162868216 Compensation Amp Benefits

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Compensation and BenefitsThe compensation and benefits processes belong to most important HR Processes, which are

critical for the organization and modern HR organization. The compensation and benefits isabout managing the personnel expenses budget, setting the performance standards, setting the

transparent compensation policies and introducing the competitive benefits for emploees. The

organization with effective compensation and benefits drives its personnel costs, manages the

performance of emploees and rewards the extraordinar performance.

Compensation and Benefits Role

The compensation and benefits processes introduce the transparency into

Human Resourcesand rewarding emploees for the achieved performance. The

compensation and benefits provides the managers with the compensation toolsto

build a difference among emploees as the high performance corporate culture can be

built in the organization.

The compensation and benefits department monitors the external !ob mar"et and

optimizes the personnel expenses budget of the organization. The compensation and

benefits defines the compensation strateg, sets the transparent and simple

compensation polic and defines the general rules for the extraordinar paments,

bonus schemes applied in the organization and introduces general other compensation

policies li"e the Relocation Polic, #hort$Term %ssignment Policies, Benefit Car Policies

and other.

Compensation and Benefits Responsibilities

The compensation and benefits department is usuall responsible for

thetransparency in the compensation practicesin the organization and

"eeping the internal fairness of the total cash. The compensation and benefits has to

supervise the development of new compensation components and "eeping the general

rules for the design of the compensation component.

The compensation and benefits department is responsible for the personnel expenses

budget of the organization. The compensation and benefits department sets the

standards for the individual salar increase, the mass salar review and the rules for the


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bonus paout as the organization "eeps the financial stabilit and the planned personnel

expenses budget is "ept.

The compensation and benefits department has special processes to monitor the

external !ob mar"et as it can set the right compensation policy, which iscompliant with the approved compensation strateg. The compensation and benefits

department is responsible for the extensive monitoring of the mar"et and designing the

new compensation components inspired b the HR Best Practices in the compensation

area.

The compensation and benefits department is alwas closel attached to the

development of the new compensation components, which support the

performance and effectivit of the organization. &t co$operates with the different

business units and it aligns their re'uests into the general rules for the compensation

components, which are transparent and fair.

The compensation and benefits designs new ad!ustments to the compensation

strategyand the compensation policyas the organization does not lose its

competitive advantage on the !ob mar"et.

Compensation and Benefits Content

o

Compensation #tratego Compensation #trateg (e Content

o Pa )ar"et #trategic Position #etting

o Compensation Consultants and Compensation #trateg

o Compensation #trateg building Competitive %dvantage

o *h is compensation strateg important+

o Compensation Polic

o xecutive Compensation

o xecutive Compensation Plans

o #alar #urves
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o #ales &ncentives Compensation Plans

Compensation #trategThe compensation strategyis extremel important as the right compensation strateg

helps to build the effective and competitive organization and the wrong setting of the

compensation strateg, which does not fit with the needs of the organization and with the HR

and Business #trategies, can destro the organization within several ears and the organization

suffers from decreased performance and not utilizing the full potential of emploees.

*hat is compensation strateg+

The compensation strategyis derived from the HR #trateg and it defines

theposition of the organization on the job market, the level of the totalcash, the main bonus principles in the organization and rules for the base salar setting.

The compensation strateg is the strateg, which is approved b the Board of the

organization as the owner of the compensation strateg is alwas the top executive

management of the organization. The compensation strateg has a huge impact on the

costs of the organization and that is the main reason for the top management approval.

The rest of managers are the users of the compensation strategy.

The compensation strateg defines the pay market, the organization follows, the

desired position on the pa mar"et and the wa, how the desired level and position on

the pa mar"et will be achieved. The compensation strateg defines the basic

compensation components used in the organization and the standard rules applied to

each compensation component.

The compensation strateg has to be in line with the business and HR #trategies as the

compensation of emploees is aligned with the expectation of the top management from

them. The compensation strateg does not change often as the compensation principles

cannot be changed within few das.

Compensation #trateg and HR #trateg

The compensation strateg is one of the main supporting document for the HR

Strategy. The compensation strateg is closel monitored b the management of the
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organization and the as" for the progress of the implementation of compensation

strateg on the regular basis.

The HR #trateg has to be alwas designed and developed withhaving the respect

to the situation in the compensation areain the organization. The HR

#trateg cannot set the ambition, which is not suitable for the compan.

The HR #trateg alwas defines the basic principles for the compensation scheme in the

organization and the compensation strateg defines the details for the components and

when and how the will be introduced or redesigned.

