Retention bonus

Lehman brothers gave a 130% retention bonus when the firm when bankrupt. AIG staff got $165m retention bonus, of late. Most of the candidates who wanted to switch to a different company, during a difficult phase, preferred to stay back with Nomura (the firm which acquired Lehman), once the retention bonus was announced.

The above situation just gives an idea on the wonders; retention bonus can deliver to an organization. The retention bonus scheme varies from company to company. Some offers a percentage of the salary as the retention bonus. The percentage would vary from company to company. Some of them would even offer a flat fixed package. Some companies pay out the bonus in lump sum while others space it out over a period of time.

Retention bonus can be a part of the pay structure as well. To know more about pay structure visit

http://www.salary.com/personal/layoutscripts/psnl_articles.asp?tab=psn&cat=cat225&ser=ser034&part=par409

Job evaluation

To design a pay structure and also to know the competencies required for one role, one needs to know size of one job relative to other. Job evaluation is the process of comparing one job role to another and determining the relative importance and competencies required for a particular job profile.

Job evaluation is the building block for formulating a reward strategy. This also helps in formulating the career path of an employee. The real test, however would, whether it is acceptable among all the participants. If one evaluates a job in a wrong manner, the reward strategy would be designed accordingly and this can result in employee dissatisfaction and hence increased turnover. But it is very important to note that, the evaluation is done for the job and not for the employee.

In the ranking method of job evaluation, the jobs are rated on the basis of the salaries prevalent in the market. But then it is noted that jobs need not be exactly similar to the market and the rating within the organization might be different from that present in the market. Hence this method has less focus on internal equity.

In the whole job slotting method, jobs are compared one on one and hence it is pretty much subjective. So it becomes a cause for criticism of HR. So HR needs to be really cautious about this.

In the point factor approach, various factors of a job are assigned points. Each factor is given a weightage and a tally of points is made. Then the relative worth of each job is found out.

Ultimately, similar jobs are categorized into similar job grades.There are other methods like simple classification, factor systems, market pricing etc.

But certain points to keep in mind are that, the methods needs revision depending upon changing market conditions and external and internal environments.

Job Pricing

The final result of a job matching exercise would be a list of roles in the industry which has a certain level of matching with the roles in the organization. Now an exercise called job pricing is done. In this exercise, the total remuneration for a certain role is found out by benchmarking it with comparator roles which has been obtained as a result of job matching. For this a survey is done in the industry for the comparator roles and then an analysis is done. The analysis is done in such a way that it gives a detailed split of the remuneration.

The statistical analysis would cover the various measures like mean, median, mode, P25, P75, min, max etc. Other parameters like range spread etc are found out. Now this is done for each component of the compensation like base pay, variable pay, benefits, etc in detail. From this benchmark results, the organization fixes a certain remuneration framework for the role.

A deeper analysis of the process of job pricing would show that, it includes the analysis of the detailed split of various components of the compensation. It also analyses the percentage split of various components of compensation in the market. For e.g.

Fixed Pay – 10%
VP – 20%
Benefits -20%
Allowances – 40%
Other – 10%

The whole process ultimately also throws light on the total cost to company.

Job matching

Quite evident from the name, job matching is a process in which a company tries to match a particular job vacancy in the organization with a suitable resource in the market. In this process a lot of factors are considered like skills, qualification, experience etc. The whole process of developing a framework for job matching is mostly done by consulting companies. Organizations approach consulting companies to develop a framework for them, so that a job match can be done efficiently.

What is the need for job matching?

Different organizations have different job positions. No two jobs would be exactly the same in different organizations. The responsibilities handled, the domain of expertise, the skill sets etc will have a difference. So when an organization has a vacancy, it looks out for a resource to fulfill the vacancy. Now on this lookout, it would dig into the external job market as well. In such a situation, a big question will arise in the minds of the HR personnel in charge of recruitment. What are the factors which I should look in a candidate? Obviously it would be pretty much difficult to get a candidate who had the same kind of exposure as the employee who has left the job. So now the HR personnel should draft a process by which he can elicit out the key parameters present in this job from many factors. This could also include some aspects of the employee who left the job. Now a framework has to be developed which would look into certain aspects of the candidate. Now a job match process will compare the aspects of the candidate and the parameters of the job and will give a verdict whether the candidate is a light match, or a medium match or a heavy match for the job.

Certain factors which are used are objective of the job, supervisory responsibilities, responsibilities of the job etc. Other factors like compensation, qualification, skills etc are also considered.

Now this process is very important while benchmarking. For example, suppose an organization is doing a benchmarking of compensation. Now in this process, how does the organization compare the compensation for a certain role across the industry? It needs to find out a comparable role in another organization as well. So for this a job matching process is very important.

When we start formulating a job matching framework, we first divide the organizational roles under different heads and chart out the career paths for each of these divisions. Now within each division, the different levels are also drafted. For each level, the basic qualifications and responsibilities are also formulated.

