Page 166 - DMGT406_HUMAN_RESOURCE_MANAGEMENT

Unit 10: Compensation and Benefits

Pay Plans – Strategic Decisions Notes

Strategic pay plans involve the following four areas:
1. Pay level decision: It considers whether organisation have a lead, lag or match policy. Pay
decisions significantly impact performance, skill development, work related attitudes
and workforce compensation. It also determines whether or not employee is willing to
continue the job in the organisation.

2. Differential Pay Decision: Differential pay decisions may have two approaches. The first
is based on the seniority. Compensating on seniority has been a traditional approach. The
other one is related to the merit of employee. Under this approach, employee get
compensation according to their performance irrespective of their length of service. But
differential pay decision requires a prudent choice between two approaches so that the
organisation achieves its goals and objectives effectively. In practice organisation combines
these two approaches for getting the desired results.
3. Pay Structure Decision: It refers to the differences between levels of the organisational
hierarchy. If there are large differences then employees may focus on engaging in
networking and integration that make them move to the higher levels. This practice
ignores the effective job performance. But, if the differential is not enough employees
may not be motivated towards promotion and higher pay, which again hampers their
effective performance.

4. Administration Decision: It is related to determining on means and measures to provide
benefits to its employees. These decisions also influence employee behaviour. If pay
decisions are based on performance, skill and merit employees will be motivated to do
better and enhance their skills and education. If decisions are subjective then integration
and networking will supersede job performance.

Task Infotech Enterprises Ltd. has 4,000 employees and wishes to develop a compensation
policy in all its divisions [(i) Engineering design services, (ii) Geographical Information
Systems, and (iii) Software Development and Services] to correspond to its dynamic
business strategy. The company wishes to employ a high quality workforce capable of
responding to a competitive business environment. Suggest different compensation
objectives to match Infotech's business goals.

Employees Stock Option

Employee stock ownership plans originated in the US in the early 90s. Such plans have not
gained popularity in India. However, in 1988, the government allowed stock options to software
professionals, recognising the importance of retaining talent within the country.
Under employee stock option plan, the eligible employees are allotted company's shares below
the market price. The eligibility criteria may include length of service, contribution to the
department/division where the employee works, etc. The company may even permit employees
to pay the price of the stock allotted to them in installments or even advance money to be
recovered from their salary every month. The stock option empowers the employee to participate
in the growth of the company as a part owner. It also helps the company to retain talented
employees and make them more committed to the job.
Wipro's ESOP has made employees rupee millionaires.

LOVELY PROFESSIONAL UNIVERSITY 159