The compensation strateg should be updated, when Human Resources ma"es

significant changes to the HR #trateg or the organization changes its business strateg.

The compensation strateg has alwas support the business and its selling capabilities.

Compensation #trateg &mportance

The compensation strateg helps the organization to manage the personnel

expensesof the organization and it sets clear limits for the managers and emploees.

&t provides the top management with the certaint, the personnel expenses are under

the control and the costs will not boom.

The compensation strateg gives the certaint to the HR emploees and HR managers

as the can promise the stabilit in the compensation, the stabilit and the manageddevelopment of the compensation components and the can explain the basic role of the

individual compensation components.

The compensation strateg acts as the basic document driving the compensation and

benefits processes and defines clear priorities for the development or redesign of the

compensation components.

Compensation #trateg &mportance for managers

The managers should be alwas informed about the existence of the compensation

strateg and the should "now the implementation plan. The managers should not be

allowed to comment and decide about the strateg as the would tend to ma"e their

lives easier and the would ma"e the personnel expenses of the organization to boom.


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The managers are the users of the compensation polic and the should understand, it is

based on the approved principles from the strateg. The compensation polic can

change on the regular -usuall earl basis, but the strateg is consistent over a longer

period of time and the managers can plan the career of the subordinates.

Compensation #trateg &mportance for emploees

The compensation strateg is not intended to be read b the emploees. The emploees

are the users of the compensation polic and the should not be informed about the

general position of the organization on the pa mar"et and the compensation

components to be used to motivate the emploees.

The emploees can read the compensation polic, which describes the details about

their compensation as the recalculate the salaries, but the should not read about the

strategic compensation components, which help to build the competitive advantage of

the organization.

Compensation #trateg (eContent

The compensation strategyis the underling strateg for the general HR #trateg

and its main role is to support the implementation of the HR #trateg and building the

competitive and effective organization with the high performance corporate culture. The

compensation strateg does not explain the detail of the compensation scheme and the

details of the individual compensation components, but it sets the general guidelines for

the compensation components and sets the priorities to be implemented over the period

of the HR #trateg implementation

The high performance corporate cultureand the high performance Human

Resources organization have to be supported b the compensation strateg, which is

designed to be business driven strateg and with the right compensation tools, which

motivate emploees to go the extra mile and rewarding the real successes.


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)ain Compensation /oals

The compensation strateg has to set the main compensation goalsof the

organization and the have to be "ept as the main target for Human Resources to be

achieved. The compensation goals have to be set in accordance with the business

strateg and the have to visible in the HR #trateg.

The top management and Human Resources have to decide, what the goals are of the

compensation schemes in the organization. The compensation goals should be aligned

with the corporate culture and the general long$term expectations of the emploees,

when the organization does not implement a huge change in the corporate culture.

)ain compensation goal is about the role of the compensation in the organization. ach

organization pa salaries, but the role of the compensation has to be balanced with the

other aspects of the overall motivation scheme applied in the organization. The

organization has to choose to pa higher salaries and offer less development or career

opportunities or it can offer lower salaries and better career opportunities to "eep the

motivation sstem balanced.

*hen the organization defines its basic compensation goals, it can continue with

structuring the main compensation decisions formulated in the compensation strateg.

)ain #trategic Compensation 0ecisions

The compensation strategyallows smooth and efficient operation of other HR

Processes li"e the recruitment and staffing, performance management, proper (P& and

goal setting process, performance appraisals. %s the other HR Processes can run

smoothl and the are not bloc"ed b the wrongl set compensation strateg, the main

compensation decisions have to be included in the compensation strateg and the top

management and Human Resources have to be aligned in the understanding to the

main compensation decisions.

Role of Compensation in Human Resources

The compensation is a part of the complex HR processes, policies and procedures. The

top management and Human Resources have to decide, what will be the primar role of

compensation in the organization. #ome organizations prefer the supplementar role of


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the compensation and other organizations prefer the dominant role of the

compensation.

This compensation decision is extremel important as it sets the general framewor" for

the compensation components, if the will exist in the organization or the will be thepart of the other HR polic.

The compensation strateg has definitel include the description of the role of the

compensation in the organization.

Competitiveness

The competitiveness of the compensation is another important compensation decision.

The organization can decide to be aggressive with the compensation strateg and it can

set the aggressive position on the pa mar"et, but this strateg is extremel expensive

for the organization and it has to balance it with high margin on the products and

services.

1n the other hand, the organization can choose to offer the career and development

opportunities, it can increase the responsibilities of the individual emploees and it can

balance aim to the lower level of the compensation on the pa mar"et.