Now for each job family, the different levels are charted out with probable job titles, and their responsibilities and education requirements and experience requirements as well as the reporting matrix.

Please search for more information on job matching processes. Inputs are always welcome

Internal job postings: Beating the recession with lesser HR spends

The global economy has seen a plummet, and organizations are trying to put their thinking hats on, to find ways to ride out the storm. When cost cutting has been seen in every department, and the employment opportunities looking bleak, many companies have even frozen recruitment. But then still there are potential openings in organizations and HR departments try to fulfill these vacancies with minimal recruitment spend, so that they can counter the recession as well as align their recruitment strategy on lines with the organizational strategy.

One of the recent approaches to filling such vacant job openings has been the process of internal job postings. This is an interesting concept as this can allow many companies to refrain from the least preferred approach of lay offs. In this approach, companies advertise within the company using intranet, mailers, newsletters etc that there are certain vacancies within the organization and the skill sets required for the particular job. On seeing the announcement, employees can apply for that vacancy, if they have the required skill set and would be finally selected by various procedures. This method can help to reduce the recruitment cost by around 70% which will benefit the company in countering the downturn.

There are some more inherent advantages to this approach. There would be many employees within the organization who feel that their current job is not motivating enough and would require a change. There would be some talented employees who are currently placed with a wrong job. So this approach can help such kind of employees to find a better job within the organization and thereby pursue a better career for themselves. This is a big morale booster and can motivate the employees a lot, thereby increasing the productivity of the company.

However, there are some concerns, like the fairness in the selection process. Some employees can use their contacts to politically influence the process, thereby spoiling the whole purpose of this exercise. This concept, though, is slowly catching up in India, especially in IT firms, which have seen a round of retrenchment processes in the recent past.

This approach can also put a big break to employee turnover, thereby helping the organization to retent its key employees. But at times some managers would not prefer some good employees under them to be transferred to a different department. So there can be a pressure from line managers to prevent such a transfer. So the internal transfer policy should be documented in such a way as to prevent such hassles.

One way to prevent such a problem is to alert the manager when an employee under them has applied for a vacancy. This can help them in planning against a potential threat. But this can act disastrous as well. The managers can be dissatisfied at this move of an employee, and probably think that the employee is not satisfied and thus can adversely try to affect the appraisal of the employee. This is a potential threat in many organizations which coerces the employee to plan his career move secretly. If such problems are solved, this policy can act as a blessing in a downturn.

Job sharing: An afterthought by organizations in the wake of recession

Norman Same, director of Australia based knp solutions, feels that lay offs are not the best idea during a recession, as it can adversely affect the brand equity of an organization the job market, once the economy comes out of the temporary slump. It was in this context, that Mr. Same thinks that job sharing, has been catching up in the Australian Job market.

What is job sharing?

Job sharing is a concept in which two or more employees share the same job by working a part of the time in a week. In this concept, the total work done by two employees would be equivalent to the work done by an employee in the normal course.

Incidentally, there are companies which are dedicated specifically for providing advisory services to companies on job sharing. Job sharing Resources, a company based in Merrick, New York is one of them.

While job sharing was considered to be an option which comes under the work-life balance policy of a company, of late, this concept is been used by employers to tackle the recession. By using job sharing, the company need not cut down on manpower. Instead they can club two people to do the job of a single person. The challenges in this process involve finding two candidates with same skill set and willingness to share a job. But then many employers are giving an option for candidates to opt this scheme. By using this scheme, employees can keep in touch with their skill, without losing their job, and wait till the economy to come out of slump. Once the economy revives, the employees can resume their normal schedule of work.

But the question to be asked here is that, will job sharing work as a good option in a country like India?

There are various challenges in implementing a job sharing program. The two candidates should be able to coordinate between themselves to complete the work efficiently. The employees should be aware of what part of the job each one is suppose to do and the responsibility matrix should be well defined. Else it leads to chaos and lack of motivation and dissatisfaction.

Another problem is in other employees to be aware of who’s in charge at a particular point of time. This will help them to coordinate with the respective member on schedule.

The benefits like medical benefits can be given as an option to the employees under job share with options. For example, the employee can be given an option to choose between some benefits so that the total cost for the job, remains the same.

More information on job sharing and its nuances are widely available in the public domain. However the scope of this article is to give a brief idea on the concept of job sharing.

http://careerplanning.about.com/od/jobsharing/a/job_sharing.htm

A link about work life balance:

http://www.fordfound.org/archives/item/0299/text/6

Succession Planning

The whole topic of succession planning gains significance, in the light of the fact that; the average tenure of a CEO has decreased drastically over the years. A major reason could be that, the business environment is becoming more competitive and turbulent and hence requires a lot of zing to survive the rough waters. So thus the concept of a lifetime CEO has become obsolete. And the era of making a CEO search an internal affair of a company has passed as well.

