TERM PAPER

OF
HUMAN RESOURCE MANAGEMENT
ON

COMPENSATION POLICY IN
INDIAN INDUSTRISES

SUBMITTED TO:-
SUBMITTED BY
:-

LOVELY PROFESSIONAL UNIVERSITY

LOVELY INSTITUTE OF MANAGEMENT (LIM)

© ARUN GULERIA | arun_guleria@in.com 18

 FIRST AND FORE MOST I WOULD LIKE TO THANK
MY SIR Dr. GUPTA FOR GIVING ME THE OPERTUNITY
TO SHOW MY CAPABILITIES.
I EXPRESS MY GRATITUDE TO MY PARENTS FOR
BEING A CONTINUOUS SOURCE OF ENCOURAGEMENT
AND FOR ALL THERE FINANCIAL AID GIVEN TO ME.
I WOULD LIKE TO ACKNOELEDGE THE
ASSISTANCE PROVIDED TO ME BY MY LIBRARY STAFF
OF LIM (LOVELY INSTITUTION OF MANAGEMENT).
MY HEART FELT GRATITUDE TO MY FRIENDS FOR
HELPING ME TO COMPLETE MY WORK IN TIME.

Arun Guleria

© ARUN GULERIA | arun_guleria@in.com 18

 INDEX
S.N Particular PAGE REMAR
o. NO. KS

1. Acknowledgement 2

2. Introduction Of Compensation 3

3. Remuneration 3

4. Planning The Compensation Strategy 4

5. Compensation Strategies 5

6. Workers' Compensation 6
Law for compensation
(Compensation Act)

7. Analysis And Summary Of Search 8

Article

8. COMPENSATION STRATEGIES IN 16
INDIAN INDUSTRY

9. Bibliography 20

© ARUN GULERIA | arun_guleria@in.com 18

 COMPENSATION
Compensation can refer to...
Compensation is a systematic approach to providing monetary value to employees in exchange
for work performed. Compensation may achieve several purposes assisting in recruitment, job
performance, and job satisfaction.
Damages - legal term referring to the financial compensation recoverable by reason of another's
breach of duty; the money paid or awarded to a plaintiff
Workers' compensation, to protect employees who have incurred work-related injuries. Example
is the Radiation Exposure Compensation Act. Remuneration, such as a wage or salary to pay
people for their work

DIFFERENT TYPES OF COMPENSATION INCLUDE:

 Base Pay
 Commissions
 Overtime Pay
 Bonuses, Profit Sharing, Merit Pay
 Stock Options
 Travel/Meal/Housing Allowance
 Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes...

REMUNERATION
Remuneration is pay or salary, typically monetary payment for services rendered, as in an
employment. Usage is considered formal. Employee compensation and benefits package can be
the deciding factor for many potential employees. And it's not just the money. To make your
company competitive and attractive to job candidates, you have to offer an exceptional total
benefits package. That makes it a very important part of your business planning and management
process hope to hire (and keep) top employees.
.
SETTING UP COMPENSATION STRUCTURE
Although money isn't everything, it certainly is one of the top issues potential employees
look at when interviewing new companies. Whether you're offering a straight basic salary
structure or an incentive-based pay structure may make or break you in the eyes of top job
candidates. Let's look at how each system works.

 STANDARD SALARY STRUCTURE

A standard base pay program offers fixed salary ranges for each position type for
employees performing the standard duties of their jobs. Set up minimum and maximum levels
within those pay ranges to account for variations in experience and skill levels. When setting the
base pay structure, determine where your company falls within your own industry as well as
competing industries that may also offer job opportunities for your employees. Set up your pay
levels to be competitive, or else you risk losing employees. You can use the Internet to find
industry-standard salary levels for specific jobs in specific geographical areas.

© ARUN GULERIA | arun_guleria@in.com 18

 Once your base pay structure is in place, most companies then set up a merit pay program
that will take the employee through the salary range for their position at a performance-driven
speed. This comes into play when the employee's managers do annual employee performance
reviews. The downside of this is that employees may begin to see it as a given that they will get a
salary increase after each evaluation, and it ceases to be a motivation to perform better in their
jobs. For this reason, more companies are moving toward more of a reward-based compensation
style, also called Incentive Compensation.

 INCENTIVE COMPENSATION
Incentive-based compensation is becoming much more common because of the increased
emphasis on performance and competition for talent. This type of compensation structure
significantly helps motivate employees to perform well. Hiring bonuses are also frequently used
now, even for new college graduates. However, you might want to tie in a specific time period
prior to the employee collecting this bonus -- for example, one-half after six months and the
remainder after one year of employment. Otherwise, you could run the risk of the employee
departing after that first check, which would defeat your purpose.