The decision about the competitiveness of the compensation strateg is extremel

important as it has a huge impact on the costs of the organization and it re'uests the

right setting of other HR Processes.

&nternal #tructures

The organization does not have to follow the same pa mar"et and the same level for all

the !ob positions. &t is extremel important compensation decision to be included in the

compensation strateg.

The organization can decide about ma"ing huge pa differences across different units or

it can decide about the different pa level for the experts and managers as it protects the

"now how.


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%dministration

The administration is a tough compensation decision in the compensation strateg as it

sets the roles and responsibilities of Human Resources, managers, top managers in the

compensation processes.

The organization can decide about preferring the decentralized compensation model,

when the manager decides most issues and pa increases, but Human Resources is in a

danger of not "eeping the total personnel expenses budget.

&n the centralized compensation strateg, the HR )anagers are the main decision

ma"ers and the emploees and managers do not feel the comfort of the free decision.

Pa )ar"et #trategic Position#etting

The right position on the pay marketis a "e to successful compensation and

benefits function in the organization. #etting the right position enables other HR

Processes with value added to wor" and it supports the recruitment, staffing, retention

and talent management. The right position on the pa mar"et allows the organization to

allocate the personnel costs efficientl and to "eep the organization competitive.

*hen the organization sets the strategic position on the pay market, it has to

evaluate several basic 'uestions, which help to set the target position correctl. The

decision is not formal as it forms other compensation and benefits processes, has a huge

impact on the allocation of the personnel costs and limits the potential for 'uic" changes

in the compensation schemes used in the organization.

The main 'uestions to be answered are2

1. What do we want to achieve by setting the strategic position on the paymarket?

2. Who are my competitors?

3. What reactions will we see to follow from the competitors?

. How many strategic positions do we need?


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!. What are the costs of the setting the strategic position on the pay market?

*h to set the strategic position on the pa

mar"et+

The modern organizations and modern and effective Human Resources )anagement

are based on setting the competitive advantages. The right and efficient compensation

strateg is a definitel the competitive advantage and it cannot wor" without the

strategic position on the pa mar"et.

The modern organizations are based on the talent management, offering the career

opportunities and having other HR Processes to prolong the length of emploment of

the "e emploees and "e !ob positions. The strategic positioning on the pa mar"etallows the other processes to function properl and "eeps the organization health.

The recruitment strateg cannot wor" without the ade'uate compensation strateg as it

can easil miss the goals. The compan can target the best potentials on the !ob mar"et,

but the salar offered has to be ade'uate to the 'ualities of the candidates.

(nowing our competitors on the pa mar"et

The organization alwas "nows its competitors in products and services. But the

organization has to "now and understand the competitors in Human Resources as well.

The can be different. But emploees can see the competition on the !ob mar"et

differentl.

(nowing the competitors on the !ob mar"et is extremel important for Human

Resources. HR Recruiters have to analze, which companies are sourcing the

organization and the HR 3ront 1ffice has to monitor, what companies hire new

emploees from the organization.

The compensation strateg has to be set as the organization can compete with the

competitors on the pa mar"et and the compensation strateg has to be inspired b

their compensation strategies. The emploees from the competitors wor"ing for the

organization are usuall open to help and the can provide the excellent information,

which can save man discussions in determining the right compensation strateg.


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Predicting the reaction of the competitors

&t is extremel important to have several scenarios describing the reactions of the

competitors. *hen ou are the mar"et ma"er and ou change our compensation

strateg, ou can expect all the competitors will react and ou can start costl war on the

!ob mar"et. *hen ou are a niche plaer and ou hire several emploees per ear from

our competitors, the will not react.

&n case, ou hire !ust the experts, ou can expect, the initiatives to protect the experts

and "e emploees will evolve at our competitors and the price of hiring the expert

from the competitor will rise.

1ne or more pa mar"et strategic positions

Human Resources has to decide, whether it will use !ustone strategic pay

market positionfor the whole organization or it will identif groups of specific !ob

positions, which will be evaluated and positioned on the pa mar"et differentl.

The general pa mar"et position is simple, it is eas to explain, the organization uses

!ust one, but the organization loses the flexibilit in the setting of the compensation

strateg and this can lead to man exceptions in the compensation polic as the "e

groups of emploees are not protected b the compensation polic in general and themanagers will as" for the increased protection b using the exceptions.

The general pa mar"et position can be more expensive than more pa mar"et positions

as the sstem tends to set the sstem to protect the "e emploees and the "e !ob

positions and the rest of the populations benefits from it.

