A PROJECT REPORT ON

COMPENSATION MANAGEMENT

SUBMITTED TO: SUBMITTED BY GROUP 8

DR. NILANJAN SENGUPTA ANUP AGARWAL: 13

DHANANJAY PURI: 28

MAYURA MORONEY: 48

RITUPARNA DAS: 71

SURBHIKA SHARMA: 90

DATE: 16.11.2010
 ACKNOWLEDGEMENTS

We take immense pleasure in thanking Dr. Nilanjan Sengupta, our course facilitator for
introducing us to the basic concepts of Human Resource Management.

We wish to express our deep sense of gratitude to our friends & family members for
helping us complete this project.

Finally, we would like to thank all the people at the Reprography Room for helping us in
taking printouts.
 Introduction

Managing any business is challenging but getting a business off the ground and making it
viable is probably the riskiest stage in the life-cycle of an organisation. The hardest part
perhaps is the people aspect. Naturally, the prospect of working for an unknown or nascent
brand will demand significant consideration on the part of potential new hires. As a corollary
to the above problem, retaining talent under such unique circumstances becomes all the more
critical and the loss of resources with proprietary skills and knowledge, can develop into a
business continuity challenge.

Therefore, the human resources managers have to make a proper compensation plan for
qualified employees. It focusses on the growing demands of employees while retaining the
competetiveness and profitability of the company.
 Literature Review

Compensation to employees
Compensation to employees includes payments made in cash or kind by a company to or on
behalf of all its employees.
This data field is a sum total of the following items:

 Salaries, bonus, contribution to provident fund and gratuities

 Staff welfare and training expenses
 ESOP
 VRS
 Arrears paid, reimbursements and other expenses on employees

Salaries & wages:

Salaries and wages refer to the periodic payments made to the employees for the services
rendered by them. If a company reports salaries to employees separate from that paid to
managers then the two is combined to derive the total employee compensation. It is often
seen that managing director's remuneration and perquisites are disclosed separately and
distinct from other salaries. In such cases, we combine the two.

For example, Havells India Ltd reports salaries, wages, bonus and other benefits of Rs.64.31
crore under ‘personnel expenses in their 2007-08 annual report. The company further reports
Managing and Wholetime Director's remuneration of Rs.2.20 crore under the schedule for
'Managerial Remuneration’. CMIE does not make a distinction between the two and thus
reports a total of Rs.66.51(64.31+2.20) crore as salaries and wages.

Bonus & ex-gratia:

Bonus payments to all employees including management employees are reported in this data
field. It includes the bonus amount paid as per the ‘Payment of Bonus Act’, ex-gratia bonus
and performance-linked bonuses. Information about bonus payments is generally available in
the schedule of employee related expenses. However, it is likely that companies may report
this amount along with salaries and wages. In such cases, it would be included in the data
field ‘Salaries & Wages’. Grasim Industries reports the amount of Salaries, Wages and
Bonus etc. clubbed together under the schedule of ‘payments to and provisions for
employees’ in their 2007-08 annual report

Contribution to Provident Fund:

The ‘Employees Provident Fund Act’ mandates that employers are required to make a
contribution in favour of the employees to the Provident Fund Account an amount equal to 12
per cent (earlier 10 per cent) of the basic pay and dearness allowance. This is a statutory
requirement essentially to save for the post-retirement life of employees. Any amount that is
contributed by the employer during the year to this account is reported by the companies as
contribution to Provident fund.
Colgate-palmolive reports in their ‘Contribution to Provident, Gratuity and Other funds’
Rs.11.93 crore under Employee Costs. Further, the company informs that the contribution to
Provident Fund is Rs.3.54 crore. We thus report the amount of Rs.3.54crore only under this
field.

