A

PROJECT REPORT

ON

“COMPENSATION MANAGEMENT”

IN PARTIAL FULFILLMENT FOR

MASTER OF MANAGEMENT STUDIES

SUBMITTED BY

MISS. ASHWINI SUBHASH CHAVAN

OF

MMS (HUMAN RESOURCE)

UNDER THE GUIDENCE OF

PROF. DIVYESH NAGARKAR

THROUGH

MADANBHAI SURA INSTITUTE OF BUSINESS MANAGEMENT, KHED

BATCH (2018-2020)

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 Certificates

This is to certify that miss Ashwini Subhash Chavan has submitted the project report, titled
“Compensation Management” as completed as per the requirement’s the two years full time
masters of management studies (MMS)course of Mumbai university for IV semester of the
academic year 2019-2020.

Date

Place

Prof. Divyesh Nagarkar Dr Prasad Bhanage

Project guide Director

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 ACKNOWLEDGMENT
It is my greatest pleasures to acknowledge sincere gratitude towards Prof. Divyesh Nagarkar
for their valuable advice, co-operation and support in completion of my project. I am
thankful to him for helping me to make this project. Finally, I would like to thank all lectures,
friends and my family for their kind Support and to all who have directly or indirectly
helped me in preparing this project Report. And at last I am thankful to all divine light and
my parents, who kept my Motivation and zest for knowledge always high through the tides
of time.

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 INDEX

Sr. No Table of contents Page

1. Executive summary 6

2. Introduction 8

3. Company profile 9

4. Objective of study 12

5. Scope of study 13

6. Literature of review 15

7. Research methodology 31

8. Data analysis and interpretation 43

9. Summary and findings 65

10 Conclusion 66

11. Bibliography 67

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 Declaration
I miss ASHWINI SUBHASH CHAVAN of MMS Sem IV at Vishwakarma Sahajeevan
Madanbhai Sura institute of business management Khed, hereby declare that I have
completed my summer internship project entitled “COMPENSATION MANAGEMENT”, as
partial fulfilment of the recruitment of the course curriculum of the academic year 2018-
2020. The data collected and the work done by me is truly authentic and is it not borrowed or
copied from any dissertation report. The project contains true and complete information

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 EXECUTIVE SUMMARY
Compensation Management is an organized practice that involves balancing the work-
employee relation by providing monetary and non-monetary benefits to employees.
Compensation includes payments such as bonuses, profit sharing, overtime pay, recognition
rewards and sales commission. The compensation strategy is the extremely important piece
of the overall HR Strategy to keep the company competitive and successful. On the other
hand, the compensation strategy is important to keep the personnel budget under the control
and to manage the jobs in the right salary (pay) brackets. The salaries or bonuses are
extremely important for the motivation of employees and managers. Generally, the
motivation is not about the compensations, but the compensation should support the general
motivation framework in the organization. Even the best managers in the world are not able
to keep highly motivated teams, when the compensation strategy is not in line with the job
market. The employees usually know the common levels of salaries in the industry 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 by a different motivation
tool does not work and the employees start to feel demotivated as they receive no equal value
for their effort. Blue Flower (Pvt.) Ltd is a well-established high quality artificial flower
manufacturing company to the local and international markets for eight years, situated in the
moneragala district with the 350 work force. The vision of it’sto be a leading manufacturer of
world class quality artificial flowers in south Asia by year 2015. In this case study I’m going
to identify the issues which are the blue flower company failed in management while they
were going to achieve the target of 40% productivity in the last year with the solutions I
suggested to the company.

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 Abstracts

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. An ideal compensation management
system will help you significantly boost the performance of your employees and create a
more engaged workforce that’s willing to go the extra mile for your organization. Such a
system should be well-defined and uniform and should apply to all levels of the organization
as a general system... Plus you’ll enjoy clearer visibility into individual employee
performance when it comes time to make critical compensation planning decisions. With
effective compensation management you’ll also enjoy clearer visibility into individual
employee performance when it comes time to make critical compensation planning decisions.
These performance appraisals assist in determining compensation and benefits, but they are
also instrumental in identifying ways to help individuals improve their current positions and
prepare for future opportunities. Human Resource is the most vital resource for any
organization. It is responsible for each and every decision taken, each and every work done
and each and every result. Employees should be managed properly and motivated by
providing best remuneration and compensation as per the industry standards. The lucrative
compensation will also serve the need for attracting and retaining the best employees.

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 Introduction

Human resource is the most vital resource of an organization as it handles all the physical
resources therein and takes the responsibility of decision making, work done and achievement
of results etc. so to carry on these heavy responsibilities, employee should be motivated by
providing the best remuneration and compensation package as per the industry standards.
Lucrative compensation is a means of attracting and retaining the best talent in an
organization. Compensation is an integral part of human resource management. It is the
remuneration received by an employee in return to his or her contribution for the
organization. A good compensation system evolves a balanced work-employee relationship
by providing monetary benefits to the employee. In this way, it acts as a motivating factor to
the employee and increases the organizational effectiveness. The remuneration provided by
any organization to its employee in return to its contribution to the organization is known as
compensation. Compensation is the key drive to improve the effectiveness of any
organization by improving the efficiency of employee.

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 Company profile:-

(Nestle food processing company)

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 Mission:-
Nestle is not only Switzerland’s largest industrial company, but it is also the World’s Largest
Food Company. The mission statement emphasizes on the fact that Nestle products are
available in nearly every country around the world. Wherever one may live, only Nestle can
provide the best and most reliable food and beverage products to meet his/her needs
throughout the day, throughout the life. Especially, people on the move want to be able to
find good food wherever they are, whatever the time of day. They are often reassured that
they will find well-known brands out of home. This statement also reflects the image of high-
quality products that Nestle offers. Nestle has the advantage that it offers caterers, fast food
chains, and other restaurants a complete range of high-quality ingredients, base products, and
meal components, as well as leading consumer brands such as Nescafe. Quality is the
cornerstone of the success of the Nestle Company. Every day, millions of people all over the
world show their trust in the company by choosing Nestle products. This trust comes from a
quality image that has been built up for over a century. Therefore, the quality of the products
ultimately enhances the quality of the consumer’s life. In addition, the mission statement
declares that Nestle has the ability to anticipate “…consumer’s needs and create solution.

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 Vision:-
Nestlé aim is to meet the various needs of the consumer every day by marketing and selling
food of a consistently high quality. The confidences that consumers have in our brands is a
result of our company’s many years of knowledge in marketing, research, and development,
as well as continuity – consumers relate to this and feel they can trust our products”.

• Lead a dynamic, motivated and professional workforce – proud of our heritage and
positive about the future.
• Meet the nutrition needs of consumers of all ages – from infancy to old age, from
nutrition to pleasure, through an innovative portfolio of branded food and beverage
products of the highest quality.
• Deliver shareholder value through profitable long term growth, while continuing to
play a significant and responsible role in the social, economic, and environmental
sectors of Pakistan.

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 Objectives of the study:-
This project attempts to understand the objectives:-

• To understand in details the concept of compensation management

atdifferentlevel of employee.
• "To understand the impact of compensation management on performance
level.
• A comparative study of the compensation management strategies
followed indifferent sectors in India.

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 ❖ Scope of the Study:-

Compensation defined Compensation represents both the intrinsic and extrinsic rewards
employees receive for performing their jobs .Intrinsic Compensation reflects the employee’s
psychological mind-set that result from performing their jobs. Extrinsic compensation
includes both monetary and nonmonetary rewards. (Martocchio, 2006, pg.3)Organizational
development professionals promote intrinsic compensation thorugh effective job design.
According to job characteristics theory: employee’s experirnce enhanced psychological states
when their jobs rate high in this five core job dimensions.

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 ❖ Limitations of the study:-

❖ Sometimes, parties (employers and employees) disagree over intentional or

unintentional noncompliance with certain legally binding policies governing
employee benefits.