The costs of setting the strategic pa mar"et

position

)one is driving the compensation strategy. ach proposal for setting the

strategic pa mar"et position has to be carefull calculated, analzed and Human

Resources has to prepare the predictions and forecasts of the future development.


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#etting the strategic pa mar"et position without the proper analsis and calculation is

!ust a hazard with the future of Human Resources in the organization as the top

management can be amazed, how expensive the strategic pa mar"et position is.

Compensation Consultantsand Compensation #trateg

The compensation strategy design and developmentis too difficult to

accomplish purel internall. The compensation and benefits team is usuall as"ed for

the external benchmar"s and the common practice on the mar"et and

thecompensation consultantscan be a huge help, when the HR team is able to

manage their deliverables.

The compensation consultants are expensive and HR has to have a clear goal for the

compensation consultant to be achieved. The compensation consultant is alwas able to

bring the creative and innovative compensation solution, when the goal is

not given. The organization has to pa for the services, which are not utilized. *ith the

clear goal, the compensation consultant has a clear navigation tool and forces the effort

to reach the defined vision.

Compensation Consultants Benefits or 4alue%dded

The compensation consultants bring the huge external "now how in the compensation

and benefits area, the previous experience and the experience with different solutions of

the issues in the compensation schemes.

The compensation consultant should provide the advice on the strategic position of the

compensation strateg on the pa mar"et and to provide the information about the bestpractices in the compensation and benefits area. The compensation consultant should

never decide about the final compensation strateg, but can provide the useful feedbac"

and advice in the process of designing the compensation strateg.


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The excellent compensation consultant alwas as"s the clients about the feedbac" and

how the solutions wor" in practice to have the experience to build on. The compensation

consultant can see a new creative solution in one compan, which can help to build the

HR competitive advantage in another organization. The compensation consultant can

help to design the state-of-the-art compensation strategyand can save huge

costs to the organization in the future.

How to use Compensation Consultants

The organization should invite the external compensation consultant at the right

moment. The organization cannot leave the compensation consultant to set the whole

compensation strateg. The organization has to set the clear goals for the compensation

consultant and it should use the deliverables of the compensation consultant in the

following decision process.

*ithout strict goals, the organization cannot manage the compensation consultant and

it cannot use the best "now how of the compensation consultant. The consultant has a

deep "nowledge of the compensation pa mar"et and has "now how about the

compensation best practices and these should be used for building the competitive

advantage, but the organization has to "eep the final decision about the design of the

compensation strateg.

Compensation Consultants 0eliverables

The organization has to define the deliverables, which support the organization in its

decision process. The deliverable of the compensation consultant can be easil the

content of the discussions with the executive top management as the consultant has a

broad "nowledge of the pa mar"et and the top executives li"es the discussions about

the general mar"et and the best pa practices in the industr.

The common deliverables of the compensation consultant are about the comparison ofthe proposal from Human Resources with the best practices available and the

comparison with the real pa data. The consultant usuall has the access to the detailed

salar data and is able to ma"e a comparison and to point out the "e components and

"e !obs to be included in the compensation strateg as the !obs building the competitive

advantage.


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Compensation #trategbuilding Competitive%dvantage

The competitive advantageis a necessar component for the modern

organization. The competitive advantage has to be in products, services, internal and

external processes and in Human Resources )anagement. The emploees are the assets

of the organization and the competitive advantage in Human Resources Policies can

generate a huge impact into the net profits and overall performance and profitabilit of

the organization. The competitive advantage in compensationarea usuall

generates a huge portion of the overall competitive advantage in HR )anagement.

*hat is competitive advantage in compensation+

The competitive advantage in the compensation areais not about beating

the pa mar"et b paing higher salaries and bonuses to all emploees. The managers

tend to thin", the better the pa of emploees, the more competitive the organization is.

&t is not true, the organization has to carr the higher personnel expenses and during thecrisis or the recession, it can be a huge competitive disadvantage in the compensation

and the compensation strateg has to be redesigned 'uic"l as the organization can

continue in its operation and it has a destroing influence on the overall emploee

satisfaction.

The competitive advantage can be built b using two general approaches2

1. "eneral competitive position on the pay market2. #ompetitive pay market position for key $ob positions

/eneral competitive position on the pa mar"et

#etting the higher position than the medianon the pa mar"et is 'uite

common competitive advantage setting in smaller companies, who have to fight for the

best talents with the big organizations in the same industr.


