Compensation Amp Benefits

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Compensation and Benefits The compensation and benefits processes belong to most important HR Processes, which are critical for the organization and modern HR organization. The compensation and benefits is about managing the personnel expenses budget, setting the performance standards, setting the transparent compensation policies and introducing the competitive benefits for employees. The organization with effective compensation and benefits drives its personnel costs, manages the performance of employees and rewards the extraordinary performance. Compensation and Benefits Role The compensation and benefits processes introduce the transparency into Human Resources and rewarding employees for the achieved performance. The compensation and benefits provides the managers with the compensation tools to build a difference among employees as the high performance corporate culture can be built in the organization. The compensation and benefits department monitors the external job market and optimizes the personnel expenses budget of the organization. The compensation and benefits defines the compensation strategy, sets the transparent and simple compensation policy and defines the general rules for the extraordinary payments, bonus schemes applied in the organization and introduces general other compensation policies like the Relocation Policy, Short-Term Assignment Policies, Benefit Car Policies and other.

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Transcript of Compensation Amp Benefits

Compensation and BenefitsThe compensation and benefits processes belong to most important HR Processes, which are critical for the organization and modern HR organization. The compensation and benefits is about managing the personnel expenses budget, setting the performance standards, setting the transparent compensation policies and introducing the competitive benefits for employees. The organization with effective compensation and benefits drives its personnel costs, manages the performance of employees and rewards the extraordinary performance.

Compensation and Benefits Role

The compensation and benefits processes introduce the transparency

into Human Resources and rewarding employees for the achieved

performance. The compensation and benefits provides the managers with

the compensation tools to build a difference among employees as the high

performance corporate culture can be built in the organization.

The compensation and benefits department monitors the external job

market and optimizes the personnel expenses budget of the organization.

The compensation and benefits defines the compensation strategy, sets the

transparent and simple compensation policy and defines the general rules

for the extraordinary payments, bonus schemes applied in the organization

and introduces general other compensation policies like the Relocation

Policy, Short-Term Assignment Policies, Benefit Car Policies and other.

Compensation and Benefits Responsibilities

The compensation and benefits department is usually responsible for

thetransparency in the compensation practices in the organization and

keeping the internal fairness of the total cash. The compensation and

benefits has to supervise the development of new compensation components

and keeping the general rules for the design of the compensation

component.

The compensation and benefits department is responsible for the personnel

expenses budget of the organization. The compensation and benefits

department sets the standards for the individual salary increase, the mass

salary review and the rules for the bonus payout as the organization keeps

the financial stability and the planned personnel expenses budget is kept.

The compensation and benefits department has special processes to monitor

the external job market as it can set the right compensation policy, which

is compliant with the approved compensation strategy. The compensation

and benefits department is responsible for the extensive monitoring of the

market and designing the new compensation components inspired by the

HR Best Practices in the compensation area.

The compensation and benefits department is always closely attached to the

development of the new compensation components, which support the

performance and effectivity of the organization. It co-operates with the

different business units and it aligns their requests into the general rules

for the compensation components, which are transparent and fair.

The compensation and benefits designs new adjustments to

the compensation strategy and the compensation policy as the

organization does not lose its competitive advantage on the job market.

Compensation and Benefits Content

o Compensation Strategy

o Compensation Strategy Key Content

o Pay Market Strategic Position Setting

o Compensation Consultants and Compensation Strategy

o Compensation Strategy building Competitive Advantage

o Why is compensation strategy important?

o Compensation Policy

o Executive Compensation

o Executive Compensation Plans

o Salary Surveys

o Sales Incentives Compensation Plans

Compensation StrategyThe compensation strategy is extremely important as the right compensation strategy helps to build the effective and competitive organization and the wrong setting of the compensation strategy, which does not fit with the needs of the organization and with the HR and Business Strategies, can destroy the organization within several years and the organization suffers from decreased performance and not utilizing the full potential of employees.

What is compensation strategy?

The compensation strategy is derived from the HR Strategy and it

defines theposition of the organization on the job market, the level of

the total cash, the main bonus principles in the organization and rules for

the base salary setting.

The compensation strategy is the strategy, which is approved by the Board

of the organization as the owner of the compensation strategy is always the

top executive management of the organization. The compensation strategy

has a huge impact on the costs of the organization and that is the main

reason for the top management approval. The rest of managers are

the users of the compensation strategy.

