierarchy of researchers. The salary
currently is heavily guaranteed unlike the heavy variable pay driven sales team. Many owe their
moving up the hierarchy to seniority. Whenever, they are confronted with a lack of performance
focus in the R&D center, they show the various patents that have made the organization famous,
though there is no consistency or a defined frequency in patent registration. Pushed further,
they also show how they work long hours including weekends. But a clear short-term
performance focus has been missing.
The New HR manager wants to move towards a performance-focused organization. She wants to
first ensure that the R&D executives are paid at par with the Sales team that is delivering
regularly. Hence an internal equity would be the first exercise. She needs your help in identifying
compensable factors, sub-factors weights etc. While you are at it, she also wants a clearer focus
on performance management, specifically a pay for performance for R&D.”

Discussion:
Can we compare between two departments like sales and R and D?
How do you answer for an R and D guy having salaries much higher than the sales team?

1)Sales versus Rand D is fundamentally 2 different professions and therfore becomes very
difficult in terms of comparison.
It is easier to compare sales and operations / Marketing and HR.
Definition of performance and the timeline involved is not easy to decide in R and D.
Better to look at different measurements for both departments.

2) Issue of Ease of measurement

R and D do not have a target focus like sales do. A lot of money goes into R and D but nothing to
show for the same. However for sales, output is very obvious and measureable.

3) Value Chain or what the customer buys

If you look at Pharma- Generics and out of patent drugs you see that sales has more importance
in the company. Example:Paracetamol-
If you look at drug discovery, patent driven, R and D has the upper hand in terms of value added
since the customer is purchasing unique products. In that kind of orgs sales job is more about
awareness creation, information gathering and not about targets.
This is a business model issue, the orgs strategy determines the Sales versus R and D emphasis.
It is about what aspect the org values more.

Ultimately if you as a company cannot differentiate your products, sales teams drive your value
and vice versa.
To pay which of these more depends on which dept drives your org.

INTERNAL EQUITY ASPECTS IN R AND D:

How do you arrive at a guarenteed pay and consequences on variable pay?
Hierarchy-
Colpal had a job based hierarchy. Job1==>J2==>J3 and each time you shifted upward, your
responsibilities and skill requirements increased too. Job-based hierarchy motivates you to
move up the ladder and asks you to augment skills and perform better so that you get
promoted.
However, when you look at R and D, its flipped. We ask 3 questions:
1. Is comparison within org and outside very difficult? And here you dont compare the job,
you start to compare the person. Eg : are you able to compare the superspecialization that Mr X
has within the org and outside in the market?
2. What is the hierarchy in such a department? Do i start to do a different job if I get
promoted? No. I can get better as a person (expertise changes) but the job essentially remains
the same. Ultimately no job-based hierarcy. Seniority driven.
3.Performance timeline in the short-term is tough.
Genuine research is not the place to measure success or failure.

When these 3 conditions exist, we move into an internal equity structure based on
persons and no longer the job. (Aka input/ knowledge/ skill based structures). It’s based on
personal attributes like skills and experience. You could look at proxies for skills. Eg patent
certification.

In a job based structure aspiration is to do a more challenging job.

In person based structures aspiration is to augment skills and not necessarily perform well. But
here the consequence is no guarantee in performance.

*WATCH VIDEO BY DAN PINK- AIS

Lecture 17 -

Person Based structures - To design pay levels using person characteristics.

R&D, eduction, specialised careers - docs

Is the job more of a nebulus issue - trickier to play with the measurement or perf.

As size of org (roles, emps) increases structure becomes a necessity in the org. There is need for
clarity on what people should be doing. Job Desc and job based struct is reqd.

IT prods - person based struct is possible.

Autonomy, Mastery, Purpose - let me do what I want to, Be the best at it, to be intrinsically
motivated to do it.
Results only Work environment - no schedules, bas kaam karna hai , kaise bhi karo kahi bhi karo
bas karo.

Intrinsic motivation AMP beats money any day.

Rewards work only in narrow band, rewards can destroy creativity.

Intrinsic works - we know- just need to apply. Need to grow up from carrot and stick approach
vo outdated hai.

Creative work and incentives - rewards hinder creativity.

Self Determination Theory - Reward accept is not about whether they like the reward. It is about
of communication of the rewards. Be it intrinsic or extrinsic.

