Ceo's Compensation Package(Monalisha Anand,Kunal ,Neha)

8/8/2019 Ceo's Compensation Package(Monalisha Anand,Kunal ,Neha)

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ASSIGNMENT ON

C.E.O.¶s

Compensation Package

Submitted By

ANAND MOHAN

(ROLL-40066)

KUNAL SHEKHAR

(ROLL-40075)

MONALISHA GUPTA

(ROLL-40077)

NEHA THAKUR

(ROLL-40080)

PGDM(09-11)



Direct and indirect monetary and nonmonetary rewards givento employees on the basis of the value of the job, their

personal contributions, and their performance. Theserewards must meet both the organization's ability to payand any governing legal regulations.

Or

Compensation is the total reward received by an employee in exchange for services

performed for an organization. It can include both direct pay (salary and wages)

and indirect pay (benefits programs).

Human Resource Compensation's Objectives

The purpose of the University of Pennsylvania¶s compensation system is toachieve the following objectives:

y Evaluate jobs consistently and fairly.

y Place University staff positions in the appropriate pay grade with salaryranges that are competitive with the marketplace for comparable jobs.

y R egularly measure the external market value for comparable jobs and adjust

the salary structures accordingly.y Create and support a system which will provide flexibility to managers in

pay administration and to staff in career development.

y Concept of compensation-

y An organization exists to accomplish specific goals & objectives hence, hires

employees. The individuals hired by the organization have their own needs.One is for money, which enables them to purchase a wide variety of goods &

services available in the marketplace. Hence there is a basis for an exchange:

the employee offers specific skill/behavior, behaviors desired by the

organization to meet its goals and objectives in return for money, goods, & / or

services.



C.E.O.¶s Compensation

y CEO salaries keep going UP.

y R ising CEO pay is not simply a function of what individual companies do, but

is influenced by the behavior of leap froggers at other firms."

y CEO overpayment has higher costs than previously realized. It has been argued

that even if a CEO is overpaid, a large company can easily absorb the cost.

However, the study found that CEO pay has direct consequences for compensation at lower employee levels.

y The effects of CEO overpayment cascade down to subordinates at diminishing

degrees. For example, where one CEO was overpaid by 64 per cent, individuals

at Level 2 (chief operating officer, chief finance officer, etc.) were overpaid by

26 per cent, while individuals at Level 5 (division general managers) were

overpaid by 12 per cent. The cumulative effect of this systemic overpaymentimpacts on overall organizational performance and shareholder value.

y CEO pay impacts subordinate turnover. The study found that CEOs serve as a

key reference point for employees in determining whether their own pay is fair.

If the CEO is overpaid, subordinates are more likely to leave. The turnover

effect becomes more pronounced the farther away you get from CEO level.

Even if an employee is overpaid relative to the market, they will have a greater

propensity to leave if their CEO is overpaid by a larger percentage than they

are.



y "CEO compensation impacts employee retention more than we realized. Our

research found that CEO overpayment is related to turnover, which can have

important long-term consequences. It is quite possible that those most likely to

leave because of perceived unfairness are precisely those employees coming up

in the organization that would eventually rise to the top management teamlevel.´

y CEO underpayment also cascades. The study found that CEO underpayment

tends to get cascaded through an organization, with multiplying effects. If the

CEO is underpaid more than you are, you are less likely to leave, but if the

CEO is underpaid less than you are, you are more likely to leave.

y Notions of fairness are powerful. The study found that CEOs tend to be

concerned with the perception of fairness. If the CEO is paid generously, they

will typically use their influence to pay others generously as well. And, if they

are seen as being underpaid, that will also have an effect.

y Powerful CEOs pay employees more. CEOs who also serve as chairman of the board tend to pay their employees more. This effect is more pronounced at

higher levels, but diminishes at lowers levels. The effect disappeared at Level 5

(division general managers), but was strong at Levels 2 - 4 (the top

management team through the junior vice president ranks).



Overview of Penn's Salary Structure

The University of Pennsylvania employs over 10,000 individuals who perform jobsthat require a wide range of knowledge, skills, and abilities, from accountants to

veterinary technicians. Penn¶s salary structures were designed with these

differences in mind. All new hires at Penn must be paid at least the minimum of

the salary grade. Most salary offers for new hires fall between the minimum and

top of first third of the salary range. Because Penn is committed to remaining

competitive in the marketplace, salary offers above the top of the first third may

occur if the candidate has a unique combination of education, experience, and

skills that well-exceed the minimum qualifications. Factors, such as the budget andmarket issues are also considered when setting a salary for a new hire.

