Internal Assessments

Program – MBA

Subject - Compensation Management

Questions:

1. What's the difference between monetary and non monetary?

Monetary rewards are rewards given to employees that have a definitive

monetary value - something that hits their bank account or can be
liquidated in the future. The thing with monetary rewards is that they
provide instant gratification. The basic “law of behavior” states that
higher incentives tend to yield higher effort and performance.
When you set performance goals for your employees, consider adding a
“value” to the hard work and efforts to motivate them to work toward a
goal successfully. The most obvious example of a monetary reward is
cold hard cash.
Other examples of monetary rewards include:

 Stock options
 Profit sharing

A salary increase is a common form of monetary reward. It’s a payment

made to employees based on their performance. For example, a company
might give its top engineer a 10% raise.

Bonuses are another common form of monetary reward for employees. A

bonus is a payment given to employees after they complete a specific
task. For example, a software developer might receive a $1,000 bonus if
he completes his assigned tasks within a week.
Shortcomings of Monetary Rewards
Bonuses and incentive pay schemes are often the primary means to boost
employees’ productivity, efficiency, and profits. But there are a lot of
important nuances about monetary incentives.
Should employees be provided with financial incentives for increased
cross-team collaboration, shorter deadlines, or better performance? Will
financial incentives encourage higher contributions to the company’s
community-building events, like blood donations?
While monetary rewards are great for “adding the extra push” and
getting people to achieve more goals, these incentives could backfire, if
not combined with additional incentives. Talent acquisition leaders agree
that most actions or goals are primarily achieved by intrinsic
motivations.
Non-Monetary
Non-monetary rewards are those that don't have an explicit dollar value
tied to them or in other words can't be redeemed for cash. While some
may argue the relationship between non-monetary rewards and an
employee’s output is not proven, they’ve become more than a trend now
and are here to stay longer, for good.
Don't sleep on the motivating power of non-monetary rewards. They
work.
By setting personal goals for employees that are tied to your
organization’s shared values, you can encourage them to push
themselves. Here are a couple of examples of non-monetary rewards:

1. Personal Growth
Working at a job can give you opportunities to learn new things and grow
personally. It can also help you develop new skills and improve your
knowledge base.
Consider creating a “growth plan” at the beginning of the year with your
employees. Understand where they want to grow - it could be something
as simple as they want to read more, go to the gym thrice a week, or
simply eat healthy.
2. Career Advancement
A career path can be very rewarding. Some people naturally enjoy the
challenge of learning something new every day. Others might find that
they love their current position and want to keep climbing the ladder.
As a manager or a talent acquisition professional, you need to encourage
them by goal setting.

3. Professional Development
Employees often receive training and education from their organization.
The key is to make learning experiences more interactive, real, and
actionable.
A great example is Agile training. Most companies today use the agile
software development methodology, and while it’s a challenging concept
to teach your fresh hires, organizations leverage interactive ways to boost
engagement.

Shortcomings of Non-Monetary Rewards

Employees seem to attribute a greater value to gifts, even if they can put a
dollar value on them. As a manager, you might not see the difference
between a $1,000 bonus check and a $1,000 laptop. However, from the
perspective of an employee, they’ll probably show greater enthusiasm
and acknowledgment for tangible things they can use, like a laptop, a gift
card, or a vacation.
There are some downsides of non-monetary rewards as well:

 High-performing employees who value money and other monetary

incentives might not find non-monetary incentives rewarding or
motivating.
 Unless personalized, non-monetary rewards are less appealing. For
example, if you give a rock climbing package or a Las Vegas
getaway to an employee who has never hiked 10 miles or who
doesn’t like to gamble.
  Some employees might feel that their organization isn’t willing to
pay for their efforts.
 Finally, if your competing business offers monetary rewards to its
employees, you risk losing your top talent.

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2. Discuss the Advantages and Disadvantages of New Pay Practices.

The most important aspects of New PayNew understanding of performance:

alternative incentives replace rigid bonuses. Salary models independent of

hierarchy: leadership is reassessed. Self-determination: you can have a say in

your own salary. Salary transparency: open processes and / or salary totals.

