MU0015 –Compensation Benefits - summer/spring February 2012

Spring/ February 2012

Master of Business Administration- MBA Semester 4

MU0015 –Compensation Benefits - 4 Credits

(Book ID:1336)

Assignment Set- 1 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions.

Q1.What are the factors to be taken into account to ensure an optimum compensation

package for executives?

Ans. There are a lot of factors to be taken into account to ensure an optimum compensation

package for executives. In this section, some of the important criteria are elaborated.

Strategy criterion

This refers to the correlation between the organizational strategy and the performance of its

executives. The difficult work is to come out with a model which balances between

organizational strategies and employee performance. One of the biggest expenses for an

organization could be the rising cost of employee compensation. On the other side, it cannot be

neglected because the employee's performance is directly related to compensation. Therefore,

some of the important steps to be taken into account are

Creating incentives based on the product life cycle.

Relating compensation to organizational strategies.

Following a simple compensation strategy.

Role criterion

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Hierarchical positions and organizational roles have a contributing effect on executive

compensation design. Executives act as figureheads, and hence they should be compensated

more than others in the lower rungs. However, organizations are now experimenting with

structures to respond to the changing environment. It may be essential at times to sacrifice the

traditional hierarchical structure. In such cases, executive compensation may not be aligned with

the figurehead roles. Sometimes the pay is based on functional aspects and not on the role or

position. For example, pilots are not paid a high compensation package for their position, but for

their functional aspects. Therefore, the roles and responsibilities of the job is an important aspect

in deciding the executive compensation.

Behavior criterion

The actions and the processes followed by executives while performing their jobs reveal their

behaviour. This criterion is associated with the monitoring mechanism, and executives usually

try and do a subjective analysis of the business decisions. Hence executive compensation based

on behaviour criterion is quite sensible. However, executive behaviour is difficult to measure and

all the aspects of the observed behaviour cannot be expected to meet a specific outcome. Hence,

behaviour criterion has not received much attention from the corporate world.

Size

There is a general opinion that the size of an organization plays the most influencing role while

designing executive compensation, while on the contrary, it is not. It is the performance of the

organisation which is the most important criterion which influences executive pay package.

Market

The marginal productivity theory of Roberts (1956) argues that a market forces, that is, supply

and demand for executive talent determine executive pay. This theory considers the services of

executives like any other input for running a business operation. The theory argues that the value

of the input (executive compensation) is determined by the intersection of supply and demand in

the labor market.

Peer compensation

The social comparison theory (O'Reilly et al. 1988) assumes that the compensation of selected

peers plays a role in designing executive pay. Often board members of an organization consider

themselves as a referral point in their executive pay recommendations

Q2.How is employee benefit and labor market linked?

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Q3.What are the factors that have to be determined before preparing the salary structure?

Q4.Describe Mintzberg 5 P’s of strategy

Q5.How does compensation effect employee satisfaction?

Q6.Ms.Deepa Mehra is the VP-HR of Induslink Network. She is assigned the task of finding a

new CEO for the company and fixing the compensation. What are the trends that she will have to

look into before finalizing the compensation package for the CEO?

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Spring/ February 2012

Master of Business Administration- MBA Semester 4

MU0015 –Compensation Benefits - 4 Credits

(Book ID:1336)

Assignment Set- 2 (60 Marks)

Note: Each Question carries 10 marks. Answer all the questions.

Q1.What is CTC? What are the components of CTC?

Ans. Cost to Company is the amount that you cost your company. That is the amount that the

company directly or indirectly spends on you because of employing you.

Components of CTC:

Following are the components of

i. Basic

ii. Dearness Allowance (DA)

iii. House Rent Allowance (HRA)

iv. Medical Allowance

v. Conveyance Allowance

vi. Special Allowance

vii. Vehicle Allowance

viii. Incentives or bonuses

ix. Leave Travel Allowance or Concession (LTA / LTC)

x. Telephone / Mobile Phone Allowance.

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Q2.What are the elements of compensation?

3.Define internal equity and explain its importance.

Q4.What are the major issues related to repatriation?

Q5.Describe flexible workforce in detail.

Q6.Mr.Senthil is the HR Manager of First Source Pvt. Ltd. He found that many of the employees

have been doing the same work for a long period of time. He decided to enrich some of their

jobs. List some of the strategies which can be used by Mr.Senthil to enrich jobs in organisations.

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Documents

MU0015 –Compensation Benefits - summer/spring February 2012