Setting up an incentive-based compensation program requires the same research into your
industry as the base pay program. You'll still establish base pay levels, but it may be slightly
lower and you will build into that base the annual or quarterly (or any other interval) bonuses,
commissions, or other types of shared cash compensation.

 NON-CASH COMPENSATION
In addition to regular benefits packages that include health insurance, vacation, and
retirement plans, employees seem to be actively seeking companies who offer more of the things
they value. Balancing their lives is becoming more important than ever. Because of this, other
benefits like flexible schedules, relaxed atmospheres, childcare and other lifestyle benefits are
becoming almost as important as salaries. In fact, according to data compiled by Work Life.
More than one-fourth of surveyed workers said that balancing work and family is more important
than a competitive salary, job security or support for an advanced degree. But these other perks,
as well as other intrinsic rewards, can definitely have a strong effect on how employees feel
about their employer and their work environment, and can help retain employees who might
otherwise leave. We'll talk more about fringe and other added benefits throughout this article.

PLANNING THE COMPENSATION STRATEGY

Most senior managers wish, at least at times, that they could ignore compensation. No
other organizational system is so weighed with values and emotions, so visible to employees or
so much the subject of internal dissent. Nearly everyone has opinions—usually strong opinions—
about rewards. Any change in compensation usually attracts loud complaints from employees
who feel disadvantaged by the change.

The topic of rewards is rife with myths that are widely accepted but contradicted by
extensive research. In view of these difficulties, can busy senior managers safely take the easy
way out and leave compensation decisions to their compensation specialists? Or should they
devote significant personal attention to compensation? Senior managers should be heavily

© ARUN GULERIA | arun_guleria@in.com 18

involved in getting the strategic direction for compensation, and there are some fundamental
choices senior managers need to make during this process.

Compensation systems demanded less senior management attention only a few years ago.
At that time, senior managers generally left the design of employee compensation systems to
technical specialists. This was possible partly because professionally managed compensation
systems looked very much alike from one company to another.

For most firms, the goal of compensation design was simply to avoid a competitive
disadvantage by keeping labour costs in line with those of competitors, and the goal of
compensation administration was to keep employee noise down.

The picture has changed greatly during the past decade, as companies throughout the
economy have begun to rethink their compensation systems in search for competitive advantage.

Base pay, incentives, benefits and pay for corporate performance all have changed
dramatically. Studies of Fortune 1000 firms from 1986 to 1997 show large increases in the
percentage of Fortune 1000 using a variety of compensation innovations.

For example, there has been a 50 percent increase in companies using pay for skills,
knowledge and competencies. A 50 percent increase in companies using work group or team
incentives; and a 100 percent increase in firms using flexible benefit systems.

The strategic demands of new competitive forces, new organizational forms, and increase in
knowledge work and recognition of the importance of compensation to organizational
effectiveness have largely driven these changes. Top managers can no longer afford to leave
compensation solely in the hands of compensation professionals.

There are some basic principles of compensation strategy senior managers need to
understand. The alignment of compensation with business needs, the goals of the compensation
system, reward system levers and basic choice managers need to make are among these
principles. A foundation of knowledge will help senior managers use compensation as an
important tool for managing the business.

COMPENSATION STRATEGIES
Entrepreneurs have a significant opportunity to minimize overall corporate and personal
taxes by adjusting the mix of salary and dividends they receive from the business. The right mix
of compensation will depend on a variety of factors. These include, among others, the financial
requirements of the individual family members and the business, the tax rate of the corporation,
the shareholders' retirement (i.e. RRSP), estate planning and succession objectives and the
financial covenants placed on the business by outside financing sources. An effective
compensation strategy can maximize the after tax funds available to both the entrepreneur and the
business.

© ARUN GULERIA | arun_guleria@in.com 18

WORKERS' COMPENSATION

Workers' Compensation laws are designed to ensure that employees who are injured or
disabled on the job are provided with fixed monetary awards, eliminating the need for litigation.
These laws also provide benefits for dependents of those workers who are killed because of
work-related accidents or illnesses. Some laws also protect employers and fellow workers by
limiting the amount an injured employee can recover from an employer and by eliminating the
liability of co-workers in most accidents. State Workers Compensation statutes establish this
framework for most employment. Federal statutes are limited to federal employees or those
workers employed in some significant aspect of interstate commerce.