Succession planning is required at every level of the company. The succession planning for a CEO involves multiple stakeholders. But the most important stakeholders would be the incumbent CEO and the board of directors. Most of the companies keep a time horizon; say 5 years, as the tenure of a CEO. During this tenure, they plan who would be the next CEO. They would also have an emergency plan, in case of any emergency. But otherwise, the grooming of the succeeding CEO would be done keeping in mind long term plans.

But what can be the major factors which decide how the new CEO has to be selected. An outsider can run the risk of adversely impacting the culture of the company. But when there is a need to cause a change to the strategy of a company, an outsider can add value as a CEO. In companies where an entitlement culture exists, appointment of an outsider can be seen in negative light. By entitlement culture, it means that, the insiders of the company feel that they are entitled to lead the company in the future.

Companies which have established rules and processes for succession planning are more equipped to handle changes in turbulent market conditions. But how the market views the appointment of a CEO, depends on how the current CEO performs his job.

Mostly when a company feels the need of a new CEO, they start benchmarking the internal contenders for a CEO with external talent. But some companies still do not do that. Mostly these are companies which do not have formal succession planning processes established. The sheer complexity of emotions which flies around when a new CEO is to be appointed makes the things more complex. Insiders would not prefer a new person to take their opportunity. The board might have friendly tie ups with many insiders whom they feel that will support their strategy and line of thinking. Factors like these might prevent the company from appointing a CEO who is an outsider.

The case of coca cola, under Ivester, is a good example of how lack of benchmarking and succession planning procedures can put a company in a quagmire.

Campbell soup has a good succession planning in place.

As components of variable pay: Gain sharing v/s profit sharing

Both gain sharing and profit sharing are parts of variable pay, but then they do differ in a lot of aspects and do concur on a lot of aspects. Both gain sharing and profit sharing happens when the organization performs much better than expected, but then how is better performance translated into a compensation for an employee. Here the basic difference comes in what parameter is used to define performance and this eventually drives the whole plethora of differences between the concepts of gain sharing and profit sharing.

Gain sharing

Suppose you are a shop floor employee and your daily target is to make 10 items during the work time of 8 hours. So effectively the estimated time per component is 0.8 hours. Now you work in an efficient manner and you are able to make the 10 components in 7.3 hours. In this case, you have saved around 0.7 hours while doing your work and thereby 0.7 hours for your company. This is a gain from the company’s point of view. So under the concept of gain sharing, using a predetermined formula, this gain will be translated into a compensation benefit. Now there can be various questions which arise once you have read the above concept.

* Doesn’t the above gain of time, accounted in my performance and thereby in my annual appraisal?
* How will the compensation be calculated?
* Won’t I compromise on the quality of the product which I make, if I know that I will get more pay, if I finish in lesser period of time?

The gain of time can be one of the parameters of the appraisal, but not the only parameter of the appraisal. The appraisal might consist of a multitude of parameters, and the gain of time might not be objectively counted in for the appraisal. Most of the companies have vaguely defined appraisal parameters. Even though each role might have some certain set of parameters which drive the whole appraisal process and outcome, there can be a lot of subjectivity involved in the appraisal. So in such a case gain of time factor, will act as a good driver for determining the VP under the gain sharing plan. But it is to be noted that, the gain of time is just one example of a gain sharing plan. There can be other factors used to measure productivity which will be used to determine the pay under the gain sharing plan.

The compensation under this plan will be calculated using a pre determined formula which the organization decides. The gain sharing might or might not be based on an individual productivity improvement. In many cases, the productivity can be measured on an organization wide or department wide basis.

The quality problem can be addressed on what parameter you decide the gain sharing portion of the compensation. Some companies use, the no. of scrap rates to determine productivity.

So the key aspect to be noted here is that, how is productivity defined with respect to gain sharing plan. An example of a definition of productivity is: Productivity = Labor cost / Sales value of production.
It can be noted that, the definition varies with the industry which we are considering.

For more information on the various types of gain sharing plans see http://www.qualitydigest.com/jul/gainshre.html

Profit sharing

In this the company distributes a part of it pre tax profit amongst its employees. The amount received by each employee generally depends on the base salary each employee has. Generally, this plan does not apply to every employee. This applies to certain pay grades. This acts as a morale booster for the employees.

Now the first difference between a profit sharing plan and a gain sharing plan is that, a profit sharing plan is executed only annually and a gain sharing happens monthly. Profit sharing can also happen quarterly. This depends on the company policy. In most companies, it is done on an yearly basis.

The major factor which differentiates the two plans is that, in a gain sharing plan, an employee knows exactly what to do, to incur a gain in a factor. Like, if a gain factor for productivity is considered to be a scrap rate, then the employee exactly knows, that he has to reduce the scrap rate to increase gain for a company. But in a profit sharing plan, employee is unaware of what actions of his will exactly translate into a profit, and how much of efforts can lead to a certain amount of profit. So gain sharing plan helps an employee plan his work more efficiently by giving more information, whereas a profit sharing plan gives the employee no such specific information.