Gratuities paid:
Gratuity is a retirement benefit paid to an employee. It is linked to the number of years of
service deployed by the employee and is available upon separation. Usually, gratuity is paid
only to an employee upon separation only if he/she has completed five years of service in the
company.
Mafatlal Industries reports in their ‘contribution to gratuity fund’ Rs.5.31 crore, under
Personnel Expenses in the annual report for the year ended 2008. We report this amount in
this data field.
We also include payment towards Superannuation Fund under this field. Consolidated
Construction Consortium Ltd reports ‘Contribution to Superannuation Fund’ of Rs.0.91
crore and ‘Contribution to Gratuity Fund’ of Rs.0.20 crore under ‘Employee costs’. We add
both the amounts and report a total of Rs.1.11(0.91+0.20) crore in this data field.

Staff welfare:
Staff welfare refers to the various amenities that are made available to the employees for their
general welfare. These are besides the regular remuneration in the form of salaries. Staff
welfare expenses may be in the form of free or subsidised medical treatment, transportation
facilities, recreation facilities, staff food, canteen expenses, staff and labour welfare, etc.
These expenses do not form a part of the employees’ salary but are borne by the employer for
the benefit of the employees.
Lakshmi Energy And Foods reports ‘staff welfare expenses’ of Rs.0.18 crore under
‘Personnel Expenses’ in their 2007-08 annual report. We report this amount in this data field.

Staff training:
Staff training refers to the expenses a company incurs to train its employees. Companies in
the technology and pharmaceutical industry generally report expenses incurred on staff
training as a separate expense head under the schedule of employee related expenses.
Companies often report such an expense under the nomenclature ‘staff recruitment and
training’ expenses which is reported in this data field.
However, if a company reports recruitment expenses in isolation i.e not combined with
training expense, we report it under ‘other employee expenses’ and not staff welfare
expenses. Similarly, staff termination or repatriation expenses are also not staff training
expense but form part of the reporting under ‘other expenses on employees.’
However, companies do not necessarily treat the expense incurred on training of employees
as a part of personnel cost. Nestle reports training expenses under the schedule of
manufacturing expenses. Satyam Computers reports training and development expenses in
the schedule of operating and administration expenses. Sail reported training expenses of
Rs.17.87 crore under ‘other expenses ‘of their annual report for the year ended 2008. CMIE
treats all of these uniformly, as a part of the compensation to employees and makes the entry
in this data field – ‘Staff training’.
ESOP:
ESOP is Employee Stock Option Scheme wherein employees are given an option to buy a
specified number of shares of the company at a specified price during a specified period.
Generally, the objective is to align the interests of the employees with that of the company to
motivate them and to possibly gain their long-term interest in the company.

Mid-day Multimedia reports ESOP compensation of Rs.1.09 crore under ‘Employees cost’

on of their annual report for the year ended 2008. We report this amount in this data field.
Dabur India Ltd reports ‘Deferred employee compensation under ESOP’ of Rs.8.45 crore,
amortized during the year, under the schedule ‘miscellaneous expenses written off.’ The
company deducts an amount of Rs.2.97 crore –‘transferred to Director's remuneration’ and
reports a net amount of Rs.5.48 crore. We do not report ESOP amount amortised under
'miscellaneous expenses written off’ but report under Employees Compensation-ESOP.
Again, we add back the amortised ESOP amount transferred to Director's remuneration and
report the gross amount of Rs.8.45 crore in this data field. Thus Rs.2.97 crore is excluded
from salary and wages data field.

VRS benefit amortised:

This data field records the amount of voluntary retirement benefit expenditure that is written
off, i.e. amortised, during an accounting period. Usually, voluntary retirement benefits are a
part of a voluntary retirement scheme aimed at reducing the workforce of a company. The
amounts involved at times during such schemes can be quite large. During the early years of
introduction of such schemes there were no guidelines on disclosures. Companies thus had
the option of amortising the expenditure over several years or charging the entire expenditure
during a single year. Later, ICAI's Accounting Standard 26 recommended that companies
should amortise such expenses.
 For example, Mtnl reports ‘compensation paid under VRS scheme’ of Rs.62.52 crore in
their Annual Report for the year ended 2008. Further, the accounting policy on page 70 under
note 5 reveals that the company writes off the VRS paid amount over a period of five years.
Thus we know that this amount is the amount amortised by the company during the year and
hence reported in the VRS amortised data field.

