STRATEGIC COMPENSATION

& REWARDS

PREPARED BY:
ANNU (030)
POOJA RANA (075)

Scope of the Presentation

Strategic compensation: Introduction

Compensation design and its drivers

Challenges & Issues to Strategic compensation

Principles to Strategic Compensation

Strategically oriented compensation systems

Strategic Compensation: Introduction

Strategic compensation is a fast-emerging phenomenon.

Involves compensation practices being aligned with the achievement of

the organisation s strategic business objectives.

Strategic compensation is the type of compensation scheme implemented

to improve the motivation of your people to perform better.

It must also have the potential of strengthening your image as a good

employer.

Paying competitive salaries is in accordance with sound employee

recruitment, employee engagement and employee retention practices. You
are making it a truly strategic compensation.

The
strategicperspectiveinvol
ves thinking about how
pay can assist in achieving
organization success.

Compensation Goals and Strategy

Basic Goals of a Compensation System

Attract Employees

Retain Employees

Motivate Employees

Compliance with Pay Laws

Administrative Simplicity

Cost Effective

Drive focus & effort to exceed performance objectives

Internal and external equity

There are four (4) key questions which must be addressed:

How much should we pay? (What is the SIZE of the economic pie?)

In what form should we pay it? (How should the pie be SLICED?)

When should it be provided? (When and how do we serve the pie?)

How do we make adjustments? (When should we change the pie recipe?)

Following steps need to be followed in

compensation system design:
I.

Work Design

II.

Job Evaluation

III.

Job Benchmarks

IV.

Labor Market Definition

V.

Market Research

VI.

Compensation Determination

VII.

Job/Pay Structure Design

VIII.

Compensation Review Policy

IX.

Internal Equity Review

Compensation & Benefits Strategy Design

Drivers
Compliance Related (Legal)
o Strategy & Market Drivers e.g. Target markets, General strategy,
Competitive Positioning, Business model & complexity, M&A.
o Operations Drivers e.g. Performance benchmarking, Operations
Excellence Programs, Process Innovation projects.
o Technology Drivers e.g. New product/ service offerings, Integrating
technologies, Technology alliances.
o Structure & Processes Drivers e.g. Organization & Cost structure,
Process re-design, creation of new divisions, departments, functions
o Workforce Drivers e.g. Demographics & Diversity, Talent attraction,
motivation, retention & engagement, Culture.
o

Human Resource Strategies

Societal

Strategies
affecting
compensa
ti-on
decision
making

Corporate
Business
Functional

Governmen
tal
Decisions
Organization
al
Management
Decisions
Function
Level
Decisions

C&R Strategy: Challenges & Complexities

Limited Talent, especially in emerging economies or for Hot Skills

Managing workforce diversity and aligning C&R to employee needs
Increased flexibility in C&R programs e.g. Expatriates with Split pay
requirements, flexible benefits programs, etc.
Ever present threat of downsizing
How to distribute scarce compensation & benefits $
Having a Credible performance management system that support
Performance Based Pay concepts
Balancing the issue of: Linking Rewards to Performance vs. Building a
Team Culture
Competitive position & the contribution required from the workforce.

Principles behind C&R Strategy

Always link back to strategy & business objectives

Able to drive & align performance
Establish a philosophy, policy guidelines & target objectives
Evaluate costs in relation to value / impact expected NOT to What others
do or generic benchmark numbers
Manage PIE - Perceptions, Implementation & Expectations
Evaluate effectiveness against expected outcomes
Keep it simple & flexible (Control fixed costs; consider adaptability across
countries & time periods)
Decide on level of consistency required especially if you have Hot Skills.
Base it on Relevant Data = Market Data + Business Value Data

STRATEGICALLY ORIENTED
COMPENSATION SYSTEMS

Skill Based Pay

Broadbanding
Team Based Pay
Variable Compensation

Skill Based Pay

Focuses on individual, not the job

With skill based pay, employees are able to increase their

compensation as they acquire a broader range of skills

Although there are variations in how skill based pay is implemented,

employees typically start out at a base rate and increase their
compensation as they master a sequence of skill blocks

Typically employees take several years to master the content of all

skill blocks

Difficult aspect involved in the administration of skill

based pay involves the determination of the amount of
pay that should be assigned to skill blocks

Market survey data are often used to establish the

range and average values for skill blocks

Advantages

Costs of higher wage rates are offset by higher

productivity and increased quality
Employees heightened motivation for training
Greater task variety
Employee induced pressures on companies to provide
training
Increase in employees self esteem
Increase in compensation with expansion of skill sets
and not on the basis of seniority

Broadbanding

Broadbanding involves a reduction in number of salary bands

Large number of pay grades are consolidated into a few

broadbands

Implemented in large, hierarchical organizations to flatten their

organizations and remove levels of management

For example, an organization that had 8 levels of management

could eliminate 4 levels, widen the salary ranges of remaining 4
levels and simply slot each manager into one of those ranges

With broadbanding, a manager can easily encourage

his/her employees to broaden their skills and abilities

In order for employees to advance in pay and

responsibilities, they have to further develop their
specialized skills

So, it leads to skill acquisition and development

Employees salaries can be raised without a promotion

Team Based Pay

Team based pay involves specifying a goal and then allocating

to all team members a reward for its accomplishment

Rewards can be cash as bonus, trips or time off from work

These rewards are provided to all members equally

Overcomes the problem of measuring individual contributions

Facilitate cooperation among team members

Variable Compensation

This type of compensation as by its name is variable. It

means that one gets compensation as per the work
done. If one does a remarkable job then he or she
deserves a higher compensation package than one
whose work is of poor quality.

Case Study
on
Novartis

Performance-based compensation policy is designed to:

Align the objectives of associates with the interests of
the shareholders
Incentivize associates to create sustainable value for
Novartis and its shareholders
Support a diverse and performance-oriented culture that
allows Novartis to reward people who perform well
Be competitive with world-class companies and industry
peers

Base Compensation

Each associate is given a fixed salary based on job

characteristics, market competitiveness and the
associates skills. Salary growth depends on the
associates individual performance and level
compared to the benchmark.

Variable Compensation

Short-Term Incentive Plans

Awards under the short-term incentive plans are made each year based on
the associate's individual target incentive percentage, individual year-end
performance rating as well as on the Groups or business area's
performance.

Novartis Equity Plan "Select"

Each year, approximately 10 percent of all full-time-equivalent associates
worldwide may be eligible for a grant under the Equity Plan Select.
Grants can be taken in the form of restricted shares, tradable share options
or a combination of both, with a vesting period of three years. In some
jurisdictions Restricted Share Units (RSU) are granted rather than shares.

Long-Term Performance Plan

The Novartis Long-Term Performance Plan rewards key executives who
have a significant impact on the long-term success of the Group by
aligning the incentives of key executives to the performance of Novartis

THANK YOU