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&t is 'uite dangerous to set the pa mar"et position too high as the organization has to

carr the increased costs and eats more from the margins on the products and services.

The organization cannot ma"e 'uic" changes and the recession can be deadl dangerous

for the organization as it carries higher costs to "eep the processes operating and

functional. The competitors have a better and bigger space to decrease the personnel

costs in bad times.

The higher competitive position on the pa mar"et can be used in the time, the

organization grows dramaticall and it needs the best talents from the !ob mar"et and

there is no time to decide about the "e !ob positions in the organization and all

emploees are treated to be of the same importance.

(eeping the long term higher pa mar"et position is suitable !ust for the companies in

the modern industries, with high margins and the companies with the excellent brand

name being "nown for emploing the best of the best.

Competitive advance through strategic pa mar"et

position for "e !ob positions

The competitive advantage in compensation can be set !ust for the key job

positionsin the organization. This solution is cheaper as the rest of the population

can be "ept in line with the median of the pa mar"et or it can be below the median asthe whole organization "eeps the median in general. But, the organization has to be able

to reach the consensus about the "e !ob positions in the organization.

#etting the "e !ob positions is the painful procedure for Human Resources getting the

consensus from the top management is a bit mission impossible, but HR has to

accomplish this procedure successfull as the "e !ob positions are identified and

Human Resources can set the right compensation strateg for the "e !ob positions.

The differentiation in the compensation strateg and setting the different pa level forthe "e !ob positions is 'uite usual for the larger organizations as the save the

personnel expenses and the are able to protect the "e emploees. &t does not protect

the "e emploees automaticall, but it support the managers and other HR Processes

as the emploees feel prett satisfied with their salaries.


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The competitive advantage for the "e !ob positions is usuall the best pa strateg for

the mature organizations, which does not grow aggressivel and are purel focused on

the product innovations. The "e emploees bring the innovations and the rest is paid

fair enough for their !ob content.

*h is compensation strategimportant+

The current competitive conditions in the business world ma"e it difficult to ac'uire and

retain the top talents. 1nce the organization is able to identif, it can be unable to offer

the right pa and to manage the pa increases to retain top talents.

The compensation strategyis the extremel important piece of the overall HR

#trateg to "eep the compan competitive and successful. 1n the other hand, the

compensation strateg is important to "eep the personnel budget under the control and

to manage the !obs in the right salar -pa brac"ets.

The compensation strateg differentiates the organization on the !ob mar"et and builds

the attractiveness of the company for the top talents. The love to be

hired b the attractive organization, the do not li"e to be hired b the average compan

offering the same conditions as an other average organization in the industr.

Competitive %dvantage and Compensation

#trateg

Toda, the products are similar. &t is difficult to distinguish the cars from different car

ma"ers. The emploees are in the same situation as the consumers. The have the

problem to distinguish the employersand the are not able to recognize the

excellent organization, when it is not different from the rest. The competitive advantage

is the essential part of the mix for the success. The organization has to present itself

differentl, not !ust b the presentation, but it should differentiate itself b the different

approach toward its emploees. The compensation strateg is one of the most successful

differentiators.

The excellent compensation strateg does not !ust differentiate the organization from

the other organizations on the !ob mar"et, it brings the differentiation into the


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organizationas well as the successful emploees and top talents feel the success in

their poc"ets.

The effective compensation strateg ma"es people feel the success and the spea" about

their successes with their friends. &t build the extremel excellent competitive advantage

among the competitors as the people feel, the organization reall values the success and

it can pa the successful emploees.

The effective compensation strateg manages the personnel expenses of the

organization, but it supports the performance management and differentiates the

emploees as the successful ones are not motivated to search for a new !ob opportunit.

The good compensation strateg does not provo"e emploees to search the web !ob

boards during the wor"ing hours, it ma"es them to focus on delivering the results as

the can be highlighted and the feel the highlight in their salaries.

The successful compensation strateg gains the competitive advantage and can speed up

the innovation processes and improve the performance management practices in the

organization.

3or what HR Processes is Compensation #trateg

important+

The compensation strateg is not important !ust for the competitive advantage, but it

supports the other HR Processes and helps them to become highl efficient HR

Processes and being on the top in the industr -when measured and benchmar"ed.

The compensation strateg has a strong influence on the performance of the whole

Human Resources, which is a good vehicle to manage the performance of Human

Resources, but has to be managed carefull as it does not destro the performance of the

whole organization. #mart compensation strateg supports the HR Processes and helps

to bring the top talents from the !ob mar"et to the organization and helps to retain the

best talents in the organization as the do not feel the need to find a new !ob opportunit

elsewhere.


