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REWARD AND COMPENSATION
MANAGEMENT (BA4019)
BY
A. JOSPHINE CARLIYA

UNIT I
INTRODUCTION
Compensation - Definition - objectives- principles
of compensation formulation- Compensation
Design and strategy- theories of wage
determination- Wage Structure -types of wages-
wage boards- wagepolicy. Compensation decisions-
compensation benchmarking- compensation trends
and reward system in India.

UNIT II
EMPLOYEE COMPENSATION AND LABOUR MARKET
Macroeconomics of Labour markets- Unemployment
and its impact on labour market- Neoclassical
microeconomics of labour markets-models, supply and
demand-economic model Implications on employee
compensation- economic theories and employee
compensation- trade -offs - valuation of employee
compensation.

Definition of Compensation
 Benham: ''Compensation is the value of
work of the employees according to the
agreement between employer and
employee.''
 According to Dale Yoder , ''
compensation is paying people for work
UNIT I
INTRODUCTION

 Equity
Workplace equity is the concept of providing fair
opportunities for all of your employees based on their
individual needs.
 Efficiency
Efficiency is the ability to avoid wasting material
energy , efforts, money and time in doing something
or in producing a desired result. In a more general
sense, it is the ability to do thing well, successfully,
and without waste.
objectives of Compensation

Macro-economic Satiability
Macroeconomic stability exists when key economic
relationships are in balance—for example, between domestic
demand and output, the balance of payments, fiscal revenues
and expenditure, and savings and investment. These
relationships, however, need not necessarily be in exact
balance.
Efficient Allocation of Labor
An efficient allocation of labor is realized when workers are being
directed to their highest values uses, that is, when society obtains
the largest amount of output from the given amount of labor
available.

This means that the value of the marginal product of labor (VMP) is the
same in all alternative employments
Motivating the Employees
Employee motivation through compensation can come in the form
of raises, performance bonuses, commissions, profit sharing, or any
number of "extra benefits" like, automobiles, vacations, or other
tangible items purchased and used as rewards.
Acquired Qualified Employees
Compensation needs to be high enough to attract applicants. Pay
levels must respond to supply and demand of workers in the labor
market since employers compete for workers.

Retain Current Employees
Employees may quit when compensation levels are not competitive
resulting in higher turnover. Therefore, one of the important
objective of Compensation Management is retaining the human
capital or talent of the organization.
Reward Desired Behavior
Pay should reinforce desired behavior and act as incentive for
those behaviors to occur in future.
 Control Cost
A rational compensation system helps the organization obtain and
retain workers at reasonable cost.

Comply with Legal Regulations
A sound wage and salary system considers the legal challenges
imposed by the government and ensures the employers compliance
 Facilitate Understanding
The Human Resource specialists, operating managers and
employees should easily understand the compensation
management.
Further Administrative Efficiency
Wages and salary programs should be designed to be managed
efficiently, making optimal use of HRIS i.e. Human Resource
Information System.

 The organization should have a unambiguous plan to
determine differential pay levels in terms of different job
requirements involving varied skills, exertion, responsibility
and working conditions.
 An attempt should be made to keep the common level of
wages and salaries of the organization in line with that
obtained in the labor market.
 Adequate attention should be taken to distinguish people from
the jobs. Although people are paid in terms of rate embodied in
specific jobs, some exceptions should be allowed in the cases
of professional and executive personnel by paying them in
terms of their abilities and contributions
Principles of Compensation Formulation

The care should be taken irrespective of individual considerations
to ensure that equal pay for equal work.
There should be a plan to adapt an unbiased measure for identifying
individual differences in capacity and contribution in the form of rate
ranges with in the grade increments, wages incentive schemes and a
system of job promotion.
There should be proper procedure for handling the wage
grievances in organization.
Adequate care should be taken to inform the employees and the
union, if any, about the procedure followed in determining wage
rates. There were no confidential wages and the employees should
have a clear understanding of their wage or salary structure. This
will enhance employee satisfaction with wages. There are certain
guiding principles which provide the foundation for effective reward
management.

 Design Meaning
In designing a compensation system, an organization must
value the equity concept clearly define the wage and salary
differentiations and career growth plans, is as to motivate
and encourage the human resource to perform better.
1. Focusing on the Strategy Objectives:
The most important goal in designing a compensation system
is supporting the strategic objectives of the organization and
ensuring the system that fit in with the organization structure
and strategy.
Compensation Design and strategy

2.Ensuring Commitment through Communication and
Participation:
An organization must plan for making change to its compensation
system.
Before beginning to tackle something, it is important that executive
management is absolutely committed to the process, the result and the
implementation. All important techniques for participation and
communication by the clearly defined, advisory or steering committee.
A compensation review committee could help identifying current issues
with compensation, job clarification or salary administration. It could
contribute ideas and feedback provides valuable advice.
3. Analyzing Job Functions:
A job analyst develops a current and thorough understanding of
the work that is being formed by the employee.

It is important to undertake a job analysis before making changes to
the compensation plan as job analysis provides a collection of
relevant information on the type, scope and responsibility of each
job. It is the foundation for job description and how they are in the
market. It enables the organization to establish baseline information
about a job level of responsibility and qualification, and to compare
it to the market place. It also ensures and documents our
compliance with legal requirement.
4. Writing Job Description:
Once the information is collected through the job analysis process, it
can be used for preparation of job description. A job description
summarizes the important component like the general nature of the
work, specific tasks, responsibilities and outcome competence
required to perform the job. A written job description should be
considered a final document. Before it is finalized, it should be
received and accepted by both the employee and the supervisor.