The Federal Employment Liability Act (FELA), while not a workers' compensation statute,
provides that railroads engaged in interstate commerce are liable for injuries to their employees if
they have been negligent.

The Merchant Marine Act (the Jones Act) provides seamen with the same protection from
employer negligence as FELA provides railroad workers.

Congress enacted the Long shore and Harbor Workers' Compensation Act (LHWCA) to
provide workers' compensation to specified employees of private maritime employers. The Office
of Workers' Compensation Programs administers the act.

The Black Lung Benefits Act provides compensation for miners suffering from "black
lung" (pneumoconiosis). The Act requires liable mine operators to pay disability payments and
establishes a fund administered by the Secretary of Labor providing disability payments to
miners where the mine operator is unknown or unable to pay. The Office of Workers'
Compensation Programs regulates the administration of the act.

California's Workers' Compensation Act provides an example of a comprehensive state

compensation program. It is applicable to most employers. The statute limits the liability of the
employer and fellow employees. California also requires employers to obtain insurance to cover
potential workers' compensation claims, and sets up a fund for claims that employers have
illegally failed to insure against.

Law for compensation (Compensation Act)

(1) Employed in any such capacity as is specified in Schedule II, whether the contract of
employment was made before or after the passing of this Act and whether such contract is
expressed or implied, oral or in writing; but does not include any person working in the capacity
of a member of the Armed Forces of the Union; and any reference to a workman who has been
injured shall, where the workman is dead, include a reference to his dependants or any of them.

(2) The exercise and performance of the powers and duties of a local authority or of any
department acting on behalf of the Government shall, for the purposes of this Act, unless a
contrary intention appears, be deemed to be the trade or business of such authority or department.

© ARUN GULERIA | arun_guleria@in.com 18

(3) The Central Government or the State Government, by notification in the Official Gazette,
after giving not less than three months' notice of its intention so to do, may, by a like notification,
add to Schedule II any class of persons employed in any occupation which it is satisfied is a
hazardous occupation, and the provisions of this Act shall thereupon apply, in case of a
notification by the Central Government, within the territories to which the Act extends, or, in the
case of a notification by the State Government, within the State, to such classes of persons :

Provided that in making addition, the Central Government or the State Government, as the
case may be, may direct that the provisions of this Act shall apply to such classes of persons in
respect of specified injuries only.

METHOD OF CALCULATING WAGES FOLLOWED IN INDIAN

INDUSTRY: -
In this Act and for the purposes thereof the expression "monthly wages" means the amount
of wages deemed to be payable for a month's service (whether the wages are payable by the
month or by whatever other period or at piece rates), and calculated as follows, namely:-

(a) where the workman has, during a continuous period of not less than twelve months
immediately preceding the accident, been in the service of the employer who is liable to pay
compensation, the monthly wages of the workman shall be one-twelfth of the total wages which
have fallen due for payment to him by the employer in the last twelve months of that period;

(b) where the whole of the continuous period of service immediately preceding the accident
during which the workman was in the service of the employer who is liable to pay the
compensation was less than one month, the monthly wages of the workman shall be the average
monthly amount which, during the twelve months immediately preceding the accident, was being
earned by a workman employed on the same work by the same employer, or, if there was no
workman so employed, by a workman employed on similar work in the same locality;

(c) in other cases [including cases in which it is not possible for want of necessary information to
calculate the monthly wages under clause (b), the monthly wages shall be thirty times the total
wages earned in respect of the last continuous period of service immediately preceding the
accident from the employer who is liable to pay compensation, divided by the number of days
comprising such period.

Explanation: A period of service shall, for the purposes of this section be deemed to be
continuous which has not been interrupted by a period of absence from work exceeding fourteen
days.

© ARUN GULERIA | arun_guleria@in.com 18

 ANALYSIS AND SUMMARY OF
SEARCH ARTICLE
(Article 1)
FEDERAL COMPENSATION IS MORE THAN
JUST SALARY
By Ralph Smith
Thursday, March 29, 2007
Source: - www.findartical.com

There is little doubt that many readers believe that federal employees receive considerably
less than those in the private sector. That is no doubt true in many cases. But one feature of
federal employment that is sometimes not considered is that, in addition to the average salary
increase that is reported every year, federal employees also have a number of other features in the
federal human resources program that also add to their average pay. For example, check out the
statistics below about the number of federal employees who receive cash awards, time off
awards, or promotions or within-grade step increases during the year.