• Breaching specific policies and failing to pay retentions attract legal fees, which need
to be paid up to escape trouble with the law. However, that, in itself, becomes a
problem for some organizations and their employees.
• Sometimes, employees will consider health benefit plans too expensive because, at the
end of the day, their employer may deduct more money than they're paid as health
benefit.
• Bigger businesses, which are duty-bound to pay a portion of their employee's benefits,
spend more on employee benefits than smaller businesses because of the size of their
workforce.
• When there's a need to establish additional departments in an organization to ensure
an efficient management, there'll also be a required increase in employees, which will
lead to an increase in employee-benefit-related expenses.
• Employee bonuses can potentially become disadvantageous because they can induce
employee rivalry rather than encourage employee teamwork. For example, if a
business rewards employees with bonuses based on hourly work for the year,
employees will be unlikely to share work with their colleagues, which can result in
inefficiency because some employees would want to take on more work than they can
qualitatively handle while others are left with too little work to do.

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 ❖ Literature of review:-
Introduction:-
Compensation management is an integral part of the management of the organization. It
contributes to the overall success of the organization in several way. Compensation management,
also known as wage and salary administration, remuneration management or reward
management, is concerned with designing andimpl ementing total compensation package for
the employees. In the present era where high employee turnover and low retention rate turn
into big gestnightmare for the entrepreneurs, a sound compensation policyfor the organization
plays a great role in case of providing relief to them. Concepts like performance
based pay system, knowledge-based pay system, market-based pay system are introduced by
the employers to pay the employees in different format. Apart from this various offers like
commission, profit-sharing, health insurance schemes are also provided in order to attract employees.
Some organizations also prepare separate set of executive compensation policy for their top
level executives, so that they can attract and hire them in this time of cut throat competition.
Various components of compensation such as wage/salary, incentives, benefits, perquisites
are properly taken into consideration by the organization while designing the compensation
policy for the employees. The sole objective behind this is to make the employees satisfied in
terms of compensation, which is the major role player in influencing
their professional and personal life. Because it is money, which motivates the employees
more, to perform better and better in the organize status and recognition in the society. Owing
to emphasis on literacy level, today most of the employees are educated, well informed, and they are
very much aware of their rights. As a result, it is now very difficult for the organizations to exploit them
in any ground. Similarly, due to the vast use of television and Internet, now it is not so difficult for
them to access any job belong to any organization at any place. Therefore taking all these into
consideration a sound compensation policy is a compulsory factor for every organization
under compensation management system, so that they maintain a stable and satisfied work
furcation and through this they review.

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 ❖ Conceptual approach:-
Compensation which is the direct pay provided by employer for
work performed by the employee and fringe compensation which refers to employee benefit
programs. Cash compensation has two elements which include base payand pay contingent. Base pay
has to do with hourly or weekly wages plus overtime pay, shift differential and uniform
allowance while pay contingent is concerned with performance allowances such as merit increases,
incentive pay bonuses and gain sharing. Fringe compensation on the other hand refers to
employee benefits programs. Fringe compensation also has two parts to it which are legally re
quired benefit programsand discretional benefits. Legally required benefit programs include
social security, workers compensation while discretional programs include health
benefits, pension plans, paid time off, tuition reimbursement, recognition award, Foreign
Service premiums, responsibility allowance, and child care, on campus accommodation,
promotion, annual increment and ahost of others. Benefits, in a nutshell are the indirect
financial and non-financial payments employees receive for continuing their employment
with an organization. The concept of employee compensation
and benefits cannot be discussed in a vacuum. Various studies have established that salaries
and benefits are closely related to job satisfaction and job satisfaction can bring about
motivation which in turn affects employee job performance and organizational commitment.

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 • Compensation management definitions:-
The practice of compensation management goes far beyond the mere concept of attracting
and retaining talented employees in the organization. Compensation management is the
practice of the organization that involves giving monetary as well as non-monetary rewards to
the employees, in order to compensate for the time they allocate to their job. The use of
compensation management is increasing as organizations have started to realize the need for
leveraging its human capital in order to gain a competitive edge in the industry.
Compensation management involves “maximizing the return on human capital.

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 • Employee compensation:-
Refers to the benefits (cash, vacation, etc.) that an employee receives in exchange for the
service they provide to their employer. Employee compensation is generally one of the largest
costs or expenses for any organization. Approximately 92% of the working population in the
United States is made of employees earning compensation from their employer. There are
many different types of compensation paid to employees. The following are a few examples
of the compensation paid to employees:

• Cash compensation consisting of wages or salaries

• Retirement plans (employer contributions)
• Employer-paid health insurance
• Life insurance
• Paid leave for vacation and sick days
• Disability insurance

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 ❖ Job performance and job satisfaction:-
Attempting to understand the nature of job satisfaction and its effects on work performance is
not easy. For at least 50 years industrial/organizational psychologists have been wrestling
with the question of the relationship between job satisfaction and job performance.
Researchers have put a considerable amount of effort into attempts to demonstrate that the
two are positively related in a particular fashion: a happy worker is a good worker. Although
this sounds like a very appealing idea, the results of empirical literature are too mixed to
support the hypothesis that job satisfaction leads to better performance or even that there is a
reliable positive correlation between these two variables. On the other hand some researchers
argue that the results are equally inconclusive with respect to the hypothesis that there is no
such relationship. As a result of this ambiguity, this relationship continues to stimulate
research and re-examination of previous attempts. This paper strives to describe the relation
of job satisfaction and performance, keeping in mind the value this
Job satisfaction is a complex and multifaceted concept, which can mean different things to
different people. Job satisfaction is usually linked with motivation, but the nature of this
relationship is not clear. Satisfaction is not the same as motivation. "Job satisfaction is more
an attitude, an internal state. It could, for example, be associated with a personal feeling of
achievement, either quantitative or qualitative." In recent years attention to job satisfaction
has become more closely associated with broader approaches to improved job design and
work. The relationship between job satisfaction and performance is an issue of continuing
debate and controversy. One view, associated with the early human relation's approach, is
that satisfaction leads to performance. An alternative view is that performance leads to
satisfaction. However, a variety of studies suggest that research has found only a limited
relationship between satisfaction and work output and offer scant comfort to those seeking to
confirm that a satisfied worker is also a productive one.

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 ❖ Compensation approach:-
Expatriate Compensation – A good compensation package is one that is considered fair by an
expatriate, but it must also be cost-effective for the organization. It should be planned to
achieve the mobility and staffing goals of the organization. There are a few methods
commonly used to determine global expatriate compensation. These include: home-based
approach (also known as the balance sheet approach), the host-based approach, and the global
market approach. And one of the greatest challenges is determining which method is best for
your organization.
• Home-Based Approach

The home-based, or balance sheet approach, is the most popular of these approaches and used
by more than 85% of U.S. multinational companies. The balance sheet approach provides
international employees with an expatriate compensation package that equalizes cost
differences between the international assignment and the same assignment in the home
country of the individual or the organization. The balance sheet approach is based on some
key assumptions and is designed to protect expatriations from cost differences between their
home and host countries.

• Host-Based Approach

The host-based approach means the assignee transfers to the host country payroll and receives
base and incentive pay based on host country compensation practices and regulations. There
are limited, if any, assignment related allowances. The host payroll typically delivers base
pay and incentive pay and above-base allowances. With organizations looking for cost-
cutting opportunities, they have looked to localize assignees. The host-based approach may
be a cost-effective option to the traditional home-based approach, including local plus policy
components. Difficulties can occur in repatriating assignees, if applying this approach,
because it integrates employees into the local host salary structure. It can make it very
difficult to move the assignees to another destination or back to their home country.