VRS benefit fully charged in one year:

This data field records the voluntary retirement benefit expenditure when the entire
expenditure spent is charged to the profit and loss account of the accounting period in which
it was spent.
Voluntary retirement benefits are a part of a voluntary retirement scheme aimed at reducing
the workforce of a company. The amounts involved at times during such schemes can be
quite large. During the early years of introduction of such schemes there were no guidelines
on disclosures. Companies thus had the option of amortising the expenditure over several
years or charging the entire expenditure during a single year. Later, ICAI's Accounting
Standard 26 recommended that companies should amortise such expenses.
However, companies may choose to charge the entire amount to the year in which the
expenditure was made. In such cases, the VRS expenditure amount is reported in this data
field. For example, Colgate-palmolive reports ‘voluntary retirement scheme cost’ of Rs.100
lakh under ‘employee costs’ of their 2007-08 Annual Report. This amount is reported under
this data field.

Arrears paid during the year:

Arrears of salary refer to the amount paid by the company to its employees with retrospective
effect i.e. salary of the past period paid in the current period. Companies pay arrears either on
pay revision or in case of an order of the court of law or on settlement of a dispute with the
labour union. The amount, as and when it is determined, is paid to the employees as arrears.
For example, Maharashtra Scooters Ltd in its annual report for the year ended 2008 reports
salaries and wages of Rs.10.33 crore. This information is available under ‘Other expenses’.
Further, Note 15 on page 30 states that the amount includes additional bonus payment of
Rs.15.22 lakh retrospectively for the year 2006-07 consequent to amendment in Payment of
Bonus Act. We exclude this amount from salaries and report it as arrears paid during the year
under this data field. Thus we post an amount of Rs.0.15 crore in this data field.

Payments/reimbursement of expenses:
Reimbursement of Expenses are those expenses which are incurred by the employees and are
then reimbursed to them by the company. Companies usually report reimbursements like
‘medical reimbursement/expenses’, ‘fuel and conveyance reimbursement’, ‘LTA
reimbursement’ in their annual report.
For example, Page Industries reports an amount of Rs.12 lakh as ‘LTA reimbursements’ for
the year 2008 under ‘Personnel expenses’ in their 2007-08 annual report. We report this
amount under this data field.
Airports Authority Of India reports ‘medical reimbursement’ of Rs.103.10 crore and ‘fuel
and conveyance reimbursement’ of Rs.30.90 crore under ‘Other Staff Costs’ in their 2007-08
annual report. We report a total of Rs.134(103.10+33.90) crore in this data field.

Other expenses on employees:

This data field includes all the other employee related costs which are not included in any
other data field under ‘Compensation to employees’. The data field could include information
pertaining to provision for leave encashment, pension contribution, ESI, Deposit linked
Insurance, Group Insurance etc.
Ingersoll Rand (India) reports by way of a note on page 41 of their 2007-08 annual report
that Salaries wages etc. of Rs.3.46 crore reported under ‘payments to and provision to
employees’ include provision for leave encashment of Rs.2.30 crore. We thus exclude this
amount from salaries and report it under the field for "other expenses on employees"

Directors' remuneration:
This is an information-only data field that reports the remuneration paid to the company's
executive directors and thereby charged to current year's profit and loss account.
The remuneration paid to directors which is reported under this data field includes the amount
of salary paid, contribution to provident fund, value of perquisites, performance linked
incentive to whole time directors and also the commission paid to them. However, this data
field does not include the sitting fees paid to the directors, which is disclosed in a separate
data field - Director's fees. Again any remuneration and commission paid to non
wholetime/non-executive directors is not included under this field but is reported under the
data field ‘Director's fees’.