The compensation strategy defines the pay market, the organization

follows, the desired position on the pay market and the way, how the

desired level and position on the pay market will be achieved. The

compensation strategy defines the basic compensation components used in

the organization and the standard rules applied to each compensation

component.

The compensation strategy has to be in line with the business and HR

Strategies as the compensation of employees is aligned with the expectation

of the top management from them. The compensation strategy does not

change often as the compensation principles cannot be changed within few

days.

Compensation Strategy and HR Strategy

The compensation strategy is one of the main supporting document for

the HR Strategy. The compensation strategy is closely monitored by the

management of the organization and they ask for the progress of the

implementation of compensation strategy on the regular basis.

The HR Strategy has to be always designed and developed with having the

respect to the situation in the compensation area in the organization.

The HR Strategy cannot set the ambition, which is not suitable for the

company.

The HR Strategy always defines the basic principles for the compensation

scheme in the organization and the compensation strategy defines the

details for the components and when and how they will be introduced or

redesigned.

The compensation strategy should be updated, when Human Resources

makes significant changes to the HR Strategy or the organization changes

its business strategy. The compensation strategy has always support the

business and its selling capabilities.

Compensation Strategy Importance

The compensation strategy helps the organization to manage the

personnel expenses of the organization and it sets clear limits for the

managers and employees. It provides the top management with the

certainty, the personnel expenses are under the control and the costs will

not boom.

The compensation strategy gives the certainty to the HR employees and HR

managers as they can promise the stability in the compensation, the

stability and the managed development of the compensation components

and they can explain the basic role of the individual compensation

components.

The compensation strategy acts as the basic document driving the

compensation and benefits processes and defines clear priorities for the

development or redesign of the compensation components.

Compensation Strategy Importance for managers

The managers should be always informed about the existence of the

compensation strategy and they should know the implementation plan. The

managers should not be allowed to comment and decide about the strategy

as they would tend to make their lives easier and they would make the

personnel expenses of the organization to boom.

The managers are the users of the compensation policy and they should

understand, it is based on the approved principles from the strategy. The

compensation policy can change on the regular (usually yearly) basis, but

the strategy is consistent over a longer period of time and the managers can

plan the career of the subordinates.

Compensation Strategy Importance for employees

The compensation strategy is not intended to be read by the employees. The

employees are the users of the compensation policy and they should not be

informed about the general position of the organization on the pay market

and the compensation components to be used to motivate the employees.

The employees can read the compensation policy, which describes the

details about their compensation as they recalculate the salaries, but they

should not read about the strategic compensation components, which help

to build the competitive advantage of the organization.

Compensation Strategy Key ContentThe compensation strategy is the underlying strategy for the general HR

Strategy and its main role is to support the implementation of the HR

Strategy and building the competitive and effective organization with the

high performance corporate culture. The compensation strategy does not

explain the detail of the compensation scheme and the details of the

individual compensation components, but it sets the general guidelines for

the compensation components and sets the priorities to be implemented

over the period of the HR Strategy implementation

The high performance corporate culture and the high performance

Human Resources organization have to be supported by the compensation

strategy, which is designed to be business driven strategy and with the

right compensation tools, which motivate employees to go the extra mile

and rewarding the real successes.

Main Compensation Goals

The compensation strategy has to set the main compensation goals of the

organization and they have to be kept as the main target for Human

Resources to be achieved. The compensation goals have to be set in

accordance with the business strategy and they have to visible in the HR

Strategy.

The top management and Human Resources have to decide, what the goals

are of the compensation schemes in the organization. The compensation

goals should be aligned with the corporate culture and the general long-

term expectations of the employees, when the organization does not

implement a huge change in the corporate culture.

Main compensation goal is about the role of the compensation in the

organization. Each organization pay salaries, but the role of the

compensation has to be balanced with the other aspects of the overall

motivation scheme applied in the organization. The organization has to

choose to pay higher salaries and offer less development or career

opportunities or it can offer lower salaries and better career opportunities

to keep the motivation system balanced.

When the organization defines its basic compensation goals, it can continue

with structuring the main compensation decisions formulated in the

compensation strategy.

Main Strategic Compensation Decisions

The compensation strategy allows smooth and efficient operation of other

HR Processes like the recruitment and staffing, performance management,

proper KPI and goal setting process, performance appraisals. As the other

HR Processes can run smoothly and they are not blocked by the wrongly set

compensation strategy, the main compensation decisions have to be

included in the compensation strategy and the top management and Human

Resources have to be aligned in the understanding to the main

compensation decisions.