The result of this human resources activity is an occasional report describing the federal
workforce along the lines of an "Elite Island" with high pay, high benefits and employment
security that is unique in the American workforce. The report noted in the previous sentence also
cites the "pay gap" between federal workers and the rest of the economy as one that is getting
wider. "Since 1990, average compensation has increased 115 percent in the government and 69
percent in the private sector, while average wages have increased 104 percent in the government
and 65 percent in the private sector."

While you ponder that statement, here are a few statistics from a new report issued by the
Congressional Budget Office on the pay of the federal workforce. The CBO examined the 1.4
million or so civilian, federal employees, excluding those who work for the Postal Service, who
fill full-time permanent positions in the executive branch. As might be expected in a document of
this nature, the report is largely statistical and the narrative is written in a dry, bland style.

Here are some statistics you can use to compare your situation with the "average" federal
employee from 2005. The executive branch workforce represents a little more than one-half of all
civilian government employees. The average full-time civilian federal employee is 47 years old
and has about 16 years of federal service. The average federal employee retires at age 59. In
December 2005, the average federal employee salary was $63,431. The average federal
professional employee on the GS pay scale makes $79,802. The average clerical employee on the
GS pay scale makes $35,405. The average senior executive makes $146,848 In 2005, agencies
awarded about 49,000 quality step increases that, on average, raised an employee’s basic pay by
about $1,800. in 2005, there were about 178,000 promotions among full-time permanent federal
civilian employees. The average pay increase as a result of a promotion was about $4000. About

© ARUN GULERIA | arun_guleria@in.com 18

56 percent of the federal workforce received a cash award averaging $1300 in 2005. 195,000
federal employees received time off awards during the year.

The average time off: 26 hours About 111,000 employees in 2005 received cash awards
(of about $700 each, on average) for exceptional performance as part of a group. About 400
federal employees were denied a within-grade increase in 2005. A substantial portion of a federal
employee's compensation package is the benefits provided. Depending on factors such as an
employee's age, length of service and retirement system, the federal benefits package amounts to
between 26% and 50% of an employee's salary.

(Article 2)

EMPLOYEE COMPENSATION
Written by Carter McNamara, MBA, and LLC.
15 Jan 2008
www.businessartical.com

Compensation includes topics in regard to wage and/or salary programs and structures,
for example, salary ranges for job descriptions, merit-based programs, and bonus-based
programs, commission-based programs, etc.

Compensation is payment to an employee in return for their contribution to the

organization, that is, for doing their job. The most common forms of compensation are wages,
salaries and tips.
Compensation is usually provided as base pay and/or variable pay. Base pay is based on
the role in the organization and the market for the expertise required conducting that role.
Variable pay is based on the performance of the person in that role, for example, for how well
that person achieved his or her goals for the year. Incentive plans, for example, bonus plans, are a
form of variable pay. (Some people might consider bonuses as a benefit, rather than a form of
compensation.) Some programs include a base pay and a variable pay.

Organizations usually associate compensation/pay ranges with job descriptions in the

organization. The ranges include the minimum and the maximum amount of money that can be
earned per year in that role.

Employees have certain monies withheld from their payroll checks, usually including
federal income tax, state income tax, FICA (social security) contributions, and employee
contributions to the costs of certain benefits (often medical insurance and retirement).

Exempt and Non-Exempt

Jobs in organizations have two classifications, exempt and non-exempt.
Professional, management and other types of skilled jobs are classified as exempt. Exempt jobs
get a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month.
It's not uncommon for exempt positions to receive higher compensation and benefits than non-

© ARUN GULERIA | arun_guleria@in.com 18

exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply by
working more hours.

Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobs

usually get a wage, or an amount of money per hour. Non-exempt jobs also get paid over-time,
that is, extra pay for hours worked over 40 hours a week or on certain days of the week or on
holidays. Each job must have the same pay range for anyone performing that job, that is, one
person can't have a higher maximum pay than someone else doing that same job.

(Article 3)

COMPENSATION STRATEGIES
By Sanjay Gupta & Yashvendra Singh
Monday, May 21, 2007
Source: - www.findartical.com

N etworking vendor D-Link wants its partners to focus on its existing customers, besides
looking at new ones. The partners should look at what else they can offer to their existing
customers. With an already established customer base, this is a time to re-tune the network and
add further value to it through new products and how the benefits from the network can be
maximized.