For example, Bharat Forge Ltd reports ‘Managing and Whole time Director's commission’
of Rs.6.85 crore and ‘Commission to Director's other than Managing and Wholetime
directors’ Rs.0.75 crore in their 2007-08 annual report under ‘Other expenses’ Schedule. We
include the amount of Rs.6.85 crore under salaries and wages and correspondingly report
under this informative data field, but Rs.0.75 is not included under salaries and thereby not
reported in this data field. Instead it is reported under the ‘Directors fees’ data field.

INFOSYS TECHNOLOGIES LTD.

Infosys is one of the topmost IT firms. Its main objective is wealth creation for employees.
Hence, Compensation Management is a crucial part of this organisation. Salary is not the
only compensation factor that works in Infosys, rather it focusses on a more holistic model.

Infosys package includes:

 Salary
 Asset
 Wealth creation opportunities
 Career loans
 Employee stock option plan( ESOP)
 Marriage loan

The BENEFITS FOR INDIAN EMPLOYEES include:

 ESOP: 83% of employees are participating in this plan in which the employee
becomes a true partner in the growth of the company and shares the rewards.

 Assets: In case the employee requires loans for house, cars, computers, laptops
etc, Infosys has kept a fund of nearly rupees 600 million to help the employees
with the loan facility.
The company undertakes supervision of an Asset on behalf of the employee
before its purchase.

 Training programs: When an employee joins Infosys, he is given orientation

training. To equip the employees with necessary skills and to succeed on the job
they are given continuous opportunities, online tutorials and company sponsored
workshops.
 Statutory benefits:

 Provident fund(pf), pension and gratuity:

 In Infosys, the eligibility for gratuity is one year of continuous service
instead of five years.
 Middle management is eligible for superannuation scheme.
 Infosys gives its employees 20% of (Basic+DA) as bonus, which is much
higher every year as compared to the permissible limit of 8.33%.
 Travelling assistance: the travelling assistance to employees for making
reservations for both personal and official purpose.
 Chartered accountants assist employees in filing their income tax returns. The
company has an on-site ATM for the employees’ convenience.
 Doctors are available for medical aid.

BENEFITS FOR US EMPLOYEES:

 401(K) savings plan: Employees contribute 20% of their compensation to this plan
annually. The maximum contribution established by internal revenue service is
$10000 per year.
 Health Care: From the time an employee joins the company, his health care benefits
are all covered by the company.
 Medical,dental ,vision care insurance: Employees and their dependent family
members are covered under a medical insurance plan from ‘the guardian’.
This plan also offers comprehensive coverage of dental care including orthodontia.
Company has its own self-funded vision care plan .All the premium is paid by the
company.

HINDUSTAN UNILEVER:

The working cycle of a typical HUL field force member is from 21st of every month to the
20th of the next month. During this period he is given various targets that helps to achieve
company objectives and gives him a chance to prove his performance relative to other.
To start with the field force member is given a particular area and his responsibility is to cater
to all the retailers in that area. While deciding the area for each member of the field force, the
company makes sure that the operating area of each field member doesn't overlap with his
other colleagues. There are various methods used by the company to incentivize the field
force‐ Monetary and Non Monetary.
In HUL, the field force is evaluated using QOC (Quality of Contribution). It consists of 4
components‐
1. Secondary Sale (Max points = 2.5)
2. Eco (Max points = 0.5)
3. Focus (Max points = 0.5)
4. FCS (Max Points = 0.5)

Secondary Sale ‐ Based on the operating area, each member is given a specific target in
terms of
value (e.g., Rs. 15 lacs) for the operating month (21st – 20th of next month). If he achieves
100% of the target he gets 2.5 points, if he achieves 95% target he gets 1.5 points. These
points are used to add to the total QOC score as well as linked to monetary incentive.