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 • Global Market Approach

Unlike the balance-sheet approach, a global market approach to expatriate compensation

requires the international assignment be viewed as continuous, even though the assignment
may be for various periods of time and the employee may be in various countries. All
assignees are on the equivalent compensation scale, regardless of their home country. This
approach is much more inclusive. Regardless of which country the assignee is assigned, the
main benefits are provided. There are benefits and drawbacks to each approach. The
objectives of each assignment, among other issues, should be measured before choosing the
right compensation approach. Variations in laws, living costs, tax policies, and other factors
all must be considered in establishing the compensation for expatriates. You want to maintain
equity and consistency among the expatriate group. Many organizations look for a company
specialized in this practice, as it is clear that international compensation is very complex.

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 ❖ Employee Satisfaction:-

Employee satisfaction or job satisfaction is one of the key goals of all HR personnel
irrespective of what their individual KRAs are. A satisfied employee is not just a retained
employee but an ambassador for the brand, internally and externally. She can help dispel the
apprehensions of others and can defend the company in various fora. Happy employees are
more loyal to the company and its objectives, they go the extra mile to achieve goals and take
pride in their jobs, their teams and their achievements.

The majority of organizations view job satisfaction as dependent on 2 things – salary and
‘recreational activities’. While employees do make an impression based on these parameters,
they cannot form the basis of employee engagement. Recently, a study published by Harvard
observed that employee engagement programs only serve as a shot in the arm and satisfaction
levels dip soon after. What matters is how HR understands the needs of its employees and
what it does to bring a match between employee needs and company goals.

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 ❖ The Considerations of Compensation System
Design: -
• The Applicability of Relative Performance Evaluation: -
Relative performance evaluation (RPE) is the process of comparing performance among
workers, which is to reward employees’ performance based on the performance of the relative
reference group. Taking the listed companies in China from 2001 to 2008 as a sample, Hu,
Y.Q. and Zhou, H. [1] find evidences to support the use of RPE, when dividing companies in
the same industry into the reference group and measuring the company’s performance by
return on assets. Furthermore, the paper shows that the use of RPE in executive compensation
contracts varies negatively with a firm’s level of growth options. Albuquerque, A.M. [2] also
conducts a test whether growth-option firms should use CEO compensation contracts based
on RPE. In general, for the reason that growth- option firms are in more volatile
environments, the use of RPE can avoid exogenous shocks on CEOs and reduce the risk faced
by them. However, for high-growth-option firms, it’s difficult to find peer groups which
captures common risk exposure, thus the implementation effect of the use of RPE has been
affected. The paper finds that high-growth-option firms rarely use RPE to evaluate the
performance of CEO

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 • The Considerations of Directors’ Compensation:
-
First of all, many scholars have done a lot of research on the compensation of employees and
managers in the compensation system design, but few scholars have carried out in-depth
research on the compensation of directors. In recent years, some scholars at home and abroad
have creatively studied the considerations of directors’ compensation.
Equity-based compensation will link directors’ compensation to the long-term value of the
firm, which is regarded as an effective way to design directors’ compensation. However,
Drymiotes, that long- term incentives alone may not prompt directors to perform their role in
supervising corporate executives effectively. Enterprises should also implement some short-
term incentives for directors, especially using the same short-term measure used to evaluate
managers. The combination of short-term and long-term incentives is more beneficial to
enhance the effectiveness of the board on monitoring corporate executives. Conducts a
research about the influence of director’s compensation on CEO’s compensation, and finds
that though both director’s supervision compensation and excess compensation and are
positively related to CEO’s compensation, but the effects on firm’s future performance are
dramatically different. The higher director’s supervision compensation is, the better the future
performance is. However, the higher director’s excess compensation causes worse future
performance. That is to say, the relationship between director and CEO is complicated, which
could be supervision or collusion. Moreover, the effect of collusion is stronger than that of
supervision. The results show that it’s essential to further clarify the differences in the
functions of directors and CEOs, and pay attention to design the compensation that matches
the supervisory functions of the directors, which is an important way to improve the
performance of the company.

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 • The Match between Compensation System Design and the
Organization: -
Many previous researches on compensation system design focused on the specific
compensation design of employees and executives, and rarely involved in compensation
system design at the organizational level. In recent years, many scholars have gradually paid
attention to compensation system design from the angle of the organizational level.
Compensation system design should be matched with the corporate strategy. Taking
manufacturing enterprises as a sample, the article finds that it’s because the compensation
system design motivates employees to cultivate competencies matched with the corporate
strategy that the compensation system design makes an enormous effect. In general, the
implementation of corporate strategy requires employees to have corresponding
competencies, thus the design of compensation system should be guided by these
competencies. The compensation system design should be matched with the corporate shows
that if the compensation system design is not congruent with organizational culture, it will
easily lead to some adverse consequences. On the other hand, organizational culture which is
matched with compensation system design will become a competitive advantage for the
enterprise. Some scholars in China have also studied the compensation system design at the
propose that when designing the compensation system, enterprises should not only consider
the absolute value and relative value of compensation, but also pay attention to the influence
of specific circumstances of the enterprises on pay gap, such as the executive team’s
collaboration needs, financial risk, technical complexity and firm size, etc.

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 ❖ The Influences of Compensation System Design

• Compensation System Design and Performance

Many scholars have studied the relationship between compensation system design and the
performance of enterprises, and found that compensation has an incentive effect on
performance. In recent years, many scholars have carried out in-depth research on the
relationship between compensation system design and performance, mainly involved in the
following three aspects: the in-depth research about CEO’s compensation; comprehensive
consideration of the compensation of individual and team, employee and executive; the
influence factors of pay-performance sensitivity

• The In-Depth Research about CEO’s Compensation: -

Many scholars have conducted research about the relationship between CEO’s compensation
and the performance of enterprises. CEO’s compensation into salary and bonus, which
enriches related research. The reason for dividing CEO’s compensation is that salary is
adjusted to meet the reservation utility and information rent, and is positively correlated over
time to reflect ability, while bonus serves to address moral hazard and adverse selection by
separating high-ability agents into riskier contracts. The paper finds that salary is positively
related to past performance and bonus is negatively related to past performance, no matter
whether the CEO is newly hired or not. Additionally, salary is positively related to future
performance while bonus is not. Consequently, decomposing compensation into salary and
bonus is beneficial to comprehend the interaction between incentives and performance.

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 • Comprehensive Consideration of the Compensation of
Individual and Team, Employee and Executive
Many previous studies separately considered individual and team compensation, without
combining them. The same situation existed in the compensation of employee and executive.
In recent years, many scholars at home and abroad have made a contribution to the research
in this aspect. The results show that, in the design of the compensation system, compared
with individual effort, enterprises are supposed to attach importance to the degree of team
effort, so as to promote the innovation of the team and improve the performance of
enterprises. In the aspect of the relationship between employees and executives.
Compensation of employees and executives are both positively associated with the
performance of enterprises, which indicates the two kinds of compensation incentive have a
positive effect on the growth of performance. The pay-performance sensitivity of executives
is significantly higher than that of employees. Moreover, the stronger the synchronization
between the compensation of executive and that of employees is, the bigger the encouraging
effect on future performance is. Taking state-owned listed firms in manufacturing industry
from different incentive effect of pay gap on executives and employees. They find that pay
gap between executives and employees in state-owned listed firms is more likely to motivate
employees when the gap is low, while the pay gap doesn’t motivate employees when it is
high. Additionally, if the pay gap results from managerial power to certain extent, it doesn’t
have an encouraging effect on executives.