Role of Compensation in Human Resources

The compensation is a part of the complex HR processes, policies and

procedures. The top management and Human Resources have to decide,

what will be the primary role of compensation in the organization. Some

organizations prefer the supplementary role of the compensation and other

organizations prefer the dominant role of the compensation.

This compensation decision is extremely important as it sets the general

framework for the compensation components, if they will exist in the

organization or they will be the part of the other HR policy.

The compensation strategy has definitely include the description of the role

of the compensation in the organization.

Competitiveness

The competitiveness of the compensation is another important

compensation decision. The organization can decide to be aggressive with

the compensation strategy and it can set the aggressive position on the pay

market, but this strategy is extremely expensive for the organization and it

has to balance it with high margin on the products and services.

On the other hand, the organization can choose to offer the career and

development opportunities, it can increase the responsibilities of the

individual employees and it can balance aim to the lower level of the

compensation on the pay market.

The decision about the competitiveness of the compensation strategy is

extremely important as it has a huge impact on the costs of the organization

and it requests the right setting of other HR Processes.

Internal Structures

The organization does not have to follow the same pay market and the same

level for all the job positions. It is extremely important compensation

decision to be included in the compensation strategy.

The organization can decide about making huge pay differences across

different units or it can decide about the different pay level for the experts

and managers as it protects the know how.

Administration

The administration is a tough compensation decision in the compensation

strategy as it sets the roles and responsibilities of Human Resources,

managers, top managers in the compensation processes.

The organization can decide about preferring the decentralized

compensation model, when the manager decides most issues and pay

increases, but Human Resources is in a danger of not keeping the total

personnel expenses budget.

In the centralized compensation strategy, the HR Managers are the main

decision makers and the employees and managers do not feel the comfort of

the free decision.

Pay Market Strategic Position SettingThe right position on the pay market is a key to successful compensation

and benefits function in the organization. Setting the right position enables

other HR Processes with value added to work and it supports the

recruitment, staffing, retention and talent management. The right position

on the pay market allows the organization to allocate the personnel costs

efficiently and to keep the organization competitive.

When the organization sets the strategic position on the pay market, it

has to evaluate several basic questions, which help to set the target position

correctly. The decision is not formal as it forms other compensation and

benefits processes, has a huge impact on the allocation of the personnel

costs and limits the potential for quick changes in the compensation

schemes used in the organization.

The main questions to be answered are:

1. What do we want to achieve by setting the strategic position on the pay market?2. Who are my competitors?

3. What reactions will we see to follow from the competitors?

4. How many strategic positions do we need?

5. What are the costs of the setting the strategic position on the pay market?

Why to set the strategic position on the pay market?

The modern organizations and modern and effective Human Resources

Management are based on setting the competitive advantages. The right

and efficient compensation strategy is a definitely the competitive

advantage and it cannot work without the strategic position on the pay

market.

The modern organizations are based on the talent management, offering the

career opportunities and having other HR Processes to prolong the length

of employment of the key employees and key job positions. The strategic

positioning on the pay market allows the other processes to function

properly and keeps the organization healthy.

The recruitment strategy cannot work without the adequate compensation

strategy as it can easily miss the goals. The company can target the best

potentials on the job market, but the salary offered has to be adequate to

the qualities of the candidates.

Knowing your competitors on the pay market

The organization always knows its competitors in products and services. But

the organization has to know and understand the competitors in Human

Resources as well. They can be different. But employees can see the

competition on the job market differently.

Knowing the competitors on the job market is extremely important for

Human Resources. HR Recruiters have to analyze, which companies are

sourcing the organization and the HR Front Office has to monitor, what

companies hire new employees from the organization.

The compensation strategy has to be set as the organization can compete

with the competitors on the pay market and the compensation strategy has

to be inspired by their compensation strategies. The employees from the

competitors working for the organization are usually open to help and they

can provide the excellent information, which can save many discussions in

determining the right compensation strategy.

Predicting the reaction of the competitors

It is extremely important to have several scenarios describing the reactions

of the competitors. When you are the market maker and you change your

compensation strategy, you can expect all the competitors will react and

you can start costly war on the job market. When you are a niche player and

you hire several employees per year from your competitors, they will not

react.

