EVA & Compensation Mgnt

8/3/2019 EVA & Compensation Mgnt

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K.C. COLLEGE OF

MANAGEMENT STUDIES



SUBJECT : PERSONNEL MANAGEMENT

Topic : eva & compensation

management

FACULTY : P.M. RAO



INTRODUCTION

COMPENSATION MANAGEMENT

ECONOMIC VALUE ADDED MODEL (EVA)

IDENTIFICATION OF NON-PERFORMERS

PERFORMANCE APPRAISAL

ANNUAL RESULTS OF THE COMPANY

STRATEGIC INITIATIVES



Topics to be discussed

Various compensation management system.

Performance measurement tool.

(EVA and HR accounting)

Factors leading to compensation packages.



Tata Business Excellence

Model



FACTS OF EVA EVA is a registered trademark of Stern Stewart & Co.

It is an estimate of a firm’s economic profit. In simple words EVA is the profit earned by the firm less the cost

of financing the firm’s capital.

The idea is that value is created when the return on the firm's

economic capital employed is greater than the cost of that capital. This amount can be determined by making adjustments to

GAAP accounting.

There are potentially over 160 adjustments that could be made

but in practice only five or seven key ones are made, depending on

the company and the industry it competes in.

One of the first companies in India to look hard at the EVA model

was Tata Consultancy Services (TCS), which did so in early 1999.



FACTS OF COMPENSATION MANAGEMENT Compensation is the remuneration received by an employee in return

for his/her contribution to the organization. Compensation is an integral part of human resource management

which helps in motivating the employees and improving organizational

effectiveness.

It is an organized practice that involves balancing the work-employee

relation by providing monetary and non monetary benefits toemployees.

Compensation does not include only salary but it is the sum total of all

rewards and allowances provided to the employees in return for their

services. If the compensation offered is effectively managed, it

contributes to high organizational productivity. Compensation systems are designed keeping in minds the strategic goals

and business objectives. Compensation system is designed on the basis

of certain factors after analyzing the job work and responsibilities.



Q1)various compensation management

systems in an organization :



Q2) EVA AND COMPENSATION MANAGEMENT AT

TATA CONSULTANCY SERVICES

EVA MODEL IN TCS One of the first companies in India to look hard at the EVA model

was Tata Consultancy Services (TCS), which did so in early 1999.

For TCS, which at that time boasted some 15,000 professionalsworking globally.

Explains S. Mahalingam, Executive Vice President, TCS, thecompany's point man for the EVA exercise: ''We wanted toconstruct a defined incentive system, which would reward on thebasis of profitability. And our individual performance appraisalsystem had to have a much stronger linkage to value creation. Wewanted to focus both on team and individual performance.'‘

One major objective was to make each consultancy practice groupfocus on value-creation and maximizing project profitability evenas it expended efforts to create competencies for the future.

EVA gave TCS a unified framework to identify drivers for value-creation and, more significant, to link the incentive system to theextent of value being created.



The first task was to define clear targets for EVA, not just forrevenues or profits.

The continuous improvement of EVA from one year to the nexthad to be ensured-at both the corporate level and at the business

unit level (there are 100 business units at TCS). Today, all of TCS' consultancy personnel are covered by EVA.

With employee incentives now being linked to EVAenhancement, much of the new initiatives at TCS today isdecentralized. The performance rewards are based not just onindividual performances (as was the case earlier). They are doledout keeping in mind the corporate EVA created, the business unitEVA created and individual performance and value creation hasimproved.

There is a greater appreciation of, and involvement with, theEVA concept at TCS these days.

Verdicts on major capital expenditure invite the curiosity of employees, who are more than interested in knowing the impactthe spend will have on income-generation.

That's a welcome ripple-effect of the EVA exercise: transparency in management.



Definition:

This broad socioeconomic shift underscores a growing need for measuring and analyzing

human capital when making managerial and financial decisions.

Yet important human resource decisions involving hiring, training, compensation,

productivity and other matters are often made in the absence of specific information about

the different costs and benefits of these particular choices.

ferent costs and benefits of these particular choices.

Human resource accounting is a managerial tool that can be used to gain this valuable

information by measuring the costs of recruiting, hiring, compensating and training

employees. It can be used to evaluate employee training programs, increase productivity,

and improve managerial decision-making regarding promotions, transfers, layoffs,

replacement and turnover.

EXAMPLE:

How an insurance company evaluated a training program for claims adjusters and found

that it would return two dollars for every one dollar spent. How a human resources

accounting study revealed that an electronics firm's losses from employee turnoverequalled one year's new income, and how the company initiated a program to reduce

FACTS OF HR ACCOUNTING.:



Q3) FACTORS LEADING TO VARIOUS

COMPENSATION PACKAGES



The exact factors of a compensation package will vary from

one employer to another.

Revenue, Size, Industry, Location and Profitabiilty.

Child care services.

Goods and Services such as Home Textile.

Guarantee for Reimbursement. Education.

Work Experience, Skills and Domain knowledge.

EVA & Compensation Mgnt

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