PERFORMANCE AND COMPENSATION MANAGEMENT(HRM 751)

COMPENSATION ISSUES

AIDA AZREENA ROSLI(2012698128)

Prepared for: Assoc. Prof. Dr Roshidi Hassan

OUTLINE

1. Global Compensation IssuesRemittances by legal foreign workers

Factors of remittancesPositive Impact of RemittancesNegative Impact of Remittances

2. Competency Based PayDifferent between Job based and Competency based Pay

Why use competency based payProductivity linked with system

3. How to Attract and retain Gen YJob hopping

About fresh grad

Compensation System Design Issues

ExpatriatesEmployees who are resident outside their country of citizenship (Home Country). Typically employees on a traditional assignment of 1 – 5 years with the expectation of returning to their home country.

ExpatriatesEmployees who are resident outside their country of citizenship (Home Country). Typically employees on a traditional assignment of 1 – 5 years with the expectation of returning to their home country.

Host-Country NationalsAn employee’s host country is the country to which an expatriate or

TCN is transferred.

Host-Country NationalsAn employee’s host country is the country to which an expatriate or

TCN is transferred.

Third-Country NationalsEmployees who are not citizens of their home or host countries - for example, a

Swedish national employed by a Belgian multinational company and working for

that company in Spain.

Third-Country NationalsEmployees who are not citizens of their home or host countries - for example, a

Swedish national employed by a Belgian multinational company and working for

that company in Spain.

Global Compensation

Issues

Global Compensation

Issues

INTRESTING FACTS!!!

• Work permit categories typical in Malaysia: Professional Visit Pass (PVP), Employment Pass (EP).

• Foreign nationals must remain on home payroll while in Malaysia on PVP.

• Foreign nationals on an EP may be placed on either local or overseas payroll.

• The minimum salary level MSL in Malaysia only applies to EP holders. MSL is RM5,000 per month, and applies to both local hires and international assignees.

Malaysia

• A minimum salary of AED4,000 per month (AED3,000 if housing is provided by the employer) is required to sponsor dependent family members for residence in the UAE.

• The benchmark for females sponsoring dependent family members is higher. There is no specific written guidance and is discretionary (a minimum of AED10,000 per month is expected at the very least). This applies to both local hires and international assignees.

United Arab

Emirates (UAE)

• Foreign nationals placed on the payroll of a Chinese entity require a ‘Z’ Visa and a work and residence permit.

• Minimum salary RMB 1,500 for the city of Shenzhen is the highest minimum monthly salary requirement others depends on location

• Minimum Salary requirements are the same for local hires and international assignees across China.

China

Compensation Issues in Global Relocations

• The Employment ‘E’ Visa (typically used by ICTs and Local Hires) has an annual minimum salary requirement of USD25,000

• Renewals in many parts of India (the rules vary by local jurisdiction) require proof of compliance with tax withholding requirements

India• There is a minimum salary requirement of 200,000 JPY per month

for both local hires and international assignees. • This is the minimum salary requirement to process a work permit

application in Japan. Other minimum salary requirements may apply under relevant Labor

• Law regulations. For example, an assignee’s salary must be equal to that of a Japanese worker in the same employment category

Japan

• There are minimum salary requirements for Canada that may differ depending on the immigration category.

• Minimum salary is position specific and must be comparable to what a Canadian national would earn in a similar position

Canada

Del Rey, Bernsen &Loewy, July 24, 2013

Remittances by legal foreign workers

Workers’ remittances are narrowly defined as current transfers by migrants who are employed in new economies and considered residents there. Workers' remittances is of considerable interest to economists and analysts because it can have a significant impact on poverty reduction and / or can finance economic growth in receiving economies for receiving country.

The mail online, 11 November 2013

1

Remittances by legal foreign workers doubled from RM10 billion in 2009 to almost RM20 billion 2013, Deputy Finance Minister Datuk Ahmad Maslan.

3.2 million foreign workers of which 1.9 million are legal workers and an estimated 1.3 million are illegal. Total amount remitted by illegal estimated to be more than RM20 billion.