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 • Influence Factors of Pay-Performance Sensitivity: -
Many scholars have conducted in-depth research about influence factors of pay-performance
sensitivity, which enriched the research about the relationship between compensation system
design and the performance of enterprises. Incentive effects of public or private relative
performance information (RPI) on different compensation systems. The results indicate that
both public RPI and private RPI have a positive effect on performance, no matter whether the
compensation system is flat-wage performance-based or individual performance-based. In
addition, the incentive effect of public RPI on performance is greater than that of private RPI.
Though RPI has a positive effect on performance under both compensation systems, this
effect is greater under an individual performance-based system. The positive effect of public
RPI is greater under an individual performance-based compensation system compared with a
flat-wage compensation system. Many scholars in China also carried out research about the
factors which affect pay-performance sensitivity. The results indicate that the higher internal
control quality is, the higher executive pay-performance sensitivity is. Compared with non-
state-owned listed firms, the relationship between internal control quality and executive pay-
performance sensitivity in state-owned listed firms is more significant. In other ways, non-
market pricing transactions in business groups will weaken the incentive of executive
compensation. In addition, some scholars in China also studied pay-performance sensitivity
based on the institutional background of China. The results show that the intensity of debt
maturity constraints is negatively correlated with executive pay-performance sensitivity. For
state-owned listed firms, the natural political relations eliminate the negative impact of debt
maturity constraints, and with the weakening of the debt maturity constraint, the incentive
intensity of executive compensation gradually increased. The results show that under the
condition of strong credit constraints, companies will focus on the interests of creditors and
reduce executive pay-performance sensitivity when designing the contract of executive
compensation, in order to weaken executive’s motivation of risk shifting. Impact of political
connections on executive’s compensation in companies with the nature of different property
rights, and the effect of this influence on the future performance of the companies.

28
The results show that after controlling other economic factors and corporate governance
factors which affect executive’s compensation, executives of politically connected firms have
received significant higher salaries, both in state-owned and non-state-owned enterprises.
However, in state-owned enterprises, the excess compensation of executives caused by
political connections is significantly negatively associated with the future performance of the
company. However, in non-state enterprises, the excess remuneration resulted from political
connection is positively correlated with the future performance of the company.

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 ❖ Compensation System Design and Financial Misreporting:
-
As is mentioned above, the design of compensation system has an impact on performance to
some extent. Specifically, compensation is an incentive factor of performance and a good
compensation system design can help improve company’s performance. On the other hand,
the design of compensation system is also likely to prompt employees or executives to
exaggerate their performance in order to obtain higher returns. That is to say, it may lead to
financial misreporting. Find that when a manager’s performance has a positive influence on
the monetary payoff of his peers, the manager is more likely to overstate his performance.
Moreover, some scholars also expand the research about the relationship between financial
misreporting and equity incentive in compensation system, providing a new perspective on
the study. Some prior researches provides a different perspective. The risk of stocks is the
volatility of stock returns. If the manager is risk-averse and financial misreporting will not
only increase the value of stocks but also the risk of stocks, the manager is faced with a trade-
off between risk and profit when making a decision to misreport. Unlike the conclusion of
previous researches, the results of the article indicate that managers choose to exaggerate
performance for the reason that their wealth is affected by the volatility of the stock returns
but not the value of the stock. That is to say, in companies which implement equity incentive,
it’s not the value of the stocks but the risk of the stocks that is closely related to the financial
falsification of managers. Find that the higher the degree of overlap between the Audit
Committee and the Remuneration Committee, the higher the level of earnings management.
What’s more, in companies with high executive compensation or large internal pay gap, the
correlation between the overlapping degree and earnings management is stronger, and the
correlation between executive compensation and manipulative earnings is stronger,
suggesting that managers may collaborate with cross-serving directors to manipulate earnings
to grab higher opportunistic remuneration.

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 ❖ Research methodology:-

• Statement of problem
Variable Performance Linked Pay Schemes such as bonuses, gain sharing, and stock Plans
are increasingly complementing or replacing more traditional Pay for Performance Plans
internationally. Organizations are investing time and money to design, administer And deliver
competitive pay schemes to their employees (Lawler, 2000). The pressure is Mounting on
organizations to stay competitive for their sustainability. They need Employees who can
deliver results in this hypercompetitive environment. With or without Applying too much
thought, most companies are linking pay of their employees with their Performance,
Anticipating enhanced performance. The available literature provides a Mixed picture on the
issue of linking pay to performance. The literature, however, suggests that success of variable
pay programs is likely to be Influenced by cultural background. However there is lack of
clarity on the kind of culture Best suited for VPLP. In a country like India, there is a
significant presence of foreign / Multi-national players. These MNCs operate as per Global
Best Practices. This applies to Their variable pay programs as well. There is limited research
evidence available in India That confirms that such variable pay programs motivate employee
to perform better. Employee satisfaction and motivation with variable pay is a real issue here.
To summarize, there is lack of enough research evidence in India in respect to variable Pay
significance on employee performance. Developed nations have wide interest in Indian
market. Indian businesses are also making their presence felt worldwide with large
Acquisitions and mergers. India is becoming a center of attraction for all potential Investors.
The widespread and growing use of variable pay in India has made it an Important subject of
research. However, the literature on pay, pay satisfaction, and its Measurement have not
adequately produced a measure of variable pay impact on Employee performance, especially
in Indian context. Therefore the important issue here Today is to understand the effectiveness
of Variable pay and its impact on employee Performance and satisfaction.

31
 • Operational Definitions:-

The main variables used in the research are:

1. Pay:
Pay is a periodic payment from an employer to an employee, which is specified in an
employment contract. It is the cost of acquiring human resources for running operations in an
organization. Pay for the purpose of this research Means any wage and salary earned at work
.
2. Performanc:
For the purpose of this study the definition of performance actually the employee perceived
performance. Performance may be defined as the Activity of an employee to accomplish an
intended task/ objective. Performanc requires the application of spirit, passion, skills,
knowledge, aptitude, attitudes and Competencies etc. Performance of an employee could be
dependent on various Internal, external, social or environmental factors. One of those factors
is the Compensation policy, such as variable pay. In the study, we intend to measure,
What impact, variable pay has on employee's perceived performance,

2. Variable performance Linked Pay:

Variable performance linked pay is defined as "direct compensation that does not become a
permanent part of base pay/salary and which may vary in amount from period to period."
Basically this pay is Contingent on the level of performance an individual employee, a team,
a
Department, or an undertaking is able to achieve.

3. Parental background:
Since, the research covered eight companies from four Different parental backgrounds
namely USA, UK, Japan and Korea that had Entirely different cultures both in terms of social
values as well as management Practices, it was an important variable in understanding the
policies of these 8Respondent companies. Parental background may be defined as the social,
Economic, working philosophy, management culture constituents of environment
At force in the parent country of the organizations.

32
 • Research Design:-
This study is primarily a descriptive (quantitative) one. It employed qualitative measures
As well in the initial stages to crystallize factors influencing employee performance due to
Variable pay. Perception and satisfaction studies. It has carried out such studies in more than
500 Companies v/worldwide in past 18 years. Necessary official permission was obtained
before Starting the research work. As per TRI*M, to have a holistic view, one needs to
measure The top of the mind 'satisfaction' first towards the particular service in question,
before Measuring operational/actionable specifics. The variable pay offered by employee to
their Employers was taken as product/service. The "operational specifics" in this case were
"Factors" reported by employee that either indicated or contributed to their performance
Due to introduction of variable pay schemes.
1. Measuring the employee satisfaction with variable pay
2. Measuring the employee perceived performance before and after implementation
Of variable pay
Employee performance is dependent on various factors in an organization. However for The
purpose of this study, we wanted to know that, when variable pay is introduced in an
Organization, how does it impact on various working dimensions that could lead to either?
Enhanced performance or can deteriorate it? In order to do so, we wanted target Respondents
who worked in the same organization before and after implementation of any Sort of variable
pay program in last 1 year or more. As a next step in this direction, we did Qualitative Focus
Group Discussions involving three batches of respondents comprising of a total of 20
respondents, ensuring a minimum of 6 participants in each group. The Respondents for focus
groups were employees who had experienced variable pay for more Than 1 year at least.

33
 • Development of Research Instrument
The research instrument was primarily designed in two parts -
1. To measure employee satisfaction with variable pay
2. To measure employee perceived performance
Part 1 - Satisfaction with Variable Pay:
In this section, macro analysis in respect to Variable performance linked pay experience was
done using the key constructs of Employee satisfaction such as overall satisfaction,
recommendations, key benefits, value, Retention/continuity of relationship and motivation.