Advantages of Pay-for-Performance

Many companies have adopted this compensation system, because they believe in its

benefits, which include:

Worker motivation: The reasons why an employee remains in his or her job are

often complex. Many individuals derive significant satisfaction from work that they

find meaningful. However, workers are also significantly, if not primarily,

motivated by financial concerns. If a worker knows that meeting performance

objectives will result in a compensation increase, they may be inclined to work

harder and improve their skills.

Retaining top talent: You can expect that your top talent will be approached by

other employers. If you want to keep exceptional employees, you must offer them a
competitive compensation package. When your best employees know that they will

be rewarded for their efforts, they are more likely to stay with your company.

Disadvantages of Pay-For-Performance

Not everyone is enamored with pay-for-performance compensation increases,

however. Some analysts are skeptical that it is an effective way of motivating

employees and retaining good workers. The primary disadvantages cited are:

Performance measurement is often subjective: The work of some employees can

be easily quantified and measured. For example, a salesperson may be asked to meet

specific sales numbers for the year. However, many workers, particularly those in

administrative roles, perform vital functions, but their work isn't defined by

achieving specific goals. For these employees, a pay-for-performance plan could

prove frustrating, in large part because their evaluations are more subjective. A

personality conflict with a supervisor could, in some cases, result in lower

compensation.

Performance reviews are falling out of favor: The pay-for-performance model

often hinges on the results of an employee's annual performance review. However,

many employers are finding such reviews ineffective, and are abandoning them in

favor of encouraging managers to provide feedback to employees throughout the

year.

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3. When can a firm opt for voluntary retirement scheme (VRS)?

VRS or Voluntary Retirement Scheme is a scheme that is

offered by companies to their employees wherein the employee
can voluntarily end their period of service and take early
retirement. Many times companies have to let go of employees
for multiple reasons like cost-cutting and reducing the burden, in
such cases offering VRS to the employees is a great way to
ensure that while doing the necessary for the company, the
employees are also benefited.

Rules for VRS retirement:

An employee is entitled to payment of salary till the date of
voluntary retirement, regardless of the date of implementation of
the VRS. As for computing the completed years and months of
service for the purpose of ex-gratia, the datum will be the date
on which the employee in question had joined service.

A firm can opt for a Voluntary Retirement Scheme (VRS)

typically when it wants to downsize its workforce or streamline
its operations due to various reasons such as:

1. Cost Reduction: When a company wants to reduce its

operational costs by minimizing its workforce.
2. Restructuring: During a period of organizational
restructuring or reorganization to enhance efficiency and
competitiveness.
3. Technological Changes: When a firm adopts new
technologies that render certain job roles redundant,
leading to surplus manpower.
4. Mergers and Acquisitions: In the aftermath of mergers or
acquisitions, there might be duplication of roles or excess
staff, making VRS an option to harmonize the workforce.
5. Declining Business: In times of economic downturn or
when a company's business is declining, it may resort to
VRS to adjust its manpower to match the reduced
workload.
6. Ageing Workforce: To encourage older employees to
retire voluntarily, making room for younger, more
dynamic talent.
7. Change in Business Strategy: If a company decides to
shift its focus or diversify its operations, it may implement
a VRS to realign its workforce accordingly.
8. Compliance with Regulations: In some cases, regulations
or legal requirements may necessitate downsizing, and a
VRS can be a less disruptive way to achieve this compared
to layoffs.
9. Excess Manpower: If a company has surplus employees
due to over-hiring or changes in market demand, it may
offer VRS to reduce its workforce to a more sustainable
level.
10. Enhancing Employee Satisfaction: Offering VRS
can be a proactive measure to improve employee morale
and satisfaction, especially if there's a perception of job
insecurity or stagnation within the workforce.
11. Improving Productivity: By reducing the number of
employees and potentially retaining those who are most
productive or critical to the company's success, a VRS can
lead to increased overall productivity.
12. Avoiding Layoffs: Implementing VRS allows a
company to reduce its workforce without resorting to
involuntary layoffs, which can damage employee morale
and the company's reputation.
Overall, a firm typically opts for VRS when it wants to manage
its human resources strategically, aligning them with its current
and future business needs.

