PAPER CODE JAIPUR NATIONAL UNIVERSITY, JAIPUR

Total Printed Page: 2

Roll No. : _______________________________

Paper Code
MBADH413

SCHOOL OF BUSINESS & MANGEMENT

MBA (Dual) (IV SEM) SECOND WEEKLY TEST – 29th April, 2020
STRATEGIC COMPENSATION MANAGEMENT
Time: 3 Hours Max. Marks: 60
Question paper consists of two sections i.e. A & B. Section A is compulsory which
consists10 Short answer type questions of 2 marks each. Section B consist 6 questions
(Question no. 2 to Question no. 7). Question no. 7 is compulsory carrying 16 marks.
Attempt 3 Questions from the balance 5 questions (Question no. 2 to Question no. 6)
carrying 8 marks each. Sub parts of a question should be done at same place by the
students.

SECTION A
Q. 1 Answer the following questions (50 Words) 2x10=20
a) Any four objectives of Strategic Compensation Management.
Ans.) Objectives of compensation management are:
 Acquire qualified personnel.
 Retain current employees.
 Ensure equity.
 Reward desired behavior.

b) Responsibilities of compensation Manager.

Ans.) Compensation managers are responsible for researching, establishing, and maintaining a company's
pay system. This involves researching and understanding the current and upcoming competitive markets for
employee pay and benefits.

1
 c) What are Minimum wages?
Ans.) Minimum wages have been defined as the minimum amount of remuneration that an employer is
required to pay wage earners for the work performed during a given period, which cannot be reduced by
collective agreement or an individual contract.

d) What is Compensation survey?

Ans.) Compensation survey provides opportunity to compare the compensation level in the organization to
the compensation level in the labour market. Information on salaries, incentives, bonuses, benefits and
perquisites for performers of different positions, as well as information on trends of employee compensation
policy and forecasted changes in compensation in particular market segments and in the general labour
market are summarized in the survey.

e) Write about Employee Stock Ownership Plan.

Ans.) An employee stock ownership plan (ESOP) is an employee benefit plan that gives workers ownership
interest in the company. It gives the sponsoring company, the selling shareholder, and participants receive
various tax benefits, making them qualified plans. Companies often use ESOPs as a corporate-
finance strategy and to align the interests of their employees with those of their shareholders.

f) What is Team Based Pay Plan?

Ans.) Team-based pay is a system of compensation in which managers at a company reward members of a
project or a department team with bonus compensation or pay increases based on their performance or the
successful completion of goals. Unlike individual reward schemes, such as commission-based pay, team-
based pay rewards the output of the team as a whole and divides the rewards equally among team members.

g) What are Incentives?

Ans.) Anything that can attract an employee’s attention and motivate them to work can be called as
incentive. An incentive aims at improving the overall performance of an organization. Incentives can be
classified as direct and indirect compensation. They can be prepared as individual plans, group plans and
organizational plans.

2
 h) What are monetary rewards? Give examples.
Ans.) Monetary rewards are the incentives given to the employees of the organization in the form of money.
Some employees are motivated only if there is money element involved. The monetary incentives. are
mostly given based on the performance of an employee. For example:  gift cards, bonus, profit sharing etc.

i) Principles of International Compensation.

Ans.) Principles of International Compensation include:
 Equity considerations.
 Ability to pay.
 Internal and external equity.
 Performance oreintation.

j) Compensation approaches in various countries.

Ans.) Going Rate approach and Balance Sheet approach are two approaches widely used for international
compensation.

SECTION – B

Q.2 Discuss Recent trends in compensation Management. Give examples. 1X8=8

Ans.) Recent trend in compensation management include:

Goal Attainment Bonuses

This compensation trend is by far the most mutually beneficial for employers and workers alike. Setting
goals for employees to reach, and rewarding them with customized bonuses, helps the company strive to
keep improving and also pushes the staffers to work toward a predetermined goal.

Reward attainment of both individual and organizational goals to foster teamwork and eliminate the “lone
ranger” mentality. Each employee and their supervisor should determine these goals and rewards by
discussing how to personalize each one beyond a lump sum of cash to give the employees the most
motivation.

Quality of Work-Life Rewards

Many C-level executives have moved past the mindset that a competitive salary is the only perk necessary
to attract and retain top talent. Employees heading into the workforce have a predisposition to look for
companies that are providing a multitude of life benefits.

Some of the most common examples of these are:

3
  Prepaid legal, educational and vision assistance
 More opportunities for a flexible working schedule
 Paid time off
 Clear career paths, so workers see a potential for themselves in the future of the company
 As an organization, more focus on employee training and development
 Parental leave
 Smaller, everyday thank-you notes for exceeding expectations on minor tasks

Corporate Social Responsibility

Companies are seeing higher and higher returns in supporting their employees’ values and giving them a
purpose for their work. People want to feel passionate about what they do and make a difference in the
world.
Not only does corporate social responsibility inspire employees to work for a company that backs their
beliefs up, but it also gives the business a positive public reputation. From a public relations standpoint, this
benefit might pay for itself.