Total amount remitted from Malaysia about US$6.24 billion is slightly over 1% of the amount remitted worldwide by 232 million international migrants, which is 3.2% of the world’s population.

Top three countries are in Asia and the third largest is a Southeast Asian country shows there is a strong cross-border movement of money in Asia and also shows there is a huge supply of human capital that is available.

Factors of remittances

• Migrant may be a motivation for transfer income to family and relatives left behind. The migrant feel cares about poverty of their family and diversifying the resources of income (Kaijage,2008)

Altruistic feelings

• Fixed capital, public assets or to be eligible to other resources in the community. Migrants may have investments that need to be tendered while they are away , in this case they need family members to act on their behalf as trusted agents (Chami et al, 2003)

Investment for the future

• Between migrant and those at home relies on the notion of risk diversification. It become convenient strategy for a household member migrates to a non-correlated labor market to diversify economic risks by entering a type of contract agreement with the household left behind. (Amuedo-Doranates & Pozo,2002)

Family contract

Remittances may move countercyclical relative to the economic cycle of the recipient country. Remittances may rise when the recipient economy suffers a downturn in activity or macroeconomic shocks due to financial crisis, natural disaster, or political conflict, because migrants may send more funds during hard times to help their families and friends.(Clarke & Wallsten, 2004)

Remittances affect international capital market access is through the use of structured finance techniques. Several banks in Malaysia like CIMB, Maybank and International Monetary Fund (IMF) have been able to raise relatively cheap and long-term financing from international capital markets via securitization of future remittance flows. (Levitt and de la Dehesa, 2003).

Large remittance inflows can lead to exchange rate appreciation and lower export competitiveness. (Amuedo Dorantes & Pozo,2004)

Positive impact of remittances

Negative impacts of remittances

Remittances can create a moral hazard problem where by a government fails to put in place economic measures to solve deteriorating economy due to trade deficit or higher unemployment as it anticipates receiving money transfers from migrant workers (Kapur & Aldaba, 2004)

Kapur (2004) argues that remittances are an important mechanism to fund terrorism, civil wars and liberation struggles. He points out that the support is based on migrant organizations based in different countries such as Sir Lankan Tamil migrants in Canada supporting the militant Liberation Tigers of Tamil Ealam (LTTE)

INTRESTING FACTS!!!

Why Use Competency-Based Pay?

High-Performance Work Systems

StrategicAims

Competency-Based Pay Supports

Performance Management

2

Competency-Based Pay

‘A payment system that relates salary

progression or a cash bonus to the display of “competencies” by individual employees.

Systems originate in the identification of competency, understood as the key attributes and behaviours of employees that underlie good performance in a particular organisation or job.’

Heery and Noon (2001)

Different between Job Based Performance and Competency Based Performance

• Job-based pay is a more traditional pay structure in which jobs are slotted into salary schedules

• Each position is assigned a pay range based on job duties and the only variance in pay is based on education and seniority

• This offers employees a more predictable method of pay, making it easier to budget and plan for raises each year.

• Job-based pay structure may offer opportunities for employee development, but it is not specifically used as a platform for employee growth and wage increases.

• Knowledge-based pay rewards employees who set goals to learn new skills and acquire new knowledge

• Ambitious, self-motivated employees typically prefer this approach because it gives them a reason to focus on career development

• Contribute to a systemic raising of the bar for performance across all jobs.

• Employers that use a skill-based pay structure must provide continuing opportunities for employees to gain more skills and training. This allows a company to reduce employee turnover and encourage professional growth

Competency-Based Pay in Practice

This means there is a motivation to demonstrate the competencies and these are fully transparent. The system encourages flexibility and breadth, there by helping the company get a broad base of experience.

Introduced competency-based pay because the previous performance-related pay scheme was ambiguous and provided limited incentive to improve

Because applying a normal distribution curve to performance means that most staff are rated as average and there is little differentiation in pay awards

Their competency-based pay scheme describes the ten critical competencies required for each job family. Staff can be placed on three or four levels of achievement.

