Global Compensation Practices

For many companies, maintaining a domestic compensation program that supports the strategic goals of the organization and meets the needs of employees is a difficult challenge. This challenge is intensified when a similar program must be designed to operate in multiple countries with different cultures. For organizations competing in a global marketplace, managing compensation requires a through understanding of the taxation of compensation and benefits, differing state social systems, differences in living standards and employee values and expectations.

Some of the most challenging questions in compensation practices are following:

  1. How does a company pay expatriates from difference home countries brought together to work on a project?
  2. What about compensation packages for same country nationals sent to different regions of the world?

Traditional compensation systems for expatriates, such as the balance sheet approach and going  rate approach, may not be adequate for the company or expatriate in facilitating an case of transfer. Global enterprises require global compensation systems that allow the organization to maintain the flexibility and ease of transfer between countries and regions while providing employees a just wage. A compensation system must be designed to work regardless of where the expatriate is sent on assignment. To some degree, this requires rethinking the traditional focus on location and national culture in determining expatriate compensation.

Traditional Systems of Global Compensation

Of the traditional global compensation schemes, the balance sheet method is most commonly used. More than 85% of US companies use some variation of this method to compensate their expatriates. The objective of the balance sheet method is to keep the expatriate economically whole or to ensure that the expatriate doesn’t financially suffer or come out ahead as a result of the international assignment.… Read the rest

Wage Issues under Collective Bargaining

Almost all contract negotiations pivot upon, and most grievances and arbitration procedures thus ultimately deal with, four major areas : (1) wages and issues that can be directly related to wages; (2) employee benefits or economic “fringe” supplements to the basic wage rate; (3) “institutional” issues that deal with the rights and duties of employers and trade unions; and (4) “administrative” clauses that treat such subjects as work rules and job tenure.

Probably no issues under collective bargaining continue to give rise to more difficult problems than do wages and wage-related subjects. When negotiations reach a stalemate, they frequently do so because management and trade union representatives are not able to find a formula to resolve wage disputes. And wage controversies are, for that matter, by far the leading overt cause of strikes; Over the past decade, for example, they have accounted for over 40 percent of all such work stoppages.

This record highlights the vital character of wage issues under collective bargaining and also suggests that in the area of wages much can be done to decrease management-labor conflict substantially. In any area of human relations, ignorance breeds suspicion, distrust, and conflict; this principle of human behavior is fully applicable to wage negotiations under collective bargaining. To the extent that understanding is substituted for ignorance, there will be a greater opportunity for peaceful settlement of wage controversies, even if conflict of interest in such matters never disappears.

It is not difficult to understand why wages do play such an important and controversial role in labor relations.… Read the rest

Profit Sharing as an Incentive Scheme

Profit sharing is the most popular method rewarding the employees. Under profit sharing incentive plan, the employees are paid in addition to the regular wage, a particular share of the net profits of the business as incentive.

Characteristics of Profit Sharing Incentive Plans

The key features of profit sharing incentive plans may be stated as follows:

  • It is based on an agreement between the employer and the employees.
  • It is a payment made after ascertaining the net profits of the business. It is not therefore, a charge on profits.
  • The amount paid to the employees is over and above their normal pay.
  • The amount to the paid is determined based on some agreed formulas.
  • The payments based on seniority and wage level of individual workers.
Merits of Profit Sharing

The advantages of profit sharing incentive plans are as follows:

  • Better employer-employee relations – This is possible, as the employer is ready to share the profits of the enterprise with his employees.
  • Increase in productivity -The employees make every possible effort to increase productivity because they know very well that higher profits for the enterprise would mean higher bonus for them.
  • Better living standards – It helps to increase the living standards of the employees as the amount received is in addition to the usual wages.
  • Reduced costs of supervision – The workers themselves are duty conscious and, therefore, they need no close supervision. Thus, costs of supervision are reduced.
  • Promotion of team spirit – The employees know the importance of teamwork, as only such an effort would result in higher output.
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Advantages and Disadvantages of Incentive Schemes