Creative mein you come back to heavy GP because VP does nothing.

Pay Level matters but

So performance kaise kare? PMS and C&B dont determine it. Selection matters. You need to get
the genuinely interested people. Peer driven.. Selection - grooming
Wrong person is wrog person.. Galat le liya to chud gaye

Lil risk is where you can stay with PFP.

How to determine Pay Level - how much you value it + what is market paying

C&B :
1. Rewarding good bbehavious
2. Monitoring if someone is doing a good job

Management by ability vs motivation

1 Assumes ki he wants to do this, what can I give him so taht he does his bets

2. You cam for the money, so only if you do this work i will pay you

Jan 12:
About safelite
Discussion:
Pay for performance is a sorting effect for a few top performers.

Problems with safelite:

Factors that affected performance that was rewarded were out of employee’s control.
The case makes you think there is a problem with low productivity, but its not so.
High turnover
Inability of Safelite to attract people from competing organisations owing to a poor HR policy.

PFP worked in the previous job, why not here

Assuming: Tyre changing happens in a shop, the case mentions cars were lined up so it was easy
to measure work done. Here Job Model is different. A combination of mobile work+store based
work. So all glass replacement work isn’t the same.

When it comes to safelite, yes it has a major market share (12%) but most of its competitors are
local stores. Since the case is set in the USA where insurance is available to all, people might just
go to a local store and have repairs covered under their insurance policy.

Low skill jobs- generally emphasises PFP.

There is a link between increasing productivity due to PFP.
Assumptions:
1. Money motivates people
 2. External factors dont play a big role in performance
3. Capability of individual is already high
Point 3 is where Sir gives example of quizzes- an increased weightage might make us take
a quiz more seriously, but unless we are capable, we won’t score much.
So incentives make someone do a job, but how well they do it depends upon their ability and
efforts.
Productivity= ability+motivation.
We need to differentiate between ability and motivation. In the corporate world, throw
incentives at someone, they’ll feel offended that you think they don’t put in efforts. The prospect
of earning a high reward isn’t insulting, the communication is.
PFP solves a motivation issue. But the ability issue is much deeper. (you need to build upon
non-performers for that)

Next issue is that of demand. The business is seasonal, but installers aren’t lazy. The daily
business requires say 2-3 installations, on specific days if its 8-9 then how do a fixed number of
installers with existing capabilities respond so many.

Targets vs Commission
Targets- Forecasting can be done, and predicted demand is close to actua ldemand.
Commissions- uncertain, different targets different commissions (usually in sales.)
The slice of pie issue- if huge, go for commission.
Here, glass replacement should be on Targets.

Next, seasonality of demand: companies don’t decrease targets, they need people to still work
efficiently.

Two parameters in Safelite:

1. Better performers: Do we just reward them, create equitable distribution?

Lecture 19 Jan 14

● Pay Range is chosen by org- length and breadth -Whatever threshold HR is

comfortable with - threshold level of skills
● The more standardised te role is transfer of salary
● May not always want to follow external equity
● Pay ranges always evolve
● While deciding pay ranges- compensable factors, consequences, benchmark with
market, roles - factors to be considered
● Job criticality- leads to organisation paying more than the market level
● Market paying low and org paying high is never a problem- problematic when we
pay lower than the market.
● Factors that determine - job description, job evaluation
● Mostly the JD in the market is tweaked and misleading. Consultants play a role
here
● Question to ask yourself: Is there a need to pay so much above the market range?
If there's no market for this job outside will the candidate accept this job?
● No. of years > criticality in some companies
● How to ensure internal equity if we use external market data rates?- real
challenge of a HR
● In ColPal, language shouldn't be kept under job evaluation. It's an ability. You'll
learn if you have to anyway
● Challenges as a company here would be
1. Capitalise?
2. fair? And towards who?
3. sustainable?
● Internal equity is important in factories here- people are working closely knit in
factories, hence transparency comes into picture -Be careful about consistency
● Staggering is used between two employees with a pay gap and to ensure internal
equity. Over 4-5 year period, their salaries will be the same- Pay
Rationalisation/ Pay Normalisation - pay correction not increment
● Annual lump sum- based on talent , helps- huge amount in 1st year, helps
other behaviours
● When recruitment more powerful than comp team- balance maintained by
attrition
● Always keep the market with you. Keep it within the brackets and maintain int
equity.