Penn's Salary Structure ± Non-Exempt Positions

Hourly Rates/Salary²35 Hour Work Week

Grade Min Hourly1st

ThirdHourly

2nd

ThirdHourly Max Hourly

27 42,908 23.58 54,350 29.86 65,793 36.15 77,235 42.44

26 36,363 19.98 46,060 25.31 55,757 30.64 65,453 35.96

25 30,816 16.93 39,034 21.45 47,251 25.96 55,469 30.48

24 27,083 14.88 33,402 18.35 39,721 21.82 46,040 25.30

23 22,951 12.61 28,307 15.55 33,662 18.50 39,017 21.44

22 19,450 10.69 23,989 13.18 28,527 15.67 33,065 18.17

21 18,722 10.29 22,155 12.17 25,587 14.06 29,020 15.94



Hourly Rates/Salary²37.5 Hour Work Week

Grade Min Hourly1st

ThirdHourly

2nd


27 45,973 23.58 58,233 29.86 70,492 36.15 82,752 42.44

26 38,960 19.98 49,350 25.31 59,739 30.64 70,129 35.96

25 33,017 16.93 41,822 21.45 50,626 25.96 59,431 30.48

24 29,017 14.88 35,788 18.35 42,558 21.82 49,329 25.30

23 24,591 12.61 30,329 15.55 36,066 18.50 41,804 21.44

22 20,840 10.69 25,702 13.18 30,565 15.67 35,427 18.17

21 20,060 10.29 23,737 12.17 27,415 14.06 31,092 15.94

Hourly Rates/Salary²40 Hour Work Week

Grade Min Hourly1st

ThirdHourly

2nd


27 49,038 23.58 62,115 29.86 75,192 36.15 88,268 42.44

26 41,558 19.98 52,640 25.31 63,722 30.64 74,804 35.96

25 35,218 16.93 44,610 21.45 54,001 25.96 63,393 30.48

24 30,951 14.88 38,173 18.35 45,395 21.82 52,618 25.30

23 26,230 12.61 32,350 15.55 38,471 18.50 44,591 21.44

22 22,229 10.69 27,416 13.18 32,602 15.67 37,789 18.17



21 21,397 10.29 25,320 12.17 29,243 14.06 33,165 15.94

Effective A pril 1, 2010

IMPORTANCE OF COMPENSATION

Compensation and R eward system plays vital role in a businessorganization. Since, among four Ms, i.e. Men, Material, Machine andMoney, Men has been most important factor, it is impossible to imagine a

business process without Men. Every factor contributes to the process of production/business. It expects return from the business process such as

rent is the return expected by the landlord, capitalist expects interest andorganizer i.e. entrepreneur expects profits. Similarly the labour expectswages from the process.

Labour plays vital role in bringing about the process of production/businessin motion. The other factors being human, has expectations, emotions,ambitions and egos.

Labour therefore expects to have fair share in the business/production process. Therefore a fair compensation system is a must for every businessorganization. The fair compensation system will help in the following:

o An ideal compensation system will have positive impact on the

efficiency and results produced by employees. It will encourage theemployees to perform better and achieve the standards fixed.

o It will enhance the process of job evaluation. It will also help in setting

up an ideal job evaluation and the set standards would be morerealistic and achievable.



o Such a system should be well defined and uniform. It will be apply toall the levels of the organization as a general system.

o The system should be simple and flexible so that every employeewould be able to compute his own compensation receivable.

o It should be easy to implement, should not result in exploitation of workers.

o It will raise the morale, efficiency and cooperation among the workers.It, being just and fair would provide satisfaction to the workers.

o Such system would help management in complying with the variouslabor acts.

o Such system should also solve disputes between the employee unionand management.

o The system should follow the management principle of equal pay.

o It should motivate and encouragement those who perform better and

should provide opportunities for those who wish to excel.

o Sound Compensation/R eward System brings peace in the relationship

of employer and employees.



o It aims at creating a healthy competition among them and encouragesemployees to work hard and efficiently.

o The system provides growth and advancement opportunities to thedeserving employees.

o The perfect compensation system provides platform for happy andsatisfied workforce. This minimizes the labour turnover. Theorganization enjoys the stability.

o The organization is able to retain the best talent by providing themadequate compensation thereby stopping them from switching over toanother job.

o The business organization can think of expansion and growth if it has

the support of skillful, talented and happy workforce.

o The sound compensation system is hallmark of organization¶s successand prosperity. The success and stability of organization is measuredwith pay- package it provides to its employees.