In case, you hire just the experts, you can expect, the initiatives to protect

the experts and key employees will evolve at your competitors and the price

of hiring the expert from the competitor will rise.

One or more pay market strategic positions

Human Resources has to decide, whether it will use just one strategic pay

market position for the whole organization or it will identify groups of

specific job positions, which will be evaluated and positioned on the pay

market differently.

The general pay market position is simple, it is easy to explain, the

organization uses just one, but the organization loses the flexibility in the

setting of the compensation strategy and this can lead to many exceptions

in the compensation policy as the key groups of employees are not

protected by the compensation policy in general and the managers will ask

for the increased protection by using the exceptions.

The general pay market position can be more expensive than more pay

market positions as the system tends to set the system to protect the key

employees and the key job positions and the rest of the populations benefits

from it.

The costs of setting the strategic pay market position

Money is driving the compensation strategy. Each proposal for setting

the strategic pay market position has to be carefully calculated, analyzed

and Human Resources has to prepare the predictions and forecasts of the

future development.

Setting the strategic pay market position without the proper analysis and

calculation is just a hazard with the future of Human Resources in the

organization as the top management can be amazed, how expensive the

strategic pay market position is.

Compensation Consultants and Compensation StrategyThe compensation strategy design and development is too difficult to

accomplish purely internally. The compensation and benefits team is usually

asked for the external benchmarks and the common practice on the market

and thecompensation consultants can be a huge help, when the HR team

is able to manage their deliverables.

The compensation consultants are expensive and HR has to have a clear

goal for the compensation consultant to be achieved. The compensation

consultant is always able to bring the creative and innovative

compensation solution, when the goal is not given. The organization has

to pay for the services, which are not utilized. With the clear goal, the

compensation consultant has a clear navigation tool and forces the effort to

reach the defined vision.

Compensation Consultants Benefits or Value Added

The compensation consultants bring the huge external know how in the

compensation and benefits area, the previous experience and the

experience with different solutions of the issues in the compensation

schemes.

The compensation consultant should provide the advice on the strategic

position of the compensation strategy on the pay market and to provide the

information about the best practices in the compensation and benefits area.

The compensation consultant should never decide about the final

compensation strategy, but can provide the useful feedback and advice in

the process of designing the compensation strategy.

The excellent compensation consultant always asks the clients about the

feedback and how the solutions work in practice to have the experience to

build on. The compensation consultant can see a new creative solution in

one company, which can help to build the HR competitive advantage in

another organization. The compensation consultant can help to design

the state-of-the-art compensation strategy and can save huge costs to

the organization in the future.

How to use Compensation Consultants

The organization should invite the external compensation consultant at the

right moment. The organization cannot leave the compensation consultant

to set the whole compensation strategy. The organization has to set the

clear goals for the compensation consultant and it should use the

deliverables of the compensation consultant in the following decision

process.

Without strict goals, the organization cannot manage the compensation

consultant and it cannot use the best know how of the compensation

consultant. The consultant has a deep knowledge of the compensation pay

market and has know how about the compensation best practices and these

should be used for building the competitive advantage, but the organization

has to keep the final decision about the design of the compensation

strategy.

Compensation Consultants Deliverables

The organization has to define the deliverables, which support the

organization in its decision process. The deliverable of the compensation

consultant can be easily the content of the discussions with the executive

top management as the consultant has a broad knowledge of the pay market

and the top executives likes the discussions about the general market and

the best pay practices in the industry.

The common deliverables of the compensation consultant are about the

comparison of the proposal from Human Resources with the best practices

available and the comparison with the real pay data. The consultant usually

has the access to the detailed salary data and is able to make a comparison

and to point out the key components and key jobs to be included in the

compensation strategy as the jobs building the competitive advantage.

Compensation Strategy building Competitive AdvantageThe competitive advantage is a necessary component for the modern

organization. The competitive advantage has to be in products, services,

internal and external processes and in Human Resources Management. The

employees are the assets of the organization and the competitive advantage

in Human Resources Policies can generate a huge impact into the net

profits and overall performance and profitability of the organization.

The competitive advantage in compensationarea usually generates a

huge portion of the overall competitive advantage in HR Management.

What is competitive advantage in compensation?

The competitive advantage in the compensation area is not about

beating the pay market by paying higher salaries and bonuses to all

employees. The managers tend to think, the better the pay of employees,

the more competitive the organization is. It is not true, the organization has

to carry the higher personnel expenses and during the crisis or the

recession, it can be a huge competitive disadvantage in the compensation

and the compensation strategy has to be redesigned quickly as the

organization can continue in its operation and it has a destroying influence

on the overall employee satisfaction.