Khatri (2000) and Tzafrir (2006) found that compensation based on performance has a significant and positive relationship with non-financial performance where service quality is one of the measures . Meanwhile, incentives and pay were the most important determinants of performance in the service sector, such as among banks (Bartel, 2004).

However, there was only one study that examined the relationship between conventional compensation and service quality. Tsaur and Lin (2004) found a significant and positive relationship between compensation practices and responsiveness , assurance and empathy as dimensions of service quality.

PREVIOUS RESEARCH

Why Use Competency- Based Pay

4 main ways in which employers were making the link between competencies and pay:

76 % of organizations that used competency-based pay used competencies in design of the grading structure

80% used them to determine promotions

88 % used competencies to determine pay rises or pay cuts

56 % used competencies to determine how an overallpay rise should be divided into pay shares.

Adams (1999)

Competency-Based Pay

Organization – Related Outcomes

Employee-related outcomes

Greater workforce flexibility

Increased effectiveness of work teams

Fewer bottleneck in workflow

Increased worker output per hour

More career-enhancement opportunities

Enhanced employee understanding of organization big picture

Greater employee self-management

Improved employee satisfaction

Greater employee commitment

PLWS is a system which establishes the link between wages and productivity. The system will ensure that wage increases proportionate with higher productivity, thus enhancing competitiveness at the company. This dynamic compensation system will directly reflect the company and individual performance to ensure organization sustainability and individual motivation.

Minimum wage policy takes e ect on 1st January 2013, many ffcompanies will be facing great issues in restructuring their compensation system in order to stay competitive in the market. Ongoing debates on the impact of the minimum wage policy, a proactive solution should be taken in place. Productivity Linked Wage System (PLWS) establishes the link between wages and productivity

WHY IT HAPPEN??

WHAT IS PLWS??

PLWS was introduced in 1996 following an agreement between the National Labor Advisory Council (NLAC) and the Human Resources Ministry on the need for wage reform but has only been sluggishly adopted since

WHEN IT START??

The Fixed Component comprises basic wage, plus an annual increment. It provides for income stability, acts as an indicator of the job value, reflects the cost of living and is adjusted accordingly through the annual increment. However, the annual increments should only form a small portion of the wage bill to meet the rising cost of living.

The Variable Components wage incentive, based on productivity or profit sharing formula. It determines the take home pay of an employee

ELEMENTS IN PLWS

ISSUES ON PLWSCOUNTRIES USD Thousand %

Hong Kong 65174 2.7

Singapore 55702 2.1

Taiwan 43 827 1.9

Malaysia 14 217 4.55

Thailand 4801 -1.1

China 4443 8.7

Philippine 3341 0.5

Indonesia 3040 5.0

India 2827 4.8

PRODUCTIVITY LEVEL AND GROWTH OF MALAYSIAN AND SELECTED ASIAN COUNTRIES BY MPC PRODUCTICITY REPORT 2011/2012

In the Asian region, Hong Kong, Singapore and Taiwan productivity levels are much higher than Malaysia ranging from USD 65,000 to USD44,000 compared to Malaysia only USD14,000

In the OECD countries, 9 countries having highest productivity levels ranging between USD97,000 and USD35,000, with Ireland the highest and New Zealand the lowest levels.

Malaysia’s productivity growth is increasing but productivity level is low.

Factors for low level of productivity: - Dependent on large number highly unskilled labor (70%) - Contribution of services sector to GDP as per cent of GDP is only 54% - Low level of technological development - Lack of R & D activities and innovation (Full time work equivalent

per 1,000 people)

To achieve productivity improvements by:

Enhancing business environment to be more conducive is among the factors that can improve productivity. The need to ease in the public delivery system and facilitate business investment

Computers and related equipment are now the fastest growing segment of tangible investment

At the same time, a polarization in Malaysia labor markets is taking place as skilled labor is in demand whereas demand for low-skilled workers is declining

Improve competitiveness Provide recognition for improved performance Creates openness and commitment Provides for equitable sharing Provides job security and stability in difficult times Improves the standard of living Enhances skills and knowledge Provides the drive for innovation