Microsoft wants its partners to grow and evolve. The vendor emphasizes on the need to have
a strong human resources policy. Microsoft encourages its partners to invest in retaining talent
and offering talented employees avenues for future growth, besides consistently helping them
develop their skills. Encourage our partners to develop vertical specific competencies which
would help them grow their business. Partners need to be on top of technology in today’s
competitive market and look at providing value added services around the core software. Also,
for each segment of the industry such as manufacturing, retail, etc., the partners should first look
at their peculiar needs and bring in solutions that meet those needs. There are certain technology
areas that offer good promise of profits to the partners, such as managed switches, IP surveillance
cameras, VoIP and security and a lot of new products are expected in these areas.

To ensure growth in the market, the channel must adopt best customer practices, ensure
adoption of industry best practices focused on Return on Investment (RoI) rather than absolute
margins on products, and differentiate them from the competition. There are two ways they can
look at the value additions provided by vendors: continue to crib or make the most from the
ω benefits to maximize whatever little profits they can garner.

© ARUN GULERIA | arun_guleria@in.com 18

 (Article 4)
COMPENSATION FOR
PERFORMANCE
By: Karen Kroll
Published November 2004
Source: - www.businessnewes.com

Back in 1999, Dhiman Products Co. implemented a bonus plan. The 65 manufacturing
employees at the Mishawaka, Ind., maker of parts for hydraulic systems would be evaluated on
these criteria: meeting production schedules; maintaining their machines; and reducing overtime,
scrap, and shipping errors. Productivity surged, and some employees added as much as 15% to
their paychecks.

Then the economy took an unexpected U-turn, and so did Dhiman's sales, plunging some
20%. Forget about bonuses. The company went into survival mode, cutting about 20 jobs. And
after just one year, Daman Products put its bonus program on indefinite hold.

The story is all too familiar. After all, you can't share the wealth if there's no wealth to
share. Fortunately, that's beginning to change. After several years of offering skimpy bonuses --
or, like Daman, none at all -- businesses large and small are expected to reopen their checkbooks
in the months ahead, says Tom Shea, a Boston-based managing director with compensation
consulting firm Pearl Meyer & Partners. For senior executives, payouts are up about 20% this
year, Shea says.

Rather than simply handing out checks, many entrepreneurs will be linking bonuses
directly to how well their employees performed. Some 77% of employers currently link
compensation to performance, up from 66% in 2001, according to World at Work, a professional
association in Scottsdale, Ariz. But getting pay for performance right is no easy task. Only 17%
of employers, for example, reported that their incentive programs were "very successful" in
helping boost financial performance, retain top employees, and increase customer service,
according to a recent survey by World at Work and consulting firm Hewitt Associates.

The biggest problem, the experts say, is that too few employers put adequate energy into
devising their bonus programs. It's common, for instance, for businesses to simply divide the
bonus pool so that high, midrange, and poor performers get 5%, 3%, and 2%, respectively. As a
result, some top employees are left wondering if their contributions really are being recognized.

There's nothing mysterious about the system at the Reliance Group, an India’s one of the
big industry. The 10 employees know that they're being judged on seven qualities -- productivity
and quality, loyalty, team building, creativity, management, ownership of job, and ownership of

© ARUN GULERIA | arun_guleria@in.com 18

company. In fact, workers are encouraged to ask for advice on how to increase their bonuses. The
idea is to get employees to behave like owners. "A salary pays you to do your job. One engineer,
for example, developed a new software tool to help state highway agencies analyze road-quality
data. Some employees, of course, aren't in a position to develop new lines of business. But
administrative assistant, for example, boosted her score by volunteering to prepare PowerPoint
presentations for the engineers, saving those hours each month.

Each year, Reliance distributes between 25% and 50% of profits to employees, some of
whom add as much as 10% to their annual salaries. That's a considerable sum, both sales and
profits have jumped about 20% in each of the past three years -- something Reliance credits
mostly to the incentive program.

Daman Products hopes to see similar results over the next few years. The company, which
weathered the downturn by boosting productivity via a wholesale reorganization of its
manufacturing process, is finally seeing profits again. As a result, it plans to reinstate its incentive
compensation program by the middle of next year. Use the same measures. That part worked. It's
just that the company needs to make money in the first place.

(ARTICLE 5)

WORKERS’ COMPENSATION
ATTORNEYS
www.chrmlearing.com
Community for Human Resource Management

Workers’ Compensation Attorneys comprise the specific class of lawyers who devote
their legal practice to handling workers’ compensation claims. Worker’s compensation refers to
the insurance or compensation provided to cover any personal or physical injury, medical
reimbursements, loss or death in workplace or within the employment tenure. These laws for
worker’s compensation are a result of long fought battles by trade unions and still in the 21st
century Worker’s compensation or Worker insurance are characteristics of very advanced and
developed societies.