EMPLOYEE COMPENSATION

Employees receive compensation from a company in return for work performed.

While most people think compensation and pay are the same, the fact is thatcompensation is much more than just the monetary rewards provided by anemployer. According to Milkovitch and Newman in Compensation, it is "all formsof financial returns and tangible services and benefits employees receive as part of an employment relationship" The phrase "financial returns" refers to anindividual's base salary, as well as short- and long-term incentives. "Tangibleservices and benefits" are such things as insurance, paid vacation and sick days,

pension plans, and employee discounts.

Compensation costs have risen sharply in recent years, primarily because of escalating benefit costs. Employers now spend more than $1 trillion on employee

benefits. In 2003 the Society for Human R esource Management reported that benefit costs averaged 39 percent of total payroll in 2001, up from 37.5 percent in

2000. This means that, on average, employers provide about $18,000 in benefits toeach employee annually. The biggest cost increases have been in health benefits,which have been rising at an average of 12 percent annually for the past severalyears.

An organization must contain these spiraling costs if it is to get a proper return onits human resource investment, and thus gain a competitive advantage. Whencompensation-related costs escalate, the organization must find a way to offsetthem. In the past, companies passed along these increases in costs to the customer

in the form of higher prices. However, most U.S. companies now find it verydifficult to raise prices.

Pay and benefits are extremely important to both new applicants and existing

employees. The compensation received from work is a major reason that most

people seek employment. Compensation not only provides a means of sustenance

and allows people to satisfy their materialistic and recreational needs, it also serves

their ego or self -esteem needs. Consequently, if a firm's compensation system is

viewed as inadequate, top applicants may reject that company's employment offers,

and current employees may choose to leave the organization. With the aging of the

U.S. workforce and the impending retirement of the "baby boomers," employers



must be more concerned than ever before about retaining skilled, productive

workers. Moreover, disgruntled employees choosing to remain with the

organization may begin to behave unproductively (e.g., become less motivated,

helpful, or cooperative).

Pay and benefits are extremely important to both new applicants and existingemployees. The compensation received from work is a major reason that most

people seek employment. Compensation not only provides a means of sustenanceand allows people to satisfy their materialistic and recreational needs, it also serves

their ego or self -esteem needs. Consequently, if a firm's compensation system isviewed as inadequate, top applicants may reject that company's employment offers,and current employees may choose to leave the organization. With the aging of theU.S. workforce and the impending retirement of the "baby boomers," employersmust be more concerned than ever before about retaining skilled, productive

workers. Moreover, disgruntled employees choosing to remain with theorganization may begin to behave unproductively (e.g., become less motivated,helpful, or cooperative).

INFLUENCE OF PAY ON EMPLOYEE

ATTITUDES AND BEHAVIOR

Because compensation practices heavily influence recruitment, turnover, and

employee productivity, it is important that applicants and employees view these practices in a favorable light. In the following section, we discuss how people form perceptions about a firm's compensation system and how these perceptionsultimately affect their behavior.

One would expect that an individual's satisfaction with his or her compensationwould simply be a function of the amount of compensation received: the higher thecompensation rate, the greater the satisfaction. However, in reality things are not

that simple. In fact, the amount of pay is less important than its perceived fairness

or equity. To put this finding in perspective, consider the behavior of many professional athletes when negotiating a new contract. The average NBA salary in2003 was $4.9 million; the average baseball salary was $2.4 million; the average NFL salary was $1.3 million. Yet, ball players continue to ask for more money. Inmany instances, these demands stem from neither need nor greed. R ather, thedemand for greater salaries often stems from perceptions of inequity. For instance,despite a $15 million salary, a player may feel that his pay is inequitable because a



less capable player (or someone he perceives as being less capable) is earning anequal or greater salary.

Because equity is such an important concern, individuals responsible for

developing a firm's compensation system need to understand how perceptions of equity are formed. Equity theory, formulated by J. Stacy Adams, attempts to

provide such an understanding. The theory states that people form equity beliefs based on two factors: inputs and outcomes. Inputs (I) refer to the perceptions that people have concerning what they contribute to the job (e.g., skill and effort).Outcomes (O) refer to the perceptions that people have regarding the returns theyget (e.g., pay) for the work they perform. People judge the equity of their pay bycomparing their outcome-to-input ratio (O/I) with another person's ratio. Thiscomparison person is referred to as one's "referent other." People feel equity whenthe O/I ratios of the individual and his or her referent other are perceived as being

equal. A feeling of inequity occurs when the two ratios are perceived as beingunequal. For example, inequity occurs if a person feels that he or she contributesthe same input as a referent other, but earns a lower salary.