Merits of Incentives

The following are the advantages derived by providing incentives to employees:

  • Higher output: By providing incentives to his employees, the employer is able to induce them to work better. This leads to higher output.
  • Greater profits: Needless to say, higher output results in greater profits for the business. This happens in two ways. First, the cost per unit becomes less and second, the enterprise is able to keep the selling price low and this results in greater sales.
  • No problem of idle time: In an organisation where no proper incentives are available for the workers, the tendency will be to while away the time. When suitable incentives are available, the workers become time conscious. They begin to see every minute in terms of money.
  • Supervision does not pose any problem: When suitable incentives are available, the workers become duty conscious. The need for close supervision, thus, does not arise.
  • Efficient workers are able to earn more: Such of those workers who are highly efficient are able to earn more by way of performance bonus, higher commission and so on.
  • Possible to identify inefficient and dull workers: If, in spite of the incentive schemes, some workers are able to earn only their normal wage, it should mean that they are basically dull. The employer, therefore, has to decide whether to retain them or subject them to rigorous training.
  • Rate of labor turnover is bound to be low: If adequate incentives are available to the workers, they may not have a feeling of dissatisfaction.
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Prerequisites for a Good Incentive Scheme

‘Incentive’ may be defined as any reward of benefit given to the employee over and above his wage or salary with a view to motivating him to excel in his work. Incentives include both monetary as well as non-monetary rewards. A scheme of incentive is a plan to motivate individual or group performance.

It is true that monetary compensation does constitute very important reason for the working of an employee. But this compensation alone cannot bring job satisfaction to the workers. One cannot expect effective performance from a worker who is dissatisfied with its job, even if he is well paid. Sociologists and industrial psychologists also view that the financial aspect is not the only dominant motivating force. Confidence in the management, pride in the job and in firm and concern for the overall good cannot be brought by a bonus. Hence the modern authorities on management science have recognized the need for the provision of incentives to build up good morale.

Characteristics of good Incentive Schemes

A good incentive plan shall fulfill the following requirements:

  1. Trust and confidence – The success of any incentive plan depends on the existence of an atmosphere of trust and confidence between the workers and the management. In the absence of such an atmosphere, the workers may resist any such proposal by the management.
  2. Consensus required – The management should not take a unilateral decision while evolving an incentive scheme. Consensus between the workers and the management is necessary for the success of the plan.
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Guidelines for Effective Performance Appraisals

The performance appraisal requires willingness and a commitment to focus on improving performance at the level of the individual or team every day. Like a compass, an ongoing performance appraisal system provides instantaneous, real-time information that describes the difference between one’s current and desired course. To practice sound performance appraisal system, managers must do the same thing-provide timely feedback about performance, while constantly focusing everyone’s attention on the ultimate objective of being the best among the competitors in the market.

Well-written performance appraisals are among the most effective tools for developing people. The following guidelines would be used for effective performance appraisals to significantly increase your team’s effectiveness and perceived value within your organization.

  1. Increase employees comfort level with performance appraisals. At the beginning of each review period, explain the appraisal process, rating system, and appraisal form. Agree on performance objectives and measurements for the upcoming review period.
  2. Start thinking about appraisals as an opportunity to increase the efficiency and effectiveness of team. Measure performance based on mutually understood, job-relevant criteria and identify and suggest actions to improve results.
  3. In addition to keeping organization’s records, encourage employees to keep ongoing records.
  4. Use examples, facts, and accomplishments drawn from these ongoing records to present a factual, complete summary of employees’ results. Specific wording keeps employees focused on objectives, proves ratings, and gives employees something concrete to improve or maintain performance.
  5. Use objective (factual) wording so that concentrate on observed behaviors rather than on personality traits and use the same to write credible performance appraisals that reinforce desired behaviors.
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