Some popular examples of CSR include:

 Environmental sustainability efforts
 Philanthropic initiatives aligned with company culture
 Ethical and fair treatment of all workers
 Various volunteer opportunities

Pay Transparency

In January 2016, the federal government passed legislation that prohibits contractors and subcontractors
from discharging or discriminating against their employees and job applicants for discussing, disclosing or
inquiring about compensation.

While employees may not be announcing their salary over a megaphone at the staff meeting, most
organizations can confidently say that their employees are discussing what they earn. Sharing salary
information builds trust, and companies that have adopted this trend have reported seeing major increases in
job applications.

Pay transparency is in an organization’s best interest to give employees competitive, internally equitable and
accurately defined pay structures. The challenge facing companies in 2020 and beyond will be to attract and
retain the talent that meets the higher standard for compliance.

Retirement Plans

While it may not be the most exciting benefit to hear about, almost every company today offers retirement
plans to help them attract top talent. According to the Defined Contribution Survey Reflecting 2016 Plan
Year Experience, 81% of companies offer a defined contribution plan to new hires.

Tax perks also come with retirement plans, because matched contributions and administrative work are tax-
deductible. And lastly, employers can also use retirement plans as incentives to increase performance.

4
Q.3 Write notes on
a) Wage mix b) Government regulations on Compensation. 4+4 = 8

Q.4 Write notes on

a) Profit sharing plan
b) Compensation Strategies as an Integral part of HRM 4+4 = 8

Ans.) (a) Profit Sharing Plan:

Profit sharing schemes may effectively supplement other incentive plans. Profit sharing is a scheme to
augment the compensation of workers through the sharing of profits of the company. Profit sharing may be
defined as an agreement freely entered into, by which the employees receive a share, fixed in advance, of
the profits.

This compensation is in addition to the regular wages and bears a definite percentage relationship to
company profits. This definition would exclude bonuses based on profits which are not assured on a
continuing basis.

Objectives of Profit Sharing:

 To promote worker’s efficiency.

 To raise productivity.
 To make workers feel that their interests are identical with those of the employer.
 To make workers behave in a more responsible manner.
 To arouse cooperative spirit in the workers and to minimize industrial disputes.
 To develop scrap reduction and waste elimination consciousness in the workers.
 To develop a proprietary attitude on the part of employees.
 To minimize labour turnover.

Methods to Distribute Profits:

Profits under the profit sharing scheme can be distributed to employees in a number of ways, such as:

i. In the form of cash money.

ii. In the form of company shares.

Profits under the profit sharing scheme can be paid to employees on the basis of:

i. Their years of service with the company.

ii. A fixed percentage of their total wages during a stipulated period.
iii. Merit rating of the employees.
iv. Their attendance.
v. Their good performance record.
vi. Their good general record, etc.

5
(b) Compensation Strategies as an Integral part of HRM

Ans.) The compensation strategy is extremely important as the right compensation strategy helps to build
the effective and competitive organization and the wrong setting of the compensation strategy, which does
not fit with the needs of the organization and with the HR and Business Strategies, can destroy the
organization within several years and the organization suffers from decreased performance and not utilizing
the full potential of employees.

The compensation strategy is derived from the HR Strategy and it defines the position of the organization on
the job market, the level of the total cash, the main bonus principles in the organization and rules for the
base salary setting.

The compensation strategy defines the pay market, the organization follows, the desired position on the pay
market and the way, how the desired level and position on the pay market will be achieved. The
compensation strategy defines the basic compensation components used in the organization and the standard
rules applied to each compensation component. The compensation strategy has to be in line with the
business and HR Strategies as the compensation of employees is aligned with the expectation of the top
management from them. The compensation strategy does not change often as the compensation principles
cannot be changed within few days.

The compensation strategy should be updated, when Human Resources makes significant changes to the HR
Strategy or the organization changes its business strategy. The compensation strategy has always support the
business and its selling capabilities.

Compensation Strategy Importance

The compensation strategy helps the organization to manage the personnel expenses of the organization and
it sets clear limits for the managers and employees. It provides the top management with the certainty, the
personnel expenses are under the control and the costs will not boom.

The compensation strategy gives the certainty to the HR employees and HR managers as they can promise
the stability in the compensation, the stability and the managed development of the compensation
components and they can explain the basic role of the individual compensation components.
The compensation strategy 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 Strategy Importance for managers

The managers should be always informed about the existence of the compensation strategy and they should
know the implementation plan. The managers should not be allowed to comment and decide about the
strategy as they would tend to make their lives easier and they would make the personnel expenses of the
organization to boom.
The managers are the users of the compensation policy and they should understand, it is based on the
approved principles from the strategy. The compensation policy can change on the regular (usually yearly)
basis, but the strategy is consistent over a longer period of time and the managers can plan the career of the
subordinates.