ECO / Width pack Target – This is used for the penetration/reach of certain products in the
existing
market. The following is a typical ECO target assigned to a field force agent:
Lux International
– 105 outlets x 1 SKU
Pears Soap
‐ 135 outlets x 1 SKU
Rin
‐ 104 outlets x 1SKU
Breeze Soap
‐ 100 outlets x 1 SKU
The outlets mentioned are within the operating area of the person and 1 SKU = Rs. 27/‐.
Based on this the Field person calculates number of packs he should sell to the retailers. The
concerned agent receives this target around 25th of each month and has to complete this
target within the 5th day of next month. Upon completion he gets additional 0.5 points added
to his QOC score along with monetary incentive associated with it. However if this is not met
within 5th, he looses the opportunity.

Focus / Depth Pack target – This is mainly used to increase the sales volume of certain
products. A typical ‘Focus’ target is given below:
Lux International
– Rs 20,640 /‐ @ Rs 6/‐ per unit
Life Buoy
‐ Rs 70,220 /‐ @ Rs 10/‐ per unit
Wheel
‐ Rs 99,000 /‐ @ Rs 10/‐ per unit
Breeze Soap
‐ Rs 27,000 /‐ @ Rs 10 /‐ per unit
This target needs to be achieved within 20th of next month. Upon achieving the target the
field person is awarded 0.5 points which is then added to his overall QOC score.
Field Capability Score (FCS:
In this component, the field force persons are required to ensure that the scheduled
visit/outlet billing is such that at least 15 items are demanded per order. If this is achieved the
retailer gets a discount of 1% on the billed amount and on the other hand the field person gets
an additional score of 0.5 which is added to his QOC score. Each scheduled visit per outlet is
one per week. For example if there are 100 outlets within the operating area of a field person
then the number of visit per week is 100 and total number of visit per month = 100x4 = 400.
The sales person is required to achieve 90% success rate to get 0.5 points for his QOC score
and at
least 65% for a satisfactory performance.

Non Monetary Methods

The other purpose of the QOC scores is to highlight the performance of the field person
among his peers. Based on the QOC various awards are distributed to the field persons at the
end of every month. These awards are also known as ‘MOC Star’ awards. MOC stands for
Monthly operating Cycle.

If QOC score > 4.5 – The person is eligible for 7 star award

If QOC score > 4 – The person is eligible for 5 star award

If QOC score > 3.5 – The person is eligible for 3 star award
In the event of exceptional performance, management representatives from the regional office
come to the zonal office to distribute the awards. The photograph of the award winners is
displayed in the office as a source of inspiration for other sales person.
Target Setting Mechanism and monitoring
The regional office monitors the performance of various zones. A thorough analysis is done
at the end of each month and based on that the weak products are identified or those for
which the demand has weakened. This is the basis of setting ECO and FOCUS targets for the
field persons. Each field person is given a palmtop wherein he can feed the entries on the spot
where the transaction is done. This solves basically the two purposes‐
a) The field person is freed from the tedious task of maintaining cumbersome records and can
then concentrate on the job (thus IT is replacing some of the field force or other channel
members),
b) The sold item is immediately updated in the company information system.

Compensation Management in MSMEs

MSME employers need to strive hard to retain their top talent, especially from larger and
better known employer brands. More often than not, employees wait as long as it takes for
them to acquire critical skills before moving to better known employers.

Employer Brand:

Companies spend a disproportionate amount of time in building their corporate brand for
customers and investors, whereas the commensurate effort in nurturing an ‘employer brand’,
targeting prospective employees, often pales in comparison.

Employer Branding is a part of the continuum that includes concepts like Employee Value
Proposition (EVP) and Total Rewards Framework.

The Total Rewards Programme stimulates the development of the next step of the continuum,
namely, the Employee Value Proposition or EVP. This is not an evolutionary development but a
recursive exchange where aspects (perhaps unarticulated) of EVP influence the design and
development of the Total Rewards Framework.

There are many approaches to define total rewards in an organisation; a comprehensive view covering
six advantage points is ideal.

 Employee view: What is desired by the employees from their employers

 Workforce view: What kind and how much of talent is available in the local market, does it
have socio/cultural alignment with what the organisation expects.
 Employer view: What is possible for the employer to offer based on the business it operates
 Environment view: The prevailing business and regulatory environment and its impact on
the employment conditions.
 View of ‘competitive landscape’: what strategies and tactics are in use by the employer-
employee contract to determine viability of the plans.