The competitive advantage can be built by using two general approaches:

1. General competitive position on the pay market2. Competitive pay market position for key job positions

General competitive position on the pay market

Setting the higher position than the median on the pay market is quite

common competitive advantage setting in smaller companies, who have to

fight for the best talents with the big organizations in the same industry.

It is quite dangerous to set the pay market position too high as the

organization has to carry the increased costs and eats more from the

margins on the products and services. The organization cannot make quick

changes and the recession can be deadly dangerous for the organization as

it carries higher costs to keep the processes operating and functional. The

competitors have a better and bigger space to decrease the personnel costs

in bad times.

The higher competitive position on the pay market can be used in the time,

the organization grows dramatically and it needs the best talents from the

job market and there is no time to decide about the key job positions in the

organization and all employees are treated to be of the same importance.

Keeping the long term higher pay market position is suitable just for the

companies in the modern industries, with high margins and the companies

with the excellent brand name being known for employing the best of the

best.

Competitive advance through strategic pay market position for key job positions

The competitive advantage in compensation can be set just for the key job

positions in the organization. This solution is cheaper as the rest of the

population can be kept in line with the median of the pay market or it can

be below the median as the whole organization keeps the median in

general. But, the organization has to be able to reach the consensus about

the key job positions in the organization.

Setting the key job positions is the painful procedure for Human Resources

getting the consensus from the top management is a bit mission impossible,

but HR has to accomplish this procedure successfully as the key job

positions are identified and Human Resources can set the right

compensation strategy for the key job positions.

The differentiation in the compensation strategy and setting the different

pay level for the key job positions is quite usual for the larger organizations

as they save the personnel expenses and they are able to protect the key

employees. It does not protect the key employees automatically, but it

support the managers and other HR Processes as the employees feel pretty

satisfied with their salaries.

The competitive advantage for the key job positions is usually the best pay

strategy for the mature organizations, which does not grow aggressively

and are purely focused on the product innovations. The key employees bring

the innovations and the rest is paid fair enough for their job content.

Why is compensation strategy important?The current competitive conditions in the business world make it difficult to

acquire and retain the top talents. Once the organization is able to identify,

it can be unable to offer the right pay and to manage the pay increases to

retain top talents. The compensation strategy is the extremely important

piece of the overall HR Strategy to keep the company competitive and

successful. On the other hand, the compensation strategy is important to

keep the personnel budget under the control and to manage the jobs in the

right salary (pay) brackets.

The compensation strategy differentiates the organization on the job market

and builds the attractiveness of the company for the top talents. They

love to be hired by the attractive organization, they do not like to be hired

by the average company offering the same conditions as any other average

organization in the industry.

Competitive Advantage and Compensation Strategy

Today, the products are similar. It is difficult to distinguish the cars from

different car makers. The employees are in the same situation as the

consumers. They have the problem to distinguish the employers and they

are not able to recognize the excellent organization, when it is not different

from the rest. The competitive advantage is the essential part of the mix for

the success. The organization has to present itself differently, not just by

the presentation, but it should differentiate itself by the different approach

toward its employees. The compensation strategy is one of the most

successful differentiators.

The excellent compensation strategy does not just differentiate the

organization from the other organizations on the job market, it brings the

differentiation into the organization as well as the successful employees

and top talents feel the success in their pockets.

The effective compensation strategy makes people feel the success and they

speak about their successes with their friends. It build the extremely

excellent competitive advantage among the competitors as the people feel,

the organization really values the success and it can pay the successful

employees.

The effective compensation strategy manages the personnel expenses of the

organization, but it supports the performance management and

differentiates the employees as the successful ones are not motivated to

search for a new job opportunity. The good compensation strategy does not

provoke employees to search the web job boards during the working hours,

it makes them to focus on delivering the results as they can be highlighted

and they feel the highlight in their salaries.

The successful compensation strategy gains the competitive advantage and

can speed up the innovation processes and improve the performance

management practices in the organization.

For what HR Processes is Compensation Strategy important?

The compensation strategy is not important just for the competitive

advantage, but it supports the other HR Processes and helps them to

become highly efficient HR Processes and being on the top in the industry

(when measured and benchmarked).