1. Overall satisfaction
With the variable pay scheme/ top of the mind view with outgassing on any specific details
(likes or dislikes).

2. Recommendation:-
Of variable pay scheme to your friends; that is a broad and Strong measure of the response to
experiences and perceptions.

3. Key Benefit (Individual):-

Which measures any major individual benefit due to the usage of said service, which in this
case was 'impact on individual
Performance'.

4. Key Benefit (Mutual):-

That translates into key mutual benefit helping both the Individual as well as the
organization, which in this case was "market strength".

5. Intent to continue relationship:-

Is a measure of the immediate response to? Experience and hence the existing level of
loyalty with the product and/or service, which in this case was "retention"/ "willingness to
stay with the organization Due to variable pay".

6. Motivation level:-
Measures the intensity of interest and the way it translates into desire to contribute positively
to the company's objectives.

34
Part 2 - Diagnostics / Operational Specifics to measure Perceived
Performance:-

As discussed previously, there were 32 statements short-listed post FGDs reported by

Respondents which were indicating/ contributing to employee performance (due to
Variable pay). Two equal rating scales were used in this part of the questionnaire (both scales
had same Score attributes) - the left side scale denoted employee responses before
implementation Of the scheme while right side scale denoted employee responses after
implementation Of the scheme in the organization, in this section, we used six point even
scale for Employee response. We contend that for many questions measuring perceptions
against Actionable specifics within satisfaction surveys, the use of a scale with an even
number of Response alternatives is a preferable choice. Recommend using at least six points
per variable. With this reasoning, we considered that Respondents should have at least a
slightly positive or slightly negative attitude towards The evaluated attribute. Specific
attributes that have an impact on an employee’s overall Perceptions about the scheme were
added in this part of the questionnaire. The earlier section was meant to assess satisfaction of
employees with variable pay. This Section was meant to explore the impact of these schemes
on employees' perceived Performance by studying the factors which either indicated or
contributed to their Performance directly or indirectly due to introduction of variable pay
schemes.

35
 • Using the above scales, at this stage a structured questionnaire was prepared,
which
Had six sections, in the following manner:
1. Section A: had a welcome note for the respondents and a paragraph was added to give
The respondent’s general information about the research.

2. Section B:
Was meant for eliciting specific information about the company the
Respondent was wore<in in. All necessary details regarding company's parental base, core
Business activities, total workforce (blue and white collared), and date of implementation
Of variable performance linked pay program in the organization and brief details about the
Schemes were collected.

3. Section C:
Consisted of the item pertaining to individual information about the
Respondents. All possible information regarding department working in, parental base of
The organization, nature of job (blue and white collared), total work experience and tenure
In variable performance linked pay program were collected for the purpose of this
Research.

4. Section D:
This section consisted of a few questions to ascertain satisfaction
Employees with variable performance linked pay, as previously discussed.

5. Section E:
This section was meant to explore operational specific statements leading
Towards employee perceived performance in respect to their variable pay experience. Two
Rating scales were used in this part of the questionnaire (both scales had same score
Attributes) - the left side scale denoted employee responses before implementation of the
Scheme while right side scale denoted employee responses after implementation of the
Scheme in the organization.

6. Section F:
This section had a few open ended questions which were added to get
Employee views on whether they felt that these schemes were relevant in modern
Organizations, what were the advantages and disadvantages of these schemes and what
36
Management should do to make these schemes more beneficial.

❖ Rationale for selecting these performance indicators

Contributors:-

These statements, originally proposed by the respondents during the focus groups, were
Later validated by the subject experts. The rationale as shared by the respondents is
Presented below.

1. Ability to meet deadlines/ timelines: -

Employees reported during focus groups that post introduction of variable pay programs, they
were more watchful towards Meeting timelines. The timely or early completion of project is
rewarded by Organizations. In current environment, where "time cost" is one of the major
Expenses, inclusion of the same as a measure of performance was a natural choice.

2. Desire to learn to perform: -

This was a direct measure of variable pay's impact. When VPLP is introduced in an
organization, employees make efforts to enhance their skills, so that they could manage to
PERFORM better, in order to draw Benefits under VPLP.

3. Earnings and monetary returns –

The researcher was doubtful after FGDs, when couple of groups said that their company
introduced variable pay only to cut down fixed expenses. However the amount told to them
was only on papers and they do end up getting the same. In many cases, the VPLP amount is
ceased, Declined by the companies for factors which are not in control of an employee.
Therefore employees' actual monetary earnings are in fact reduced. This could
Have serious impact on their performance, therefore included in the study.

4. Fair Feedback on Performance:–

Without fair and factual information about Conditions in relation to intended goals or results,
no one can perform to standard. Such information is known as "feedback." It informs
progress, enables corrections and, eventually, and signals attainment of the objective.

37
5. Functional Competencies:–
When employees are shown the way to earn more by Demonstrating improved skills and
competencies, does it motivate them to hone their competencies. Does VPLP influence them
to wear on improving their Functional competencies? This is a direct measure of
performance.

6. General Environment: -
When VPLP is introduced, how does it impact the General working environment? Does it
promote group dynamics? Does it lead to? Unfair practices, which in turn could impact the
performance of employees?

7. Goal Clarity:-
In order to perform, employees must have in mind a clear picture of any end or goal they are
to achieve. "Keep the end in view" has been sage Advice. The time a manager spends in
developing, communicating and clarifying the goals or ends to be achieved is time well spent.
The researcher wanted to know that post VPLP, is there any improvement in Goal Clarity of
individuals. Goal and performance are directly linked.

8. Level of Control of own work:-

It was reported that in order to perform well, one needed to have control on one's own work.
If it will be inter-dependent, they can be the loser, in spite of meeting targets. In order to
achieve VPLP benefits, one needs to have better control of the working ambit, added by the
group.

9. Level of Interest at work:-

It is the most obvious choice. The researcher wished to know whether post introduction of
VPLP, respondents have started taking more Interest in their work or not.

38
10. Level of motivation towards achieving results: -

It is self-explanatory. The Researcher wanted to know if VPLP is a motivator to achieve

results, which in turn Improves performance.

11. Reward Bonus for a positive outcome of results:-

Based on reinforcement past rewards for good work encourage people to perform better.
There searcher wanted to know if post introduction of VPLP, the organizations have Started
celebrating small achievements of employees, by rewarding them. Periodical rewards for
exemplary work help employees to keep up the morale.

39
 ❖ Sampling plan:-

• Identification of organization:-
The research began with identification of multinational companies with parental Background
in 4 different countries namely, US, UK, Japan and Korea operating in National Capital
Region. The main rationale of selecting these countries was:
• They were more visible in India in comparison to companies from other parental
Countries.
• These countries were one of the largest foreign direct investors in India. These
Countries have a significant impact on the Indian economy in terms of overall
Trade.
• Their parental cultures were quite different and we found it worthwhile to study
Its impact on the overall success of the variable pay scheme in India.

40
 ❖ Short listing the Organizations:-

After initial identification, those organizations that had or introduced any sort of variable
Performance linked pay programme in place in last one year or more were short listed for
This research.
• Screening/ Filtration
Out of these, organizations which had adequate number of employees who had
Experienced working under both schemes i.e. before and after implementation of any
Sort of variable performance linked pay plan, for at least 1 year or more were further
Short-listed for this study.
In all, 20 companies short-listed by the researcher that had requisite number of employees
For the purpose of this research i.e. 5 from each parental base.

- Reason for short-listing these companies:-

• These companies were world leaders in their respective markets and were known
To have a performance-oriented culture that rewards high performance.
• There were sufficient number of respondents to cover for the purpose of this
Research.
• They had exhibited willingness to participate and were interested in such study.
• Besides, their compensation structures were quite advanced and transparent which
Were known to reward high performance.