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Recruitment and Compensation #trateg

The effective Recruitment and #taffing cannot exist without the effective Compensation

#trateg. The recruitment can be based on the excellent HR Marketing Policies,

but the HR Recruiters have to be able to offer the competitive salar pac"ages, which are

competitive externall and full aligned with the policies and the compensation strateg

internall. The recruitment of the best top talents from the !ob mar"et cannot be based

on exceptions from the compensation polic.

The recruitment and staffing processes have to be supported and bac"ed b the excellent

compensation strateg as the HR Recruiters can offer the competitive conditions to the

right talents from the !ob mar"et and the are able to identif the "e !ob positions,

where the compensation strateg allows to be more aggressive against the pa mar"et.

The !ob candidates are extremel sensitive to the salar pac"age offered in the 5ob 1ffer

letter and the compensation and benefits department should measure the number of

failures in the !ob offer acceptations. &t is the extremel important sign of the wrongl

set compensation strateg, when the !ob candidates do not accept the !ob offers made b

the organization.

)otivation and Compensation #trateg

The salaries or bonuses are extremel important for the motivation of emploees and

managers. /enerall, the motivation is not about the compensations, but the

compensation should support the general motivation framewor" in the organization.

ven the best managers in the world are not able to "eep highl motivated teams, when

the compensation strateg is not in line with the !ob mar"et. The emploees usuall

"now the common levels of salaries in the industr and when the organization is below

the median or the average, it has to compensate the difference in other area. But, when

the difference is too high, the compensation b a different motivation tool does not wor"

and the emploees start to feel demotivated as the receive no e'ual value for their

effort.


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Talent 0evelopment and Compensation #trateg

The compensation strateg provides the key support to the talent

management processesin the organization. The talents have to be clearl

supported b the compensation strateg as the talents usuall expect higher salar

increases than the average emploees and the compensation strateg has to allow the

limited freedom to managers to do so.

The successful top talents management cannot survive without the ade'uate support

from the compensation and benefits side. The talents have to feel the different approach

of the organization and the compensation is extremel important in this. The top talents

cannot live on the promises for a long time. The have to see the real improvements and

advances. The deliver, the expect the organization the same.

The compensation specialists have to co$operate closel with the career advisors and

career development specialist to introduce the right mix of the career opportunities and

the compensation strategies for the top talents.

Compensation PolicThe compensation policyis the basic document, which drives the detail of the

compensation practices in the organization. %s the compensation strateg sets the highlevel compensation goals of the organization, the compensation polic describes the

details of the individual compensation components, their behavior and their role in the

compensation scheme of the organization.

*hat is the compensation polic+

The compensation policydescribes the details of the compensation

componentsin the organization, how the are used and the conditions for the

emploees as the compensation component can be applied in their specific situation.

ach organization uses man compensation components and the have to be described.

The compensation polic provides the basic explanation of the compensation

component, how it is calculated, who is eligible for the usage and the approval

procedure.


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The compensation polic belongs to most read and discussed internal policiesof the

organization as it drives the salaries of the individual emploees. ach emploee is

interested in the structure of the salar and the potential total cash achievable in the

organization. The compensation polic is the main tool to find out the details about the

compensation components and the wa, how to achieve the highest total cash.

The compensation polic drives the effort and performance of emploees as the

emploees will find the smart and easiest wa how to achieve the highest possible

income with the smallest possible individual performance. The compensation polic has

to be set the smart wa as it avoids the potential wor"$around and abuse.

*hat is important in the compensation polic+

The compensation polic has to be transparentand it has to provide !ust the onl

wa of the interpretation. &t is extremel important, the emploees and managers are

not unsure about the compensation component and the understand clearl, what

conditions are applied for the approval of the specific compensation component.

The transparent compensation polic supports the high performance corporate culture

organization as the emploees understand, what behavior and performance levels are

expected to be eligible for the specific compensation component and it drives the

behavior and performance specificall the right wa for the organization.

The polic has to cover all the compensation components, which are used in the

organization and affects large populations. The exceptional managerial component tools

can be referenced from the general compensation polic, but the should not sta

hidden. The emploees cannot trust the compensation polic, which does not mention

all the compensation components.

xecutive CompensationThe top executive compensationis a special and specific area of compensation

and benefits, which is usuall confidential and it is not open to all emploees in the

organization. The top executives hold the responsibilit for the organization, the lead

the development of the organization and the have a tremendous impact on the results

of the organization. The compensation scheme of top executiveshas to


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reflect the responsibilit and it has to provide the securit to the top executives to use

the personal responsibilit and to ta"e courageous decisions.