Employee Value Proposition is a concept that outlines how an organisation articulates its identity,
origins and values, and what it promises to deliver, to emotionally connect employees and prospective
employees. It clearly articulates the employee experience—what is an offer, what to expect and why
the organisation is a different and a suitable place to work.

The coming together of Total Rewards and Employee Value Proposition, results in an Employment
Brand. The Employer Brand cannot be contrary to the corporate brand, but rather it should
compliment it.

In an environment where compensation is the strongest proposition to attract and hold talent, and
Economies of Scale allow more capital to accumulate with larger companies, MSMEs are clearly
outgunned in the war of talent. Companies in the MSME space cannot afford the high fixed costs of
salaries, while too heavy a reliance on ‘performance pay’ is unattractive to employees. In such an
environment, MSME firms have to rely on other means to stay competitive

The more successful companies have managed to stay competitive by reviewing the entire employee
life-cycle from hire to retire and then re-designing those points of interactions that allow them to
provide a differential positioning in the employment market.

Small and medium firms have a better ‘line of sight’ between efforts to rewards, as the effort to output
process flow is generally much shorter. The ability to see a tangible outcome of their effort gratifies
professionals and smart companies weave this into their organisational culture and leverage it to their
advantage. Additionally, small and medium-sized companies, being nimble, have much less structural
development. Their responsiveness comes from their ability to process information between
customers and management faster. Employees value a culture of empowerment where their
organizations hear what they have to say and their decisions carry weight.

On the whole, MSMEs can easily outscore their large rivals on account of organisational culture as
their size affords them agility. Successful MSMEs are the ones that are able to assimilate aspects of
entrepreneurial spirit and enthusiasm into their culture and practice it consistently. Once the culture
becomes ingrained into the DNA of the firm, organisations can articulate it and make a brand promise
to its employees. Thus an employer brand is created.

At times, the impersonal feel of large organisations combined with the silo mentality of departments
appear uninviting and intimidating to many people. MSMEs could leverage this aspect and strive to
find talent who like the close-knit feel of smaller companies.

That said, it would be unfair to expect all MSMEs to outscore large corporates on matters of culture or
do it consistently. In most instances, MSMEs enter a golden period where systems and processes are
effective and scalable, people fully engaged and margins looking healthy. It’s at this time that a
company becomes a good place to work. Those companies which are able to hold on to this period
and extend it go on to become larger and successful organisations.
 CONCLUSION
The presented report on Compensation management has shown insights through three
corporates: Infosys, MSME and HUL.

The whole idea of compensation management can be better understood through the following
Pyramid structure.

Compensation is need of the day for the Human Resource Department. The motivation level
of the employees to great extent lies in monetary rewards. In the current state of affairs it is
indispensable to restructure the pay models. Similar to changes bought about in the other
departments the HR should also emphasize on restructuring the costs so as to bring the
variable cost close to nil.

Smaller projects with fast paybacks would be more attractive than a big project with a long
payback. A satisfied employee is a productive employee and care should be taken that they
are fairly paid for their worth in the organization. If managers follow these guidelines, their
pay-related communication with employees will result in clarity and respect. In addition, they
will avoid the misunderstanding and resentment that results from avoiding this critical issue.
If paid well can generate results for the organization, failed can create problems. The major
challenges what manager’s face today is retention of the man power and the major cause of it
is that they are paid better in the other organizations.
 Bibliography

1. Subeer Bakshi, “The New Employment Deal”, Human Capital, New Delhi, Vol. 14
No. 1, June 2010.
2. V S P Rao, “Human Resource Management-Text and Cases”, Excel Books, New
Delhi, 2000.
3. Biswajeet Pattanayak, “Human Resource Management”, Prentice Hall of India Pvt.
ltd New Delhi, 2006.
4. http://www.business-beacon.com/kommon/bin/sr.php?
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14&tabname=Financial+details+-
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