41
 • Population and Sample:-

The eight companies covered in the study employed a total of 11112 employees. Out of
Those employees, target respondents for this study were employees who had been
Appraised under both fixed as well as variable performance linked pay programs (before
And after implementation of VPLP scheme) for at least I year under each. There were a
Total 1196 such employees in these organizations. Initially we attempted to cover at least
500 respondents. However after rigorous follow up we could complete only 300
Successful personal interviews for this study that represented over 25% of total population
Available. Considering the sensitivity of the issue, the idea was to interview respondents in
person And not through any other medium such as electronic (email) or telephonic interview.
Had We used other ways to gather data, we would have increased the sample size
significantly, But we were not sure whether employees will answer them correctly, fully and
Meaningfully or not. Overall, there were approximately 150 employees in each organization
except one (Laing O’Rourke) who were matching the profile required for the purpose of this
study. One of the essential requirements of any study was that the sample should be chosen in
Such a manner that the result of research could be safely generalized which could be
Possible only when the sample selected should be representative of the population. As
There was no significant difference in population size of the companies therefore, we
Decided to keep the sample size equal from each organization.

42
 ❖ Data analysis and interpretation:-
Introduction

Data collected in this study has been analyzed in this chapter and the results have been
discussed regarding the innovative HRM practices, the level of implementation of these
practices, and impact of these practices on employee productivity. The challenging areas of
innovative HRM where the banks are lagging behind have also been revealed in this chapter.

43
 ❖ INNOVATIVE HRM PRACTICES ADOPTED IN PUBLIC AS WELL AS
PRIVATE SECTOR BANKS OF INDIA:-

The very first objective of the study was to identify the innovative HRM practices adopted in
public and private sector banks of India. After an extensive survey of the literature and from
the responses of the interviews, a list of forty nine innovative HRM practices was shortlisted
under seven heads. These innovative HRM practices have been found in the Indian Banking
sector. All the banks under the study are employing these innovative HRM practices related
to recruitment & selection, training and development, performance management,
compensation management, career development, employee motivation and employee
security.

• Innovative Recruitment & Selection Practices

This factor includes all the innovative HR practices which aim at attracting maximum
number of highly talented applicants and selecting the best to achieve competitiveness (Khan,
The nine innovative HRM practices identified under this head were well defined R&S,
selection according to service attitude, holding on policy, availability of bank communities
on social networking sites, checking the profile of candidates on these sites, selection of
professionals just like MBAs, CAs, etc., written exam for R&S, result oriented policy of
R&S, and formal induction of new candidates. These innovative Recruitment and selection
practices have been explained below: Maintained by the HR department. Earlier, in a few
types of banks, there was a pattern of recruiting people through employee referrals only. But
now a days, a pre-defined policy of hiring people is available in banks. Kudu and Mahan
(2009) have also identified this HR practice in one of their studies on service sector.

44
 • Selection according to service attitude

Banks are giving due weightage to the service attitude and competence in the
selection procedure. This policy is being adopted by the HR department of the banks keeping
in mind the fact that employees with positive service attitude will work more efficiently and
increase the business ultimately.

• Holding on policy
One of the major problems that the bank employees were facing in earlier times was that if
they left the organization due to any work pressure or other reason, then they were not
stopped or hold on by any employer. But now, even the regional or circle managers of the
banks use a “Retention” policy for the employees so that they may not leave the bank
quickly. In this policy, they try to hold on their employees by solving their issues at regional
levels only.

• Availability of bank communities on social networking sites:-

Availability of bank communities on social networking sites is found to be another innovation

in the recruitment process. Popularity of the social networking sites has forced all the sectors
to have this facility enabling the members of the community to seek the necessary
information and to be in touch with each other.

• Checking the profile of candidates on these sites

These days, the banks have started using social networking sites for the purpose of
recruitments. With the help of these communities, the HR department checks the candidate’s
profile on social networking sites to decide the candidature for the job. All the personal and
social information is available on these sites, with the help of which, cross checking can be
done easily.

• Selection of professionals:-
Banks have also started selecting professionally qualified personnel, e.g. MBAs, CAs,
Agricultural officers etc. for different posts. Earlier, only private sector banks were employing
such professionals for their various departments, but now, public sector banks have also started
using this practice. For example, advertisements can be seen in the employment newsletters for
recruiting the specialist officers, IT officers, credit managers, and finance managers etc. for
different levels in the State bank of India or even other public sector banks. This has solved major
problems of banks regarding lack of professionally trained employees in different departments.

45
 ❖ Innovative Training & Development Practices:-

This factor incorporates all such practices that generate tangible outcome (improved
productivity, quality of products and services, and resource optimization), and intangible
results in terms of enhanced self-esteem, high morale, and satisfaction of employees due to
acquisition of additional knowledge, skills, and abilities Executive development practices
have also been considered under this variable. There are two situations in which the
importance of training is realized or firms will invest in current employees‟ human capital
development through training programs: if it is difficult for firms to attract talents (Ulrich,
Zenger & Smallwood, 1999); and if firms experience low productivity improvement. Test of
trainees, job rotation, customized training, continuous training need assessment, regular
training, encouragement to apply training learning, and arrangement of special projects are
the seven innovative Training and Development practices found in the present study:

46
 • Customized training
Special and separate/customized training programs have also been designed for different
levels of employees in the banks. State bank of India is practicing this practice for more than
one and a half decades. Other banks are also following this innovative HR practice. However,
the frequency might be low in their cases.

• Continuous training need assessment

In some of the banks, continuous training need assessment of employees by the HR
department is also practiced. With the help of continuous training need assessment, only
those employees are sent for the training, who are actually in the need of the training.
Aggarwal (2003) has also explored this innovative practice in one of her studies.

• Regular training
One of the major problems, which were earlier found in the banking sector, was that the
training intervals were very high. Even the employees were trained only once in a decade or
even in the entire job life. But now, innovations in HRM have called for the need for regular
training for the bank employees too. The employees of a few banks are now sent on yearly
basis for training so that they can have their work related doubts resolved and can groom
themselves regularly.

• Encouragement to apply training learning

Employees are also being encouraged to apply the techniques learnt in their training program.
They are given a chance to apply the information acquired by them during the training
practically so that they may not forget it ever.

47
 ❖ Innovative Performance Management practices:-

Performance is defined as the record of outcomes produced on a specified job function or

activity during a specified time period (Bernardino and Russell 1993). This category of HR
practices includes the new practices related to goal achievement in an efficient manner and
their appraisals. Appraising is a general process of facilitating interpersonal relationship
between employees and managers through performance related discussions to analyze
matching up of employees‟ performance with organizational goals (Wilson & Western,
2000). Job assessment related practices have also been categorized under this head. In the
present study, six innovative HRM practices related to Performance Management.

• Formation of performance matrix

The very common innovative HR practice of performance management has been that the
performance matrix or some other competency mapping models being used for employee’s
performance reviews. All private sector banks under the study are following this innovation
in the performance management practices for a long time. This has enhanced the performance
as well as the morale of their employees.

• Goal review based appraisal

The respondents under the study also disclosed that goal reviews and competency review
systems, the two common methods, are being used for appraising the performance of
employees. This helps to match the performance of the employees with the earlier set goals .

48
 ❖ Innovative Career Development Practices:-

Those innovative HRM practices which include both organizational actions and individual
efforts aimed at setting career goals, formulating and implementing strategies and monitoring
the results are categorized under this head (Greenhouse 1987). These help the employees to
groom themselves and manage their careers. Have identified career development itself as an
ideal innovative HRM practice in one of their researches.

• Availability of educational opportunities at workplace

Education related opportunities are being provided at the work place for the career
enhancement of the bank employees. This has increased their dedication towards work in
their present organizations. Moreover, they feel that their management is concerned about
their career development and enhancement. This enhances their morale for work.