In common, employers enjoy the liberty of deciding where to give worker benefits or
compensation. In California, however, the law states that the employer needs to carry Worker’s
Compensation Insurance or be qualified for self insurance to cover any on-the-job injuries. Work

© ARUN GULERIA | arun_guleria@in.com 18

related injuries or illnesses include limb disorders, heart and lung diseases, hypertension or
severe accidents in workplace that even make individuals cripple for life. In these cases, workers’
compensation benefits may allow for money for time off during recovery of an injury,
reimbursements of medical expenses or compensation for a long term disability or permanent
impairment.

Getting the deserving compensation in the right way is not very easy and simple.
Determining your eligibility to get compensation in many cases gives rise to complex issues
which may lead to disputes denying your compensation or injury claims. Such situations get out
of your control and what you need is a professional legal assistance of a Worker’s Compensation
Attorney.

Employment laws and legal rules binding employment issues are continuously changing in
an effort to keep pace with the changing modern society. Workers’ Compensation Attorneys are
the appropriate persons who are updated and well informed with the latest employment laws and
can help you making you aware of your specific rights and obligations as an employee.

If you search for Workers’ Compensation Attorney, you will find very few Law firms or
lawyers devoting their practice to this field of law. Selecting the right attorney for your case may
be an uphill task. Make certain necessary considerations while choosing your lawyer which
includes the following: your Worker Compensation Lawyer must be patient and tolerant and a
good listener, he or she must be able to analyze and understand the case by listening to you
without doing any research or survey, he or she should demonstrate enough confidence to
convince you that he or she is capable of handling your case and last and not the least is the fees
he will charge for your case are based on the law and usually will not exceed 15% of your
permanent disability settlement recovery.

(ARTICLE 6)
COMPENSATION AND BENEFITS IN
INDIAN INDUSTRIES
Publication: HRMagazine
Date: Friday, August 1 2008

Paychex Inc. has announced the addition of automatic enrollment as an optional feature of its
plan offering. The service will allow employers to automatically enroll their employees in the
company, potentially increasing overall plan participation. With the enrollment service,

© ARUN GULERIA | arun_guleria@in.com 18

employers have the option to automatically enroll all eligible employees or only those who
become newly eligible for a retirement plan once it takes effect. Paychex's service will manage
the complete enrollment process, from notifying the plan sponsor when newly hired employees
become eligible to automatically enrolling employees. This service reduces an employer's
paperwork and helps business owners stay focused on running their businesses

(Article 7)
ALTERNATIVE COMPENSATION
STRATEGIES METHOD FOLLOWED IN
INDIAN INDUSTRY
By Sanjay Gupta & Yashvendra Singh
Monday, May 21, 2007
www.findarticals.com

Networking vendor D-Link wants its partners to focus on its existing customers, besides
looking at new ones. “The partners should look at what else they can offer to their existing
customers. With an already established customer base, this is a time to re-tune the network and
add further value to it through new products and how the benefits from the network can be
maximized.
Microsoft wants its partners to grow and evolve. The vendor emphasizes on the need to have a
strong human resources policy. Microsoft encourages its partners to invest in retaining talent and
offering talented employees avenues for future growth, besides consistently helping them develop
their skills. “We would encourage our partners to develop vertical specific competencies which
would help them grow their business. Partners need to be on top of technology in today’s
competitive market and look at providing value added services around the core software. Also,
for each segment of the industry such as manufacturing, retail, etc., the partners should first look
at their peculiar needs and bring in solutions that meet those needs. There are certain technology
areas that offer good promise of profits to the partners, such as managed switches, IP surveillance
cameras, VoIP and security and a lot of new products are expected in these areas.

To ensure growth in the market, the channel must adopt best customer practices, ensure
adoption of industry best practices focused on Return on Investment (RoI) rather than absolute
margins on products, and differentiate them from the competition. There are two ways they can
look at the value additions provided by vendors: continue to crib or make the most from the
benefits to maximize whatever little profits they can garner.

© ARUN GULERIA | arun_guleria@in.com 18

 (ARTICLE 8)

CAREFUL PLANNING BY INDIAN BANKING

INDUSTRY TO SUCCESSFUL
COMPENSATION STRATEGY
Northwestern Financial Review,
Jul 1-Jul 14, 2004

Bankers should consider both long and short-term goals when determining
compensation for directors and key bank personnel, according to experts from Clark Consulting,
a Bloomington, Minn.-based consulting firm that specializes in compensation issues. The
company recently led an executive compensation discussion at a community bank peer group
meeting in Savannah, Ga.