6
Compensation Strategy Importance for employees

The compensation strategy is not intended to be read by the employees. The employees are the users of the
compensation policy and they should not be informed about the general position of the organization on the
pay market and the compensation components to be used to motivate the employees.
The employees can read the compensation policy, which describes the details about their compensation as
they recalculate the salaries, but they should not read about the strategic compensation components, which
help to build the competitive advantage of the organization.

Q.5 Discuss the various statutory provisions governing different components of reward system. 1x8=8

Q.6 Describe the various components of International Compensation with examples. 1X8=8

Ans.) The major focus of most international compensation programme is to keep international employees at
a sufficient financial level during their international assignments so that they do not lose ground
economically.

Components of an international compensation package, in addition to the normal salary and benefits offered
in the home country, frequently include the following. These components are:

1. Base salary:

For expatriates, the term base salary means the primary component of a package of allowances which are:
a. Foreign service premium,
b. Cost-of-living allowance,
c. Housing and utility allowance,
d. Basis for in-service benefits and pension contributions.

Base salary may be paid in home or local currency or in some hard currency like pound or dollar.

2. Foreign Service inducement/hardship premium:

Parent-country nationals often receive a salary premium as an inducement to accept a foreign assignment or
as compensation for any hardship caused by the transfer. Such payments vary depending upon the
assignment, actual hardship, tax paid to foreign governments and length of the assignment.

3. Allowances:

Various allowances are paid to expatriates depending upon the assignment. They include:

a) The cost-of-living allowance (COLA):

It involves a payment to compensate the differences in expenditures between the home country and the
foreign country.

7
 b) Housing allowance:
Implies that employees should be entitled to maintain their home-country living standards (or, in some
cases, receive accommodations)

c) Home leaves and travel allowances:

Is given to cover the expense of trips (usually once in a year) back home. These trips allow the expatriates
the opportunity to renew family and business ties, thereby helping them to avoid adjustment problems when
they are repatriated.

4. Education Allowances for Children:

Education allowances are given towards fees for the education of expatriates’ children. Education
allowances include items such as tuition, language class tuition, books, transportation and uniforms.

5. Relocation Allowances and Moving:

Relocation allowances usually cover moving, shipping; temporary living expenses, and down payments or
lease-related charges.

6. Tax Equalisation Payments:

Many international compensation plans attempt to protect the expatriate from negative tax consequences by
using a tax equalisation plan. Under this plan, the company adjusts an employee’s base income so that the
expatriates will not pay any more or less tax than if they had stayed in the home country.

7. Spouse Assistance:

To help guard against or offset income lost by an expatriate’s spouse as a result of relocating abroad.
Multinationals generally pay allowances in order to encourage employees to take up international
assignments.

Q.7 8+8 = 16

a) ‘Compensation as a retention strategy’ Comment.

Ans.) A company must incorporate measures of each key learning into its retention strategy in order to
retain top talent and remain competitive in the current labor market. Just as the retention strategy must
support the company’s values and vision, so must the compensation and benefits package. Both must also
focus on and support the employees' needs within the context of serving the business strategy. Researching
key areas that are important to the organization’s employees in terms of a compensation and benefits

8
package is key. Mapping this information into the overall plan and budget of the organization ensures that
the salary and benefits program adds value to employees and the organization.

Total compensation includes a total rewards approach because monetary compensation is not always the
only factor (or even the most important factor) that employees consider when evaluating a job. While the
focus of this paper is primarily on direct compensation, or how employees are monetarily paid in relation to
each other and the marketplace, compensation professionals must be very aware of the many elements in
addition to money.

In our global economy, it has become more apparent that these different elements are valued differently in
different parts of the world. Different approaches, techniques and tools may exist as well. When designing
the compensation plan, one needs to observe methods used by peers across the world, understand what they
are doing and apply what is appropriate.

b) Analyze the situation and answer the questions

Small manufacturing unit has to recruit skilled and unskilled workers. These workers are easily
available from local labor market. Now this manufacturing unit believes that there is no need to
pay the workers above minimum wage set by the State Government. However, as a unit head you
personally feel that fair wages should be paid to workers. Since unit is capable of paying by
having enough profit.
Provide your arguments accordingly.

Ans.) As a unit head of the manufacturing unit I would strongly suggest to pay the labor atleast minimum
wages, as this can help the production in following ways:

 Workers who can cover the cost of living have better morale. They are more productive if they have
a decent standard of living.

 It reduces income inequality while providing an incentive to work. The incentive makes it better for
society than welfare or a universal basic income. 

 A minimum wage spurs economic growth. It gives workers more money to spend. This
increases demand and business revenue.

 Workers who have more time and money can then invest in their education. This further increases
their productivity. It improves the attractiveness of the country's labor pool. A more educated
workforce increases innovation and the number of small businesses.

 Minimum wage laws benefit individual businesses. Workers are less likely to leave to find a higher-
paying job. This reduces turnover and expensive retraining costs.
9
10