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4. What are different challenges faced by the management concerned to various

benefits in international compensation program?

Compensation challenges
Managing international compensation programs can indeed present
several challenges for management. Here are some of the key challenges
they might face:

1. Diverse Legal and Regulatory Frameworks: Different countries

have varying laws and regulations regarding employment, taxes,
and benefits. Managing compensation across borders requires a
deep understanding of these frameworks to ensure compliance and
avoid legal issues.
2. Currency Fluctuations: Currency exchange rates can fluctuate,
affecting the value of compensation packages. This can create
challenges in maintaining consistency and fairness in compensation
across different countries.
3. Cost of Living Differences: The cost of living can vary
significantly between countries and even within regions of the
same country. Adjusting compensation to reflect these differences
while ensuring equity among employees can be a complex task.
4. Benefits Disparities: Different countries may offer different
benefits or have different expectations regarding benefits such as
healthcare, retirement plans, or paid time off. Balancing these
disparities and providing competitive benefits globally can be
challenging.
5. Taxation Complexity: Tax laws differ from one country to
another, impacting both the employer and the employee. Managing
tax implications of compensation packages, including tax
equalization and tax protection, requires specialized knowledge
and expertise.
 6. Cultural Differences: Cultural norms and expectations around
compensation vary widely across countries. What is considered
appropriate or competitive in one culture may not be the same in
another. Understanding and navigating these cultural differences is
essential for effective international compensation management.
7. Mobility and Relocation: International assignments often involve
mobility and relocation, which can add additional complexity to
compensation packages. This may include considerations such as
housing allowances, relocation assistance, and adjustment of
compensation for changes in cost of living.
8. Compliance and Reporting Requirements: International
compensation programs may be subject to reporting requirements
and compliance obligations in multiple jurisdictions. Ensuring
accurate reporting and compliance with local regulations can be a
significant challenge.
9. Communication and Transparency: Ensuring clear
communication and transparency around compensation policies
and decisions is essential, particularly in a global context where
employees may be based in different countries and time zones.
10.Retention and Engagement: Offering competitive compensation
and benefits is crucial for retaining top talent and keeping
employees engaged. Managing compensation effectively across
borders is essential for maintaining employee satisfaction and
reducing turnover.

Regulations
Compensation is facing constant application of regulatory rules, with
variations from country to country. Organizations will spend much more
time dealing with the intricacies of these regulations, which are subject to
constant change, along with the administrative burden that accompanies
them. One particular area to watch is pay equity and pay transparency.
Regulations such as the EU Equal Pay Directive and US state-level fair
pay and transparency regulations make this a complex area to stay on top
of.

Administration
The administration that is associated with the constant regulatory changes
means that a solution must be in place that can cope with the
requirements for recording, testing, and calculating the correct payouts at
each particular point.
Organizations have realized tremendous bottom-line savings from a
reduction in the total cost of ownership over existing on-premise
solutions. The elimination of errors is one of the easiest ways to gain
control of escalating costs with the most common reason for
compensation processes going wrong often relating to a simple
administrative error.

Market practice in each country

When it comes to compensating a globally dispersed workforce,
organizations need to manage the market practice in each country.

Finding a balance between a global view and local execution is always a

challenge. Bonus plans, merit increase policies and benefits need to be
consistent throughout your global organization. On the other hand, local
labor contracts and compensation practices may require some flexibility
and adaptability.

Governance
Scrutiny of executive compensation is more intense than ever, and large
corporations have to question who decides the pay levels, who controls
the payments, and how does it cascade through the organization? At the
senior pay level, there is a tendency to become more centralized, with
salary levels, incentives, and other pay elements needing to be aligned
with company compensation strategies.