The executive payis about the focus on the short$term performance and the long$

term sustainabilit of the organizational development. The top executives are motivated

to search for the cost$cutting potential and focusing on the sales and performance

growth in the long$term perspective as the shareholders can realize the benefits of being

involved in the organization.

xecutive Compensation Principles

The executive pa has to reflect the role of the executive top management in the

organization. The executive management drives the development of the organization

and the executive compensation has to be aligned.

The executive compensation changed dramaticall over the last two ears as the

financial crisis showed several issues with the executive pa, which was too focused on

the growth of the organization while ignoring the sustainabilit of the organization.

The executive compensationconsists usuall from two main parts2

o Short %erm &ay

o 'ong %erm &ay

The short term pa of the executives is about the base salar and short term bonuses,

which are paid on the basis of the immediate performance of the organization. The

bonuses are usuall deferred over a period of time. The short term pa is usuall full

cash based executive compensation component.

The long term pa is about the stoc" options, shares, restricted stoc"s and pa based on

the performance against the index. The shareholders use these long term compensation

components to protect the value of the organization and betting of the top executives on

the growing value of the organization on the mar"et. The long term compensation

components can be realized !ust in case, the stoc" price of the organization grows. The

long term pa component is usuall non$cash based.


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&n the modern organizations the short term pa is !ust a small part of the total cash of

the top executives.

xecutive Compensation Ris"s

The executive compensation is sensitive to the right setting as the short term and long

term components of the pa have to be in balance as the organization does not suffer

from the imbalances in the managerial decisions. The organization should alwas focus

to balance the short term remuneration -which is valued more with the potential to get

more in the future. &t is alwas difficult to find the right balance and the shareholders

have to be in the agreement with the top management.

xcessive compensation

The excessive compensationis alwas more the issue of trust and confidence of

emploees and shareholders. The executive compensation scheme has to include the

holdbac"s and claw$bac"s and safet bra"es for the case, the organization outperforms

hugel the mar"et. ach executive compensation scheme needs caps and floor as it is

manageable in all situations, which can happen on the mar"et

xecutive CompensationPlans

Top management needs an outstanding compensation plan. The executive

management is responsible for the deliver of the business results to shareholders. The

represent the compan to the outside world. The handle the strategic initiatives. The

are in a ris" position. Their !ob contract can be cancelled within minutes. The want

the protection. The executive compensation planhas a highl motivating

component, and it guarantees the income protection in case of the !ob cancellation.


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xecutive Compensation Plan Principles

The shareholders bu the shares of the compan to "eep the value of mone. The

expect even more. The expect to earn the extra from the increased value of shares. The

top management is paid for the constant increases in the valuation of the company.

&t is an absolute rule of the business.

The shareholders define the executive compensation plan. The usuall

cooperate with the C1, who engages Human Resources in the process of designing the

executive compensation. The shareholders define targets6 shareholders expect the

executive management to reach targets.

The executive managers are not paid for developing the warm and friendl environment

in the organization. The are not paid for the smpathetic and people oriented corporate

culture, when it does not bring benefits of increased profits for shareholders. The

compan exists to ma"e profits, it does not exist to emplo satisfied emploees.

The principles of the executive compensation are2

o #lear foc(s on profits generation

o 'ong)term orientation of the compensation scheme

o *otivation of manager by high bon(ses

o +on)cash foc(s of the compensation ,stock options- shares- share phantom

schemes

o Risk *anagement

o /alanced Scorecard implemented into the #ompensation Scheme

The executive compensation scheme has to support goals given b shareholders. The

executives ta"e ris"s of failing. The have to be over$compensated for meeting goals.

The should receive an enormous extra bonus for exceeding the expectations -goals

given b shareholders. The balance in the compensation has to be in favor of exceeding

goals.

The HR Professionals have to support the C1 in setting the executive compensation

scheme, which support the top management in pushing the organization. The top


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managers have to ma"e tough decisions. The have to be compensated for overcoming

the stress, the pressure of the line management and emploees7 complaints about

constant changes in the business operation.

Human Resources has to understand the main business goals. HR has to help in settingthe executive compensation and alignment with the performance based compensation

for the rest of the organization.

#alar #urvesThe salary surveysare extremel powerful compensation and benefits

benchmarking tool. The are important for the setting right compensation strateg

and for following and monitoring the desired pa mar"et. The salar surve is providedb the external compensation consultant, who gather the compensation information and

salar details about the individuals, match the information and provides feedbac" about

the pa mar"et and pa structures bac" to the participating organizations.