A person's referent other could be any one of several people. People may comparethemselves to others:

y Doing the same job within the same organizationy Working in the same organization, but performing different jobs

y Doing the same job in other organizations

For example, an assistant manager at a Wal-Mart department store might compareher pay to other assistant managers at Wal-Mart, to Wal-Mart employees in other

positions (either above or below her in the organizational hierarchy), or to assistantmanagers at Kmart department stores.

While the mechanism for choosing a referent other is largely unknown, one studyfound that people do not limit their comparisons to just one person; they haveseveral referent others. Thus, people make several comparisons when they assessthe fairness of their pay; perceived fairness is achieved only when all comparisonsare viewed as equitable. When employees' O/I ratios are less than that of their referent others, they feel they are being underpaid; when greater, they feel they are

being overpaid. According to equity theory, both conditions produce feelings of tension that employees will attempt to reduce in one of the following ways:

1. Decrease inputs by reducing effort or performance.2. Attempt to increase outcomes by seeking a raise in salary.



3. Distort perceptions of inputs and/or outcomes by convincing themselves thattheir O/I ratio already is equal to that of their referent other.

4. Attempt to change the inputs and/or outcomes of their referent other(s). For example, they may try to convince their referent other(s) to increase inputs(e.g., work harder for their pay).

5. Choose a new referent other whose O/I ratio already is equal to their own.6. Escape the situation. This response may be manifested by a variety of

behaviors, such as absenteeism, tardiness, excessive work - breaks, or quitting.

COMPENSABLE FACTOR RATING CRITERIA

Skill/know-how EducationExperience

Knowledge

Effort Physical effort

Mental effort

Responsibility

Judgement/decision-Making

Internal business contacts

Consequence of error

Responsibility Supervisory responsibilities

Responsibility for independent action

Responsibility for machinery/equipment

Fiscal responsibility

Responsibility for confidential information

Working conditions Risks Comfort

Physical demands

Personal demands



This approach to job evaluation is difficult and time-consuming. However, mostorganizations believe that it is well worth the effort. If properly conducted, theoverall score for each job should reflect its relative worth to the organization, thusenabling the firm to establish internal consistency.

CONTEMPORARY COMPENSATION ISSUES

Modern organizations are making very significant changes in their compensation

systems in order to better fit the dynamic, highly competitive businessenvironment. Firms increasingly are using things such as skill- based pay, whichcompensates employees for the number and types of skills they possess instead of

the type of job they have. Similarly, there is a strong movement to "at-risk"compensation, where employee pay is tied to performance. Under this system, theemployee's bonus does not become part of his or her base pay. Instead, the bonusmust be re-earned each year. These changes, and numerous others, are designed tohelp offset compensation costs by gains in productivity, and to develop moreflexible workforces.

Compensation structure

In network marketing, the framework of relationships between the firm and its

independent agents, and among the agents themselves, on the basis of which

commissions are computed and along which they are passed on.

The Ideal Organizational Structure for Compensation

An organization's compensation program focuses on two major objectives. First, it

must identify the right pay programs to recognize and reward desired behaviors.Second, it must decide how to organize work procedures to make the best use of available resources.

In meeting this second objective, an organization must determine whether tomanage the compensation function on a centralized or decentralized basis. This is a



complex issue because the management of the pay program must be consistentwith both the strategy of human resources and the mission of senior management.

A centralized approach is best when an organization seeks to promote a one-

company image and has a single structure and a consistent way of implementing its pay program. This approach enables the organization to cut down on duplication of activities and lessen an organization's needs for outside consultants and vendors.

A decentralized approach with an indirect link to corporate headquarters has a totalline orientation that is highly responsive to the demands of the operating units.Under the line manager's direction, each operating unit runs an independent salarymanagement program. This approach is appropriate for organizations that havediverse strategic objectives and compete in different markets for both customers

and employees.

Determining the "right" compensation structure for the organization depends onmany factors. The article includes types of questions one might ask in consideringhow best to organize the compensation function to support the company's strategy.

What¶s Wrong in this Compensation Structure??

Compensation rates (both basic and cash/ non-cash benefits) are being designed inevery company with a sound basis. They are not just drawn out of nowhere. Theyalso need top management approval before it can be implemented because of itsimpact on the company's profitability and operational budget.