The compensation strategy has a strong influence on the performance of the

whole Human Resources, which is a good vehicle to manage the

performance of Human Resources, but has to be managed carefully as it

does not destroy the performance of the whole organization. Smart

compensation strategy supports the HR Processes and helps to bring the

top talents from the job market to the organization and helps to retain the

best talents in the organization as they do not feel the need to find a new

job opportunity elsewhere.

Recruitment and Compensation Strategy

The effective Recruitment and Staffing cannot exist without the effective

Compensation Strategy. The recruitment can be based on the excellent HR

Marketing Policies, but the HR Recruiters have to be able to offer the

competitive salary packages, which are competitive externally and fully

aligned with the policies and the compensation strategy internally. The

recruitment of the best top talents from the job market cannot be based on

exceptions from the compensation policy.

The recruitment and staffing processes have to be supported and backed by

the excellent compensation strategy as the HR Recruiters can offer the

competitive conditions to the right talents from the job market and they are

able to identify the key job positions, where the compensation strategy

allows to be more aggressive against the pay market.

The job candidates are extremely sensitive to the salary package offered in

the Job Offer letter and the compensation and benefits department should

measure the number of failures in the job offer acceptations. It is the

extremely important sign of the wrongly set compensation strategy, when

the job candidates do not accept the job offers made by the organization.

Motivation and Compensation Strategy

The salaries or bonuses are extremely important for the motivation of

employees and managers. Generally, the motivation is not about the

compensations, but the compensation should support the general

motivation framework in the organization.

Even the best managers in the world are not able to keep highly motivated

teams, when the compensation strategy is not in line with the job market.

The employees usually know the common levels of salaries in the industry

and when the organization is below the median or the average, it has to

compensate the difference in other area. But, when the difference is too

high, the compensation by a different motivation tool does not work and the

employees start to feel demotivated as they receive no equal value for their

effort.

Talent Development and Compensation Strategy

The compensation strategy provides the key support to the talent

management processes in the organization. The talents have to be clearly

supported by the compensation strategy as the talents usually expect higher

salary increases than the average employees and the compensation strategy

has to allow the limited freedom to managers to do so.

The successful top talents management cannot survive without the

adequate support from the compensation and benefits side. The talents have

to feel the different approach of the organization and the compensation is

extremely important in this. The top talents cannot live on the promises for

a long time. They have to see the real improvements and advances. They

deliver, they expect the organization the same.

The compensation specialists have to co-operate closely with the career

advisors and career development specialist to introduce the right mix of the

career opportunities and the compensation strategies for the top talents.

Compensation PolicyThe compensation policy is the basic document, which drives the detail of

the compensation practices in the organization. As the compensation

strategy sets the high level compensation goals of the organization, the

compensation policy describes the details of the individual compensation

components, their behavior and their role in the compensation scheme of

the organization.

What is the compensation policy?

The compensation policy describes the details of the compensation

componentsin the organization, how they are used and the conditions for

the employees as the compensation component can be applied in their

specific situation.

Each organization uses many compensation components and they have to

be described. The compensation policy provides the basic explanation of the

compensation component, how it is calculated, who is eligible for the usage

and the approval procedure.

The compensation policy belongs to most read and discussed internal

policies of the organization as it drives the salaries of the individual

employees. Each employee is interested in the structure of the salary and

the potential total cash achievable in the organization. The compensation

policy is the main tool to find out the details about the compensation

components and the way, how to achieve the highest total cash.

The compensation policy drives the effort and performance of employees as

the employees will find the smart and easiest way how to achieve the

highest possible income with the smallest possible individual performance.

The compensation policy has to be set the smart way as it avoids the

potential work-around and abuse.

What is important in the compensation policy?

The compensation policy has to be transparent and it has to provide just

the only way of the interpretation.  It is extremely important, the employees

and managers are not unsure about the compensation component and they

understand clearly, what conditions are applied for the approval of the

specific compensation component.

The transparent compensation policy supports the high performance

corporate culture organization as the employees understand, what behavior

and performance levels are expected to be eligible for the specific

compensation component and it drives the behavior and performance

specifically the right way for the organization.

The policy has to cover all the compensation components, which are used in

the organization and affects large populations. The exceptional managerial

component tools can be referenced from the general compensation policy,

but they should not stay hidden. The employees cannot trust the

compensation policy, which does not mention all the compensation

components.