The salar surves are alwas based on the proper job evaluation

methodology, which is standardized across the industr as the compensation

consultantcan compare the !obs with the same !ob size as the !ob titles are not the

suitable for the salar comparisons. The compan has to choose the right and suitable!ob evaluation methodolog and this "now how is usuall provided b the compensation

consultants for free.

#alar #urves Benefits

The salar surve measures the competitiveness of the organizationon the

pa mar"et and provides the benchmar" information about the salaries on the general

pa mar"et and the specific industr pa mar"ets, when the organization operates on

several pa mar"ets.The salar surve helps to set the internal compensation policyand to set the

right optimal salaries for each !ob and to "eep the desired position on the pa mar"et as

defined b the compensation strateg.

The salar surves provide the information about the average salar review percentage

and the allocation of the growth of the salaries into specific !ob positions across the


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participating organizations. The salar surve can act as a tool to identif the "e !ob

positions in the organization as the competitors can protect the "e !ob positions and it

is usuall visible in the salar surves.

The salar surves provide the information about the new trends in the compensationand benefits area and man surves bring the additional information li"e the average

number of emploees per manager, the average length of service for the compan, the

number of promotions and man other.

*hat is important to "now about #alar #urves+

The participation in salar surves is a difficult decision as the organization has to

choose the right compensation consultant. The salar surve needs a standardizedapproach to the !ob position creation and the !ob position evaluations as the results of

the salar surve are credible and useful.

Human Resources has to have a clear plan for the usage of thesalary survey

resultsand the presentation including the action plan has to be prepared for the top

management.

The salar surve is about strictl confidential data and the compensation consultant

has to be widel recognized for the data privac practices and has to present the large

population of the participating organizations in the salar surve.

How to participate in #alar #urves+

The organization has to select the right compensation consultant, who brings the

methodolog for the !ob evaluation and determining the !ob size. The organization has

to evaluate all !ob positions and prepare the salar data in the predefined structure as

the compensation consultant compares the right data.

The good compensation consultant will prepare a detailed implementation plan and will

act as the pro!ect manager for the first initial salar surve and will provide the help,

when Human Resources prepares the salar surve results presentation.


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#ales &ncentivesCompensation Plans

8o business compan can survive without the sales. The sales brings the blood of the

organization. The organization needs the sales to grow and to successfull compete with

other organizations on the mar"et. The sales incentives compensation

plansare the compensation tools to support and motivate the sales function to

compete and to increase the sales volumes of the organization.

The art of #ales &ncentives Compensation Plans

The sales incentives compensation plancan reall motivate the salesman to

sell more products and services. 1r, the can easil destro the compan, when the

design of the sales incentive plan is not good and it does not support the business goals.

The sales incentive plans should be alwas focused on increasing the

profitability of the company or gaining the additional market share.

That is the theor behind the sales incentives plans. %s the incentive plans are usuall

introduced purel b the business function, the fail and the do not support the goals of

the organization, the !ust allow the emploees to earn more.

The art of developing the sales incentives plans ta"es several ears of learning and

measuring the results achieved. The senior manager of the #ales function usuall "nows,

what has to be achieved, but does not "now, how to achieve that b using the incentive

plans, which are cost$efficient and not hurting the future of the organization.

The sales incentive plan has to be fair to the whole organization. The emploees in the

Bac" 1ffice and the support functions should not feel the internal unfairness. The

understand, that the sales representatives have to be motivated b the additional

compensation component, but it should be aligned with the overall compensation

scheme and the compensation strateg applied in the whole organization.


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#ales &ncentives 0evelopment

The development of the sales incentive schemehas to be ajoint

initiative of Human Resources and the business function. HR has to

define the general principles, which have to be applied in each incentive scheme as it

follows the compensation strateg and does not brea" the internal e'uit in the

organization.

The effective sales incentive plan does not evolve on its own. The development process is

creative and full of the conflicts between HR and the business. The good incentive plan

is alwas tested on several emploees to see the real results from the field as the !oint

team can do the ad!ustments into the incentive scheme and can ma"e it more realistic.

The sales incentive scheme can be developed in the co$operation with the external

compensation consultant and it is recommended for the first incentive scheme in the

organization, but the compensation consultants should not be invited later in the

process as the can set a generic incentive scheme, which does not full support the

goals of the organization. The organization should develop its internal "now$how for the

development of the incentive schemes.

Documents

162868216 Compensation Amp Benefits