• Easy approval to the job applications

This study identified that one latest innovation in the career development of employees is that
the applicant are being approved by the HR department and regional managers quickly.
Earlier the top management, especially of Public sector banks, were either verbally denying
the approval of such applications or delaying the process, to discourage the employees from
applying outside the bank. But now a days, these applications are easily approved so that
employees can think of their care.

• Preference to seniority in promotions:-

Seniority is given proper weightage in the promotion decisions in banking sector. Even
transfers on promotions are also affected by the seniority. E.g. Central bank of India has a
promotion provision to give favorable and closest transfer to the employees who are senior
among others in the promotion processer development captions sent for the career
opportunities.

49
 • Promoting on the basis of merit:-
Banks are also organizing written tests and interviews for the promotion process so that merit
can be one of the criteria for promotions. A well-planned career development system along
with internal advancement opportunities based on merit, results in high motivation among
employees, which has an impact on firm performance.

• Providing faster promotions:-

Fast track promotion process is also one common innovative practice identified in the study.
Earlier the employees had to wait for years to get promotions. But these days, they get faster
promotions, even in two to three years. This helps them to develop their career in their own
bank and they don’t even think of leaving the bank for getting better opportunity outside in
other banks or organizations.

• Providing loans at discounted rates:-

Availability of loans and advances at discounted rates to all the employees is also another
common innovative HRM practice leading to motivation of the employees. They can get loans
on simple interest for getting vehicles, constructing house or even educating their wards. This
helps the employees financially and motivates them to increase their efficiency.

These days, there is an easy availability of leave on demand in case of urgency which was the
common HR issue among the bank employees. However, this practice prevails in a few banks
only. Keeping in mind the benefits of this innovative practice, other banks have also started
this practice for motivating and retaining their employees in their organizations.

50
 ❖ THE EXTENT OF IMPLEMENTATION OF THESE
PRACTICES: -

To know the extent of implementation of the above discussed innovative HR practices in the
banks, the mean score and standard deviation were calculated for knowing the extent of
implementation of these practices in the eight banks surveyed under the study. The same
statistical tools have also been used in a few earlier studies. The descriptive statistics of the
data were calculated using SPSS. Table 4.1 provides the descriptive statistical information
like mean and standard deviations of innovative human resource management.

Descriptive Statistics of the Extent of Implementation of Innovative HRM Practices

N=402

Sr. No. Innovative HRM Practices Mean Std. Deviation

1 Innovative Recruitment and Selection 3.5203 .53125

2 Innovative Training and Development 3.5046 .61669

3 Innovative Performance management 3.5493 .64002

4 Innovative Compensation Management 3.2248 .76834

5 Innovative Career development 3.4468 .65926

6 Innovative Employee Motivation 2.9437 .59619

7 Innovative Employee Security 3.3731 .63146

The mean scores revealed that the Innovative Performance Management Practices are
being implemented to the maximum extent in these banks with the mean score of 3.5493. And the
Innovative Employee Motivation Practices are the least implemented with a score of 2.9437. This
shows that the banks are paying more attention on the innovative Performance Management
practices but the motivation practices.

51
 Mean Score of Innovative HRM Practices
3.7
3.5203 3.5493
3.5 3.4468
3.5046
3.3731
3.3

3.2248
3.1

2.9 2.9437

2.7

2.5
Recruitment Training and Performance Compensation Career and Emplo
Selection Development management Management development yee
Securi
ty

52
 ❖ Innovative Recruitment and Selection Practices:-

From the analysis of the descriptive statistics, it was found that the selection of
professionals like MBAs etc. is the most implemented Recruitment and Selection practice in
the surveyed banks with a mean score of 3.9254 There is a great trend in of recruiting those
people in the banks who are already professionals and need not go for any special training for
their posts. Most of the banks are focusing more and more on this innovation for last many
years because this has given them competitive advantage in this dynamic scenario.

Descriptive Statistics

Sr. No. Innovative Recruitment and Selection Practices Mean Std. Deviation

1 Well defined R&S 3.7537 1.08621

2 Service Attitude 3.7289 .87916

3 Holding on Policy 3.5050 1.03852

4 Bank communities 3.3308 1.05343

5 Profile on Communities 2.4838 1.07237

6 MBAs Selection 3.9254 .95766

7 Written Exam R&S 3.7065 1.24480

8 Result oriented Policy 3.7425 .94037

9 Formal Induction 3.6256 .99112

However, the results also showed that the least score is of checking a new candidate’s
profile on social networking sites i.e. 2.4838. No doubt, the communities of these banks are
prevailing on the social networking websites to a high extent.
Checking the candidate’s profile on these sites is still occasional. Moreover, there is a great
variance in the results as the standard deviation of many of these practices is more than or
near to one. All other innovative practices under this head like formal induction, well
defined policy, written exam, etc. are being implemented to high extent.

53
 Mean Score of Innovative Recruitment and Selection Practices
4.5

3.9254
4 3.7537 3.7289 3.7425

3.5 3.505 3.3308 3.7065 3.6256

2.5 2.4838

• Innovative Training and Development Practices:-

Innovations in training and development have been considered to be very important

in the reviewed literature but, it is also important to know which of these innovations under
this head is being implemented to highest extent and which to the lowest. As the results of
descriptive statistics indicate the customized training for each employee is in trend these
days. Its mean score is the highest, i.e. 3.7836. Banks are giving specialized training to their
employees as per their training needs. All this is being done after continuous training need
assessment which is on the second rank as per the mean scores. It is the foremost
requirement for improving the employee efficiency.

54
 Descriptive Statistics
N=402

Sr. No. Innovative Training and Development Practices Mean Std. Deviation

1 Trainee test 3.3694 1.36887

2 Job rotation 3.5336 1.09953

3 Customized Training 3.7836 .85796

4 Continuous Training 3.3943 1.00219

5 Regular training 3.4975 .96121

6 Encouragement Apply 3.7152 .87375

7 Special projects 3.2388 1.02473

Source: Surveyed data

Mean Score of Innovative Training and Development Practices

3.9
3.8 3.7836
3.7 3.7152
3.6
3.5336
3.5 3.4975
3.4
3.3694
3.3 3.3943
3.2388
3.2
3.1
3
2.9

Tendency of sending the employees for special projects of training is still low with a mean
score of 3.2388 as compared to other innovations under this variable. This may be because of
the reason that the main focus of Indian banks is still on giving training through the old
methods as those are acceptable at all levels of these organizations. The mean score for the
innovative practice of conducting written tests of the trainees before sending them for the
training is also very low. Probably this may be due to the fact that only a few banks have
started this practice.

55
 ❖ Innovative Performance Management Practices:-

The descriptive statistics of all the six innovative performance management practices have
been exhibited in the Table 4.4. This table shows that there is a great variance in the results of
these practices. The mean scores of these practices as shown in the table and more clearly
presented through the figure 4.4 show that almost all the innovations under this section are
being implemented in the banking industry of India to a high extent.

Descriptive Statistics

Sr. No. Innovative Performance Management Practices Mean Std. Deviation

1 Performance matrix 3.5236 1.13878

2 Goal reviews 3.7612 .79128

3 Fair Objective Data 3.6294 .99909

4 Multiple source Review 3.6455 .90611

5 Challenge Appraisal 3.0572 1.12352

6 Awareness 3.6791 1.01498

Goal reviews based appraisal is having the highest level of implementation as the mean
score in this case is 3.7612. The performance appraisal information is being clearly
communicated to the e performance improvements of the employees of these banks
(Bernardino and Russell, 1993; Landy & Far, 1980; Webb, 2004). Fair appraisal systems are
also being used in the banks now. In spite of this, one noticeable fact is that there is still not
much authority with these employees to challenge the appraisals made about their
performance as the mean score for this practice is lowest with a figure of 3.0572. This
implies that the banks have not given full autonomy to the employees to review their
performances on their own and then improve it accordingly. Employees to a high extent
(3.6791).