Executive CompensationThe top executive compensation is a special and specific area of

compensation and benefits, which is usually confidential and it is not open

to all employees in the organization. The top executives hold the

responsibility for the organization, they lead the development of the

organization and they have a tremendous impact on the results of the

organization. The compensation scheme of top executives has to reflect

the responsibility and it has to provide the security to the top executives to

use the personal responsibility and to take courageous decisions.

The executive pay is about the focus on the short-term performance and

the long-term sustainability of the organizational development. The top

executives are motivated to search for the cost-cutting potential and

focusing on the sales and performance growth in the long-term perspective

as the shareholders can realize the benefits of being involved in the

organization.

Executive Compensation Principles

The executive pay has to reflect the role of the executive top management in

the organization. The executive management drives the development of the

organization and the executive compensation has to be aligned.

The executive compensation changed dramatically over the last two years

as the financial crisis showed several issues with the executive pay, which

was too focused on the growth of the organization while ignoring the

sustainability of the organization.

The executive compensation consists usually from two main parts:

o Short Term Pay

o Long Term Pay

The short term pay of the executives is about the base salary and short term

bonuses, which are paid on the basis of the immediate performance of the

organization. The bonuses are usually deferred over a period of time. The

short term pay is usually fully cash based executive compensation

component.

The long term pay is about the stock options, shares, restricted stocks and

pay based on the performance against the index. The shareholders use

these long term compensation components to protect the value of the

organization and betting of the top executives on the growing value of the

organization on the market. The long term compensation components can

be realized just in case, the stock price of the organization grows. The long

term pay component is usually non-cash based.

In the modern organizations the short term pay is just a small part of the

total cash of the top executives.

Executive Compensation Risks

The executive compensation is sensitive to the right setting as the short

term and long term components of the pay have to be in balance as the

organization does not suffer from the imbalances in the managerial

decisions. The organization should always focus to balance the short term

remuneration (which is valued more) with the potential to get more in the

future. It is always difficult to find the right balance and the shareholders

have to be in the agreement with the top management.

Excessive compensation

The excessive compensation is always more the issue of trust and

confidence of employees and shareholders. The executive compensation

scheme has to include the holdbacks and claw-backs and safety brakes for

the case, the organization outperforms hugely the market. Each executive

compensation scheme needs caps and floor as it is manageable in all

situations, which can happen on the market

Executive Compensation PlansTop management needs an outstanding compensation plan. The

executive management is responsible for the delivery of the business results

to shareholders. They represent the company to the outside world. They

handle the strategic initiatives. They are in a risky position. Their job

contract can be cancelled within minutes. They want the protection.

The executive compensation plan has a highly motivating component,

and it guarantees the income protection in case of the job cancellation.

Executive Compensation Plan Principles

The shareholders buy the shares of the company to keep the value of

money. They expect even more. They expect to earn the extra from the

increased value of shares. The top management is paid for the constant

increases in the valuation of the company. It is an absolute rule of the

business.

The shareholders define the executive compensation plan. They usually

cooperate with the CEO, who engages Human Resources in the process of

designing the executive compensation. The shareholders define targets;

shareholders expect the executive management to reach targets.

The executive managers are not paid for developing the warm and friendly

environment in the organization. They are not paid for the sympathetic and

people oriented corporate culture, when it does not bring benefits of

increased profits for shareholders. The company exists to make profits, it

does not exist to employ satisfied employees.

The principles of the executive compensation are:

o Clear focus on profits generation

o Long-term orientation of the compensation scheme

o Motivation of manager by high bonuses

o Non-cash focus of the compensation (stock options, shares, share phantom schemes)

o Risk Management

o Balanced Scorecard implemented into the Compensation Scheme

The executive compensation scheme has to support goals given by

shareholders. The executives take risks of failing. They have to be over-

compensated for meeting goals. They should receive an enormous extra

bonus for exceeding the expectations (goals given by shareholders). The

balance in the compensation has to be in favor of exceeding goals.

The HR Professionals have to support the CEO in setting the executive

compensation scheme, which support the top management in pushing the

organization. The top managers have to make tough decisions. They have to

be compensated for overcoming the stress, the pressure of the line

management and employees’ complaints about constant changes in the

business operation.

Human Resources has to understand the main business goals. HR has to

help in setting the executive compensation and alignment with the

performance based compensation for the rest of the organization.