"The bankers' main concern was finding affordable strategies for retaining their key
people," commented Mike Blanchard, vice president in the firm's compensation group. He
explained that, although each bank has unique compensation planning needs, the basic principles
of a successful compensation program are universal. Banks must design a program aligned with
bank objectives that includes both short- and long-term incentives to keep top executives focused
on achieving the bank's overall strategic goals. Since a director's role is to provide long-term
direction for a bank, boards are discouraged from participating in annual incentive programs, he
said. Therefore, the peer group also discussed how directors can be included in long-term
incentive programs that reward them for their critical role while promoting long-range decision-
making.

Questions regarding the specific needs of those banks in attendance were also addressed. For
example, Blanchard explained how synthetic equity is a useful tool for closely held banks and
mutual companies since it is purely a cash transaction based on the increase of stock price and
does not result in the allocation of actual shares. In addition, Blanchard emphasized that no
matter how competitive a bank's compensation package is today, it is imperative to benchmark it
to the market every 18 months to two years in order to ascertain its continued effectiveness.

Besides examining the elements that comprise successful compensation packages, discussions
included bank-owned life insurance and its impact on benefit plans.

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The peer group consisted of community bank presidents and CEOs who regularly meet to discuss
industry issues. Clark Consulting is a major provider of BOLI products and services.

COMPENSATION STRATEGIES IN INDIAN INDUSTRY

With the immense competition of attracting and retaining talented human resource, compensation
package is the only motivation factor available with the organizations be it Indian origin
organizations or foreign owned multinationals.

With the high attrition rate organizations are increasing their salary packages to attract and retain
talented human resource. In the race, India has begged first position followed by Lithuania and
China.

Average Salary increase (%) in 2006 for various countries

MARKET RESEARCH- SALARY SURVEYS

Organizations are conducting market research and purchasing the salary survey reports to
formulate their own compensation strategy most competitive in the existing environment. They
also make sure that it is also as per the industry standards. The salary surveys reports the salary
status and compensation provided by the organization in different industries and as per the job
hierarchy in the organization.

COMPENSATION SYSTEM

The compensation includes monetary and non-monetary benefits provided to employees in

several forms. Some organizations provide fixed pay with incentives and other benefits and some
organizations offer performance based pay that is variable in nature depending upon the

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performance of the employee. In India organizations follow the equal pay concept for jobs having
equal worth to the organizations.

Indian Industry Analysis

Indian industries are aiming for high growth and are looking for talented human resource. For the
purpose they are offering most competitive compensation packages. Besides the monetary and
non-monetary benefits some organizations also offer development benefits such as online degree
programmes or certification courses. Insurance sector has succeeded in increasing the
compensation packages at highest rate followed by Banking and IT sectors.

Increase in compensation (%) provided by various sectors in Indian industry

In Indian industry rate of salary hike also depends on the job position in the organizational
hierarchy. During year 2006 technical and professional skill oriented jobs were offered more
salary hikes than the senior management.

Salary hikes (%) at various job levels

With the technological developments taking place at a higher rate, the salary packages are too
increasing at a much higher rate. Pay packages in India have witnessed an increase
of more than 14% in 2006 over last year’s salary packages. The compensation package
comprises of monetary and non-monetary benefits that includes salary, special allowances, house

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rent allowance, travel allowance, mobile allowance, employee stock options, club memberships,
accommodations, retirement benefits and other benefits.
Globalization is being considered as the cause for such salary hikes. The establishment of
multinational companies and privatization has led the Indian industry to witness higher salary
package.

COMPENSATION STRATEGIES
A significant number of private equity fund management businesses, both captives and
independents, on the design and structure of their remuneration policies including annual bonus
structures, carried interest and co-investment plans, and other long-term incentive arrangements.
Whilst the majority of private equity clients have been based in the UK, we have also advised on
incentive arrangements in a number of overseas operations, for example in Europe (France,
Switzerland, Germany, Italy and Greece), in the Middle East (Dubai and Saudi) and in the Far
East (Singapore and Hong Kong).
The focus of attention has often been on developing suitable incentive plans and policies, which
are in line with market practice and as flexible and tax efficient as possible. Business contacts
with professional advisers in other jurisdictions, for instance Germany, France, Italy, Spain,
Greece and the Far East, have enabled MM & K to provide up to date compensation and fiscal
advice in the European and Asian arenas. We aim also to be innovative in the design and creation
of new ideas, sometimes resulting in the setting of new market precedents in the private equity
incentive compensation arena.