56
 Mean Score of Innovative Performance Management Practices
3.9
3.7612
3.7 3.6791
3.6455

3.5 3.5236 3.6294

3.3

3.1
3.0572

2.9

2.7

2.5
Performance Goal reviews Fair Objective Multiple source Challenge Awareness
matrix Data Review Appraisal

❖ Innovative Compensation Management Practices:-

These innovative practices are being implemented in the banks of India to a moderate extent
as per as per the descriptive results shown in table 4.5. The incentives are being distributed
to a high extent (3.5025) to the talented employees so that they may work with more
enthusiasm and zeal. Special increments and festival advances are also implemented to a high
extent having the mean score of 3.3532 and 3.1692 respectively.

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 Descriptive Statistics

Sr. No. Innovative Compensation Management Practices Mean Std. Deviation

1 Incentives to talented 3.5025 1.14802

2 Special increments 3.3532 1.30779

3 Special festival advance 3.1692 1.39334

4 Customized Perks 2.8744 1.27552

Mean Score of Innovative Compensation Management Practices

3.6
3.5025
3.4
3.3532
3.2 3.1692

3
2.8744
2.8

2.6

2.4

2.2

2
Incentives to talented Special increments Special festival advance Perks

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 ❖ Innovative Career Development Practice:-

For the enhancement of the career of the employees, these banks have started using
innovations in a last few years. All the innovative career development practices are being
used in the banks under the study to a high extent are the most implemented practices as their
mean score are 3.5672 and 3.5410 respectively. These banks are also giving faster
promotions which were not available in the banking sector earlier.

Descriptive Statistics

Sr. No. Innovative Career Development Practices Mean Std. Deviation

1 Educational opportunities 3.4005 1.06347

2 Easy approval 3.1878 1.06353

3 Seniority promotion 3.5672 .93849

4 Faster promotions 3.4913 1.01266

5 Merit promotion 3.5410 1.10154

Source: Surveyed data

Moreover, a lot of internal educational opportunities are also being provided in these banks. In
spite of this, 3.1878 is the mean score of another practice which shows that the level of
implementation of easy approvals of the applications of the employees for outside exams is not
very high. This might be because of the fear of losing employees if they get selected
Anywhere else. A more comprehensive picture of these results has been demonstrated
through.

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 Mean Score of Innovative Career Development Practices
3.6
3.5672
3.541
3.5 3.4913

3.4 3.4005

3.3

3.2 3.1878

3.1

2.9
Educational Easy approval Seniority promotion faster Merit promotion
promotions
Opportunities

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 ❖ Innovative Employee Motivation Practices:-

The descriptive data results of these practices as shown in table 4.7 exhibit that some of these
practices namely discounted rates on the loans (3.8383), easy leave sanctions (3.6331),
development of team building attitude (3.5908), best employee awards (3.3794) and greater
work autonomy (3.1555) are being implemented to a great extent. Day care centres are the
foremost need of the women employees but the extent of implementing this innovative
practice in these banks is very low with a mean score of 1.8507. Even they need flexible
working hours so that they can make a work life balance. But the banks are still not doing
much effort to implement these improved motivational practices.

Descriptive Statistics

Sr. No. Innovative Employee Motivation Practices Mean Std. Deviation

1 Music use 2.1903 1.13732

2 Day Care Centres 1.8507 1.11557

3 Work Autonomy 3.1555 .95083

4 ESOPs 2.9378 1.15392

5 Discounted Rates 3.8383 1.15667

6 Flexible working 2.7400 1.35209

7 Easy leave 3.6331 1.04468

8 Stress mgt 2.6866 1.15884

9 Team building 3.5908 1.00428

10 Best employee 3.3794 1.31403

11 Family GTs 2.3781 1.11611

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 Mean Scores of Innovative Employee Motivation Practices
4
3.8383
3.5908
3.6331
3.5
3.1555 3.3794

3
2.9378 2.74 2.6866
2.5
2.1903
2.3781
2
1.8507
1.5

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 ❖ Innovative Employee Security Practices:-

The descriptive results of seven innovative employee security practices have been displayed
in the table 4.8. The results indicate this clearly that all these new practices related to the
employee security are being applied in the banking sector to a high extent.

Descriptive Statistics

Sr. No. Innovative Employee Security Practices Mean Std. Deviation

1 Sabbatical leaves 3.0124 1.19375

2 Sufficient Retirement benefits 3.7289 1.05633

3 VRS 3.2201 1.14069

4 Dependent’s insurance 3.4465 1.28399

5 Last to leave 3.2201 1.28367

6 Grievances procedures 3.3507 1.04696

7 Support from Central office 3.6331 1.15033

The level of implementation is found to be highest in case of practice of sufficient

retirement benefits, followed by support from central office, dependent’s insurance and
grievance procedures respectively. Employees are being supported by the central offices
(3.6331) when they are stuck up in problem. One more observable fact is that the practice of
giving sabbatical leaves to the employees in these banks has been adopted up to a high
Its mean score is the lowest among the all innovative practices of this factor i.e. 3.0124.
However, VRS and last to leave practices are implemented more than the above said
practices. It was also found during the survey that many of the employees were unaware
about this practice. Further, a high degree of variance is shown through the results of the
standard deviation of these practices. This again shows that the responses for these practices
vary more when checked statistically.

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 Mean Score of Innovative Employee Security Practices
3.9

3.7 3.7289
3.6331
3.5
3.4465
3.3507
3.3
3.2201 3.2201
3.1
3.0124
2.9

2.7

2.5
Sabbatical Sufficient VRS Dependent Last to leave Grievances Support CO
leaves Retirement insurance procedures

Comparison of the Level of Implementation of These Practices between Public

And Private Sector Banks
In the present study, a comparison of the level of implementation of innovative HRM
practices between the public and private sector banks has been made, so as to know which of
these practices are implemented more or less in both the sectors. The number of respondents
from public sector was two hundred and seven in the present study, whereas this number
stands for one hundred ninety five for the private sector employees.

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 ❖ Findings and recommendation

The Office of Personnel Management (OPM) requested this study in preparation for
reauthorization hearings, scheduled for 1991, on the troubled Performance Management and
Recognition System (PMRS). Our charge was to review the research on performance
appraisal and on its use in linking compensation to performance. To supplement the research
findings, we were asked to look at private-sector practice as well, to see if there are
successful compensation systems based on performance appraisal that might provide
guidance for policy makers in reforming PMRS. We construed this charge as requiring an
investigation of whether and under what conditions performance appraisal in the context of
merit pay systems could assist the federal government in managing performance, fostering
employee equity, improving individual and organizational effectiveness, providing consistent
and predictable personnel costs, and—not least—enhancing the legitimacy of public service.

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 ❖ Conclusion
Compensation is identical as the most value side of the HR practices of corporate and public
private sector. In every factors of compensation practices such as payout of salary and
benefits, competency-based compensation, performance -based compensation, and non-
financial benefits being served, the corporate sector are in a lower position than the public
private sector organizations. This is due to the fact that in the corporate sector, compensation
is offered with respect to seniority and position. Pay review in the public sector also generally
takes place after several years or on demand of the individual employee. This leads to miss-
management, poor motivation, and corruption in the corporate sector. The inequality of
compensation between the corporate and the public private sector is now so relevant t that an
entry-level officer of a public private sector is getting a salary than even a top level manager
of a public sector enterprise. Compensation packages refers to all forms of financial returns
and services and benefits employee’s receive as part of an employment relationship. Pay may
be received directly in the form of cash or indirectly through benefits and services (e. g.,
pensions, health insurance). Programs that distribute the compensation to employees can be
designed in an un-limited number of ways.

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 ❖ Bibliography

• http://highered.maqrawhill.com/sites/0073381462/student view0/glossary.html
• Gary dessler /biju varkkey
• Strategic compensation –management in a knowledge based world- Richard
Henderson
• Compensation management –mousumi S. Bhattacharya.
• Organization culture-Edgar schein.

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