As such, HR practitioners would do well to be familiar with the four (4) basic

compensation principles, namely: internal equity, external competitiveness,affordability, and sustainability.

HR practitioners must also realize that regardless of the size of their organization,no company will just give out anything unless the said rate or benefit are generally

being given out by others in the industry where the company belongs and/ or thesaid rate/ benefit is mandated by law or the union CBA.

Hence, HR practitioners must learn how to do compensation benchmarking and theuse of compensation market data in the industries where they belong.

What is compensation package?



The compensation package comprises of monetary and non ±monetary thatincludes salary and special allowances, house rent allowances travel allowances,mobile allowances ,employee stock options, club membership, accommodations,retirement benefits and other benefits(insurance employee discounts, extendedleaves and retirement programs).

The basic goal of any compensation system

To retain high quality employees To stimulate high performance To attract high quality employees

Total pay = direct (basic pay and incentives) +indirect compensation (benefits)

SALAR Y PACK AGE FOR JU NIOR MANAGER S

DESIGNATIO N

A(BASICSALAR Y)

B(BENEFITS ANDREIMBUR SEMENT)

C(PER FOR MANCE PAY )

D(RETIRALBENEFITS)

E(VALUEDPREQUISITE)

AVER AGE ANNUAL

CTC

MI NIMUM

11655 11774 1000 1959 0 316658

AVERAG

E

20443 19926 5173 3608 1641 609498

MAXIMUM

17616 40507 9779 2961 17420 1059396

y Retention payments

y R etention payments are designed to ensure senior executive continuity

particularly during times of organizational change. For example, a hospital that

is involved in a merger may offer retention bonuses to senior managers to

encourage them to stay with the organization as the merger proceeds to

completion.



y In another common scenario, an organization whose CEO is nearing

retirement may offer retention payments to a small group of senior

executives to encourage them to stay with the organization until a new CEO

is hired.

y The typical retention offer is a cash payment of a predetermined amount or a

percentage of salary payable to executives who remain with the organization

for a specific period of time. The retention package provides a promise of

financial support in return for commitment to the organization, but it does

not obligate the CFO to stay with the organization. He or she still has the

option to leave before the end of the specified term, forgoing the retention

payment.

y The purpose of compensation is not to ³motivate´ the right behaviors from

the wrong people. Compensation should be reasonable because it is part of

human nature to expect fair treatment when it comes to compensation, which

should be somehow proportional to our efforts and/or results. This sense of a

fair deal seems to be genetically anchored. Other primates also respond with

aggression or anger when they feel unfairly treated

Salary Snapshot for Chief Executive Officer (CEO) Jobs

Popular Industries Salary Range

Information Technology (IT) Services Rs 861,739-Rs 5,226,122

Financial Services Rs 1,001,357 - Rs 5,305,421

Logistics Rs 817,617 - Rs 5,105,549

Manufacturing and Distribution Rs 895,699 - Rs 5,323,739

Mechanical Engineering Services Rs 831,775 - Rs 4,789,123



Key Statistics for Chief Executive Officer (CEO) Jobs

Gender

Female5%

Male95%

Years of Experience

Less than 1 year 1%

1-4 years 6%

5-9 years 8%

10-19 years 40%

20 years or more 45%

Most Common Health Benefits

Medical: 71% Dental: 20%

Vision: 16% None: 28%

Some Highlights of Compensation of CEOs in India:

Naveen Jindal is India's highest paid CEO



According to report in The Economic T imes, Jindal has received R s 39.70 crore as

commission, salary and other perks during 2009-10.

Recently, Kishore Biyani of Future group had offered Rs 50 crore (Rs 500 million)

to V Vaidyanathan to shift base to Future Capital Holdings from ICICI Prudential

Life Insurance. This is undoubtedly the highest salary for an Indian non-promoter

CEO.

India's richest business tycoon Mukesh Ambani decided to take a pay cut twoyears ago to take home an annual salary of R s 15 crore (R s 150 million).

CONCLUSION

Decisions concerning compensation issues are some of most critical decisions

faced by organization today, because of their influence on-:

- Organizational survival growth- Employee perceptions of fairness and equity

R emuneration has now become the central issues for attracting and retaining

employees across industries. The compensation within the industry has also

undergone a sea change over the past couple of years due to phenomenal growth in

the entire sector.

Ceo's Compensation Package(Monalisha Anand,Kunal ,Neha)

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