BENEFITS OF PLWS

• Going for higher income economy and to be competitive, Malaysia must sustained its GDP growth of at least 6 per cent continuously by 2020

• Productivity growth must grow persistently at 5 per cent and productivity level will also rise higher

• Employment rate must be maintained at full employment level

• Human capital must be upgraded through training and the number of unskilled workers must be reduced

• Provide conducive environment to encourage FDI

• Encourage industries to invest in new technology and encourage innovation that will increase productivity

• Promote R & D activities

• Encourage industry to implement productivity linked wage system (PLWS)

CONCLUSION OF PLWS ISSUE

3 HOW TO ATTRACT AND RETAIN GEN Y IN COMPANIES?

76 % of employers surveyed said an employee who works less than a year is considered to be a job hopper. 84% employer would not hire someone with a job hopping tendency. At the ages of 25 and 34 surveyed think job hopping is a healthy trend as they could get more experience from the different jobs. Over 65 % of employees surveyed said they have worked less than two years at their jobs, but most of them are already on the lookout for a new job. From the survey, it also showed that these young workers have switched jobs twice in the past 5 years.

Jobstreet and Kelly services survey, May 2013

Jobstreet.com, May 2013

Ms. Chook Yuh Yng, country manager of JobStreet.com said, “If employees job hop too often, nothing is substantial.

Employers are highly unlikely to hire someone with a job hopping reputation, which will reflect in their resume.

Companies are also incurring huge recruitment and training costs as they race to meet their talent needs in a market dominated by job-hopping generation Y workers.

High turnover in employees also has a direct impact on a company’s productivity. Aspects contributing to this include lost time in rehiring, interviewing and training, lost sales or a lost customer base. 

According to Kelly Services marketing director for Singapore and Malaysia Jeannie Khoo, this trend is predominantly seen in Gen Y, and no, it's not always just about the money.

EMPLOYERS EMPLOYEES

It’s unhealthy Gen-Yemployees tend to quittheir jobs more easily(84%)

Job Hopping Trend

It's healthy to get moreexperiences from the different jobs(75%)

Will not hire someone withjob hopping tendency(83%)

Job Hopping MindsetIntend to switch job within 1-2years(49%)

No career development(75%) Reason for Job

Hopping

Require more reward andcompensation(81%)

Provide training, betterworking environment andcompensation (68%)

How to RetainProvide competitive rewardsbased on performance(36%)

GAP

ABOUT FRESH GRADS…

What employers think is lacking among unemployed graduates

• Expectations – 64%– Should ask not what the company will do for them but what they can do for thecompany first– Should know the market value (do research)

• Attitude – 60%– Should demonstrate continuous learning/self learning– Should demonstrate ownership/commitment etc.

• Good communication skills (English) – 56% & 52%– Should be able to communicate & articulate well in the business language– Should be able to work as part of a team– Should show confidence

• Choosy – 38%– Should know the market outlook– Should be realistic about the ideal first job/ company

General Expectations from Companies of aGood Graduate/ Hire

• Good values– (e.g. honest, confident yet humble, innovative and creative)

• Positive attitudes– (e.g. proactive, hardworking, high motivation and curiosity driven)

• Work-related skills– (e.g. communication, entrepreneurship and leadership skills)

• Preparedness to work– (e.g. industry-ready skills and ability to perform well in a working environment).

Source: Unesco Report

Jobstreet.com.survey, 2009

OVERCOME ISSUES

It is important that the education program offered are able to equip graduates with the necessary skills to join the workforce including both intellectual and practical skills– (e.g. Technical or domain specific knowledge & skills)– (e.g. Other important skills including Communications, Logical thinking, ProjectManagement, interpersonal skills, General Knowledge etc.)

• It is also important to align to the needs of the Work Place, so that Graduateshave the right “preparedness to enter the workforce”– Internships is key– Projects/ Coursework– Involvement of industry in curriculum review, guest lecturing, providing career talks etc.