Salary Surveys

The salary surveys are extremely powerful compensation and benefits

benchmarking tool. They are important for the setting right compensation

strategy and for following and monitoring the desired pay market. The

salary survey is provided by the external compensation consultant, who

gather the compensation information and salary details about the

individuals, match the information and provides feedback about the pay

market and pay structures back to the participating organizations.

The salary surveys are always based on the proper job evaluation

methodology, which is standardized across the industry as

the compensation consultant can compare the jobs with the same job size

as the job titles are not the suitable for the salary comparisons. The

company has to choose the right and suitable job evaluation methodology

and this know how is usually provided by the compensation consultants for

free.

Salary Surveys Benefits

The salary survey measures the competitiveness of the organization on

the pay market and provides the benchmark information about the salaries

on the general pay market and the specific industry pay markets, when the

organization operates on several pay markets.

The salary survey helps to set the internal compensation policy and to

set the right optimal salaries for each job and to keep the desired position

on the pay market as defined by the compensation strategy.

The salary surveys provide the information about the average salary review

percentage and the allocation of the growth of the salaries into specific job

positions across the participating organizations. The salary survey can act

as a tool to identify the key job positions in the organization as the

competitors can protect the key job positions and it is usually visible in the

salary surveys.

The salary surveys provide the information about the new trends in the

compensation and benefits area and many surveys bring the additional

information like the average number of employees per manager, the

average length of service for the company, the number of promotions and

many other.

What is important to know about Salary Surveys?

The participation in salary surveys is a difficult decision as the organization

has to choose the right compensation consultant. The salary survey needs a

standardized approach to the job position creation and the job position

evaluations as the results of the salary survey are credible and useful.

Human Resources has to have a clear plan for the usage of the salary

survey results and the presentation including the action plan has to be

prepared for the top management.

The salary survey is about strictly confidential data and the compensation

consultant has to be widely recognized for the data privacy practices and

has to present the large population of the participating organizations in the

salary survey.

How to participate in Salary Surveys?

The organization has to select the right compensation consultant, who

brings the methodology for the job evaluation and determining the job size.

The organization has to evaluate all job positions and prepare the salary

data in the predefined structure as the compensation consultant compares

the right data.

The good compensation consultant will prepare a detailed implementation

plan and will act as the project manager for the first initial salary survey

and will provide the help, when Human Resources prepares the salary

survey results presentation.

Sales Incentives Compensation PlansNo business company can survive without the sales. The sales brings the

blood of the organization. The organization needs the sales to grow and to

successfully compete with other organizations on the market. The sales

incentives compensation plans are the compensation tools to support

and motivate the sales function to compete and to increase the sales

volumes of the organization.

The art of Sales Incentives Compensation Plans

The sales incentives compensation plan can really motivate the

salesman to sell more products and services. Or, they can easily destroy the

company, when the design of the sales incentive plan is not good and it does

not support the business goals.

The sales incentive plans should be always focused on increasing the

profitability of the company or gaining the additional market share.

That is the theory behind the sales incentives plans. As the incentive plans

are usually introduced purely by the business function, they fail and they do

not support the goals of the organization, they just allow the employees to

earn more.

The art of developing the sales incentives plans takes several years of

learning and measuring the results achieved. The senior manager of the

Sales function usually knows, what has to be achieved, but does not know,

how to achieve that by using the incentive plans, which are cost-efficient

and not hurting the future of the organization.

The sales incentive plan has to be fair to the whole organization. The

employees in the Back Office and the support functions should not feel the

internal unfairness. They understand, that the sales representatives have to

be motivated by the additional compensation component, but it should be

aligned with the overall compensation scheme and the compensation

strategy applied in the whole organization.

Sales Incentives Development

The development of the sales incentive scheme has to be a joint

initiative of Human Resources and the business function. HR has to

define the general principles, which have to be applied in each incentive

scheme as it follows the compensation strategy and does not break the

internal equity in the organization.

The effective sales incentive plan does not evolve on its own. The

development process is creative and full of the conflicts between HR and

the business. The good incentive plan is always tested on several employees

to see the real results from the field as the joint team can do the

adjustments into the incentive scheme and can make it more realistic.

The sales incentive scheme can be developed in the co-operation with the

external compensation consultant and it is recommended for the first

incentive scheme in the organization, but the compensation consultants

should not be invited later in the process as they can set a generic incentive

scheme, which does not fully support the goals of the organization. The

organization should develop its internal know-how for the development of

the incentive schemes.