Reporting requirements
Much like regulations, reporting requirements vary by country and need
to be taken account of. Organizations have to provide accurate models
and what-if scenarios to properly design revenue-based compensation
plans during the forecasting cycles and simulate changes throughout the
year to continually align compensation to business goals and revenue
recognition requirements.

Shareholders
What do your shareholders think? Unlike the private sector, a publicly
listed organization will have proxy advisors on senior pay, with
shareholders who are generally much more involved, and much more
interested in how companies are paying senior management.
Transparency and proper communication are key to maintain a dialogue
regarding compensation strategy and practices.
Taxation
If your organization is delivering rewards via LTIPs or other deferred
compensation plans, there is a vast array of taxation issues that are all
country-dependent. You need to understand what the tax consequences
are of the LTIP, and the administrative effort required to implement and
maintain.

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5. What are the emerging trends in industrial relation in the era of Globalization?
Recent Trends in Industrial Relations System :

The emerging trends in industrial relations from labour reform to judicial

trends and managerial strategies are as under :

1. Labour Reforms:

The product market and capital market reforms has increased bargaining
power of the capital vis-a-vis labour.

The labour reforms in the following:

i. Disinvesting instead of privatization.

ii. Liberalizing labour inspection.

iii. Amending trade union laws.

iv. Reducing interest rates on provident fund.

v. Special concessions to SEZ.

vi. Different inspection authorities for SEZ.

vii. Simplify procedures of annual returns, maintenance of registers and

so on.

viii. Declaring units in SEZs as ‘public utility services’ to make strikes

more difficult.
2. Judicial Trends:

From the era of ‘social justice’, ‘distributive justice’ and ‘discriminative

justice’, where the judiciary was busy in giving many landmark,
judgments for protecting the interest of workers. The trend has been
reversed with the advent of liberalization and globalization, where our
industries have to compete with the multinationals.

3. Trade Unions Nexus:

The bargaining power of trade unions has been weakened earlier. IRS
was mainly concerned with trade unions, management and the
government. But now the consumers and community are also a part of
dynamic Industrial Relations System (IRS). When the rights of
consumers and community are affected, the rights of workers and trade
unions and even managers/employers get a back seat. This is evidenced
by ban on bandh and restriction on protests and dharnas. Now-a-days,
trade unions can see their future by aligning themselves with the interests
of the wider society. Unions have to make alliances with the society,
consumers and community, otherwise they will find themselves
dwindling.

4. Collective Bargaining:

In IRS, collective bargaining constitute one of the most important

mechanism of rule-making acceptable to both the employers as well as
the workers.

Few emerging trends in the collective bargaining process are:

i. Level of collective bargaining is shrinking day by day.

ii. In public enterprises, the government has withdrawn the budgetary

support for expenditure arising out of collective bargaining. Further, the
government prefers long-term settlement and brings to link pay with
performance of both the workers as well as the public enterprises.

iii. In private enterprises, there has been decentralizing tendencies. The

enterprise-level bargaining has become the dominant even in industries
like cotton, silk, plantations in the regions of Mumbai, Coimbatore etc.

5. Labour-Management Conflicts:
The globalization has brought significant changes in the labour market
and the industrial relations system.

Few more emerging trends in this issue are:

i. There have been less strikes, lockouts and less man days lost due to
strikes.

ii. Workers are more educated and do not believe in violent activities.

iii. Workers have shown responsibilities in cut-throat competition and are

aware of their rights, thus leading to decline in strikes.

iv. Employees also avoid lockouts because decline in production even for
hours lead to heavy losses to them.

6. Managerial Strategies:

The economic reforms have toned down industrial conflicts, due to shift
in the relative bargaining power in favour of capital. The employers
devised various managerial strategies to achieve labour flexibility,
weaken labour power, more control over production process, reduction in
regular workers via VRS, transfers, multi-tasking, freeze in employment,
increased use of contract labour, subcontracting etc., on both public as
well as private enterprises.

7. Government Strategies:

In the positive direction, to boost the industrial harmony and economic

activity, the government has adopted two strategies namely disinvestment
and deregulation, which are expected to be mutually beneficial for the
workers as well as the management.

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