The design, structure and implementation of appropriate incentive plans as well as on basic
remuneration policies. To work alongside other advisers, in particular lawyers, to develop and
implement new incentive arrangements and structures that we have initiated. Also worked on
numerous occasions with private equity houses in helping to structure remuneration and HR
policies within their investee companies. We see this as becoming an increasingly important
added value component that we can help private equity firms bring to their investment and
portfolio management process.

There are a variety of compensation strategies and programs that help banks attract, retain and
motivate executives. In order for banks to keep their best top dogs, they should keep in mind the
following overview of six strategies.

1. LOOK AT THE BIG PICTURE: OVERALL EXECUTIVE COMPENSATION.

Many bank executives and even a few compensation surveys focus primarily on base salary and
bonuses without much attention to long-term incentives or benefits when analyzing
compensation. However, the keys to a competitive executive compensation package typically lie
outside of cash compensation, in either stock option programs or retirement benefits.

An effective tool to help a bank become proactive on all five areas of remuneration is the overall
compensation review. A broad based review analyzes the entire compensation program for a
bank (including the five areas of compensation described above) and summarizes what's working

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and what isn't. For each of the five areas of compensation, the bank should use benchmarks that
show how their programs compare to industry trends. Also, a solid compensation review should
identify how your employees feel about particular programs. It should also be presented to your
Board of Directors to ensure their approval of new programs and changes to existing programs.

Just like any other program that is vital to your bank's ultimate success, an overall compensation
review is the first step in managing compensation. Once your executives' compensation levels
have been reviewed, your bank can develop a plan that lets you know where you stand, what
improvements you need to make, how long it will take you to accomplish your compensation
goals and what costs are associated with each component.

2. EXAMINE PERFORMANCE-BASED EXECUTIVE INCENTIVE PLANS.

Another compensation strategy that is prevalent in the banking industry is the "executive
incentive plan." Although it sounds complex, using incentive-based compensation for top
executives in a bank is not complicated; it just takes some effort up front that will be repaid
through an increased bottom line. Instituting an incentive plan can be a boon for banks. "Our
employees understand exactly what they need to do in order to be successful here, and exactly
what their individual success means to the overall performance of the bank," explains Robert
Lewis, president and CEO of Bay State Savings Bank in Worchester, Mass. ACB member Lewis
reports that his plan has helped turn his business around.

In short, incentive compensation is a reward to the executive who exceeds performance goals that
are within the executive's control. The most common approach for an executive incentive plan is
to provide graduated levels of compensation as a reward for attaining levels of net income or
ROA. For example, if net income reaches the agreed upon target level, executives receive a set
incentive payment. This incentive payment increases as net income reaches pre-determined levels
above the target. The following figure is a schematic model of an annual incentive plan that uses
a tiered award system that incorporates both bank and individual goals.
Most incentive plans incorporate one or two other requirements based on the executive's position
in the bank. For example, the Chief Lending Officer may be graded against loan quality as well
as net loan growth; or the Chief Operations Officer may be responsible for non-interest expense
ratios. When multiple variables are used, weight factors are assigned to each variable to calculate
incentive payments. Weight factors are determined by how strongly the executive's performance
impacts the variable.

3. TRY STOCK-BASED INCENTIVES.

Stock-based incentives are becoming more and more common in the banking industry. Currently
approximately 80 to 90 percent of community banks with over $500 million in assets offer some
form of stock. In fact, a recent Towers Perrin study reported that a full 100 percent of all public
U.S. companies are expected to offer some form of stocks as a long-term incentive by 2003.

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Generally, there are two types of stock based incentives: stock equity and synthetic equity. Stock
equity results ultimately in the physical issuance of stock in some form. Even if the executive
opts to receive only cash, the benefit is based upon the fundamental use of real shares of stock.
Synthetic equity is based upon phantom stock issuance. While the stock performance is the same
in either stock or synthetic equity, the accounting treatment is very different.

BIBLIOGRAPHY

1. www.google.com

2. www.ask.com

3. www.businessarticles.com

4. www.hrmhelp.co.za

5. www.space.com

6. www.wikipedia.com

7. www.wiki.answers.com

8. www.allbusiness.com

9. www.witiger.com

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10. www.findarticles.com

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