5. Determining Internal Pay Equity:
It determines fairness within the organization. Fair pay is pay that
employees generally view as equitable. Internal equity is
determined by job evaluation techniques such as whole job ranking
method and factor comparison technique.
6. Determining External Pay Equity:
It is the perceived fairness in pay relative to what other
employees are paying for the same type of labour. An externally
focused job evaluation method includes the market pricing
slotting method. For maximum flexibility, using market pricing is
recommended to that of market competitive pay rates. Market
competitiveness is more flexible and adaptable than other
methods.

7. Designing Salary Structure:
Once collection of market data and determination of a hierarchical
ordering of position, is done a salary structure can be designed. Salary
structure consists of jobs of equal value that are grouped into grades
with competitive salary ranges. Pay ranges are the rates from the
minimum to maximum of each grade. Positions are assigned to grades
and pay ranges based on job content, marketing or external equity and
internal equity. Each salary range includes minimum, midpoint and
maximum salaries, with the midpoint representing the market or going
rate for the job.

strategy
The compensation strategy is derived from the HR Strategy and it
defines the position of the organization on the job market, the level
of the total cash, the main bonus principles in the organization and
rules for the base salary setting.
Why Is Having a Compensation Strategy Important?
Attract top talent. An enticing compensation strategy can help
you establish your company’s position as the employer of choice
within your market.
Boost morale. A sound compensation strategy leaves your
employees feeling valued and appreciated as an important part of
the company.

Increase productivity. Providing an employee-friendly
compensation package can help incentivize employees to give their
best and increase their level of productivity.
Retain your employees. Offering a generous compensation package
can help keep your employees happy and convince them to remain
with your company.
How To Develop Your Compensation Strategy
1. Determine Your Compensation Philosophy
Whether creating a strategy from scratch or revamping an existing one,
you should first determine what type of compensation philosophy is
best for your company.
Meet with your executive team or senior management and determine
whether you want to lead the market, lag the market or meet the
market.

2. Assess Your Current Compensation Strategy
Once you know what your philosophy is, assess your current
compensation strategy. Identify whether your current strategy is aligned
with the compensation philosophy determined by management.
If you don’t have a compensation strategy in place, you won’t need to
complete this step.
3. Evaluate Jobs and Descriptions
Before diving into data and creating new pay scales,
evaluate your existing jobs and descriptions. At the minimum, you
want to make sure that all job descriptions are updated with the
most accurate information. You can complete a full job evaluation if
necessary.
4. Develop a Plan for Reviewing Market Data
To compare your salaries with the competition, you’ll have to
review market data. If your company is larger, you may need to
bring in assistance to help your HR department complete the review
.

5. Review Salary Surveys
After you’ve developed a plan, it’s time to dive into salary surveys and
other data. Using published salary surveys, you can find the median
salary for almost any position.
You can access published salary surveys from local HR associations,
industry associations, The Society for Human Resource Management
or other places.
6. Establish a Pay System
When you set your pay scale, you need to make sure it fits your
organizational needs and distinguish between different levels of
jobs, providing room for salary growth. Your pay system will be
based on the compensation philosophy you choose, driving how the
midpoints are set and how wide pay grades will be.

There are several types of pay systems that you can choose from,
including:
•Pay grade levels
•Delayering and banding
•Skill-based pay
•Competency-based pay
•Broad banding
7. Get Approval From Executive Stakeholders
Before you can officially communicate your strategy, you need to get
final approval from executive stakeholders. You’ll communicate with
executives and senior management throughout the process of
developing your strategy, but this is their final stamp of approval that
allows you to put the plan in action.

 Meaning
A payment usually of money for labour or services
usually according to contract and on an hourly, daily, or
piecework basis
 Definition
According to Berham, “Wages mean the amount paid
to the labour for his services to the employer”.
wage

Theory of Negotiated Wages
Unionized employee can negotiate salaries. This is
done by collective bargaining process normally in
any organization; unions periodically submit their
memorandum to the management, asking for wage
raises to keep pace with market standards and
organizational profitability. Then wages are
negotiating in a collective bargaining meeting
attended by the unions and management nominees.
Theories of wage determination

Subsistence Theory
David Ricardo (1772-1832) advocated the Subsistence Theory.
It was homas R. Malthus’s theory of population that provided
the raw material for the first economic wage theory.
Population, according to the theory, is limited by the means of
subsistence: it increases geometrically whereas the means of
subsistence increases arithmetically. David Ricardo translated
Malthus’s theory into the subsistence theory of wages.
According to this theory, wages in the long run tend to equal
the cost of reproducing labour, the subsistence of the labourer.
This theory, often called the iron law of wages, indicated that
little could be done to improve the lot of the wage earner
because increasing wages leads only to increasing the number
of workers beyond the means of subsistence.

Wage Fund Theory
The short-term version of classical wage theory was the wages-fund
theory. As described by John Stuart Mill, this theory explained the
short-term variations in the general wage level in terms of (1) the
number of available workers and (2) the size of the wages fund. The
wages fund was thought to come from resources accumulated by
employers from previous years and allocated by them to buy labour
currently. Employers were thought to have a fixed stock of
“circulating capital” for the payment of wages. Dividing the labour
force (assumed to be the population) into the wages fund determined
the wage.

Surplus Value Theory
The surplus value theory of wages owes its development to Karl
Marx (1818-1883). According to this theory, labour was an article of
commerce, which could be purchased on the payment of the
‘subsistence price’. The price of any product was determined by
labour and the time needed for producing it. The labourer was not
paid in proportion to the time spend on work, but was paid much
less, and the surplus was utilized for paying other expenses.
Residual Claimant Theory
The Residual Claimant Theory advocated by Francis Walker (1840-
1897), assumes that there are four factors of production/business
activity-land, labour, capital, and entrepreneurship. Wages represent
the amount of