Compensation

Terminologies and the underlying philosophies

Employee reward: often referred to in the UK, is about how people are awarded in accordance with their value to an organization. It is concerned with both financial and non-financial awards and embraces the philosophies, strategies, policies, plans and processes used by organizations to develop and maintain reward system.

As discussed earlier, the term ‘compensation’ is often used as an alternative to ‘pay’ or ‘remuneration’, especially in the US, although it is becoming more common in the UK nowadays. From the philosophical point of view, one of the criticism of ‘compensation’ is that it implies that employee reward is only about making amends for the distasteful fact that people have work for a living.

Compensation: variety of returns people receive from the work, in accordance with their values to the organization, can be categories as total compensation and relational retunes. Total compensation returns are more transactional whereas the relational returns (learning opportunities, status challenges etc.) are more psychological.

The Concept of Total Reward Framework

OpportunityLearning and DevelopmentResponsibility and InvolvementCareer ProgressionSecondmentPerformance Management

BenefitsGratuity

Provident FundInsurance

Holidays, flexibilityCar, club etc.

PayBase/Wages PolicyBonus/Performance RewardOther IncentivesStock Option

Looks and FeelLeadership Style

Working EnvironmentEmployee Recognition

Culture/Work-life BalanceCommunication

Transparency

Profitability

Commitment

High Performance

Competitiveness

Total Reward

The Total Reward Framework

Positioning Strategy

• Base/Wages Policy• Bonus/Performance Reward• Other Incentives• Stock Option

• Learning and Development• Responsibility and Involvement• Career Progression• Secondment• Performance Management

• Gratuity• Provident Fund• Insurance• Holidays, flexibility• Car, club etc.• Loan (retention)

• Leadership Style• Working Environment• Employee Recognition• Culture/Work-life Balance• Communication• Transparency

Transactional (Tangible)

Relational (Intangible)

Indi

vidu

alCom

munal

Pay

Opportunity Looks and Feels

Benefits

Positioning StrategyPositioning Strategy

Positioning Strategy

Pay ModelCompensation StrategyPolicy Choices

Internal Alignment External Competitiveness Employee Contribution Management

Google Medtronic Merrill LynchPopular search engine company

Medical devise innovation and production

Financial services

Feisty start-up populated by nerds and math whizzes

Pioneer in medical devices(eg., pacemaker, stents)

advises companies and clients worldwide

- Offers all its employees with generous stock-option, many became millionaire,

- downplays cash

compensation(lunch, gym and grand piano)

- Holiday party includes invited guest whole lives been prolonged – what difference they make.

- ‘Total well-being’ low burn-

out. ‘Fully present at their work and in their personal lives’

- Performance based pay –

individual, team and company. Earning well above the competitors

- Attract, motivate and retain the best talents

- Focus on total compensation- Competitive base pay - Very aggressive bonuses and

aggressive stock option - Individual accomplishment - Significant difference – top

versus poor performers

- Innovator - Innovator and customer focus - Customer focus

Strategy – may differ across industry

Strategy – may differ within the industry

Google Microsoft SAS Institute• Popular search engine

companySoftware company Software company

• Feisty start-up populated by nerds and math whizzes

Brand name World’s largest privately owned software company

- Offers all its employees with generous stock-option, many became millionaire,

- downplays cash compensation(lunch, gym and grand piano)

- initially similar to Google, low base, high stock option

- and then stock started under

performing - increase its base from 45th

percentile to 65th percentile - stock option still there as

competitive edge, moved to stock award from stock option reducing the risk.

- Work/life balance over cash compensation

- Limited bonuses/no stock

option - Free on-site child care,

subsidized private schools, on-site doctor, free medical care

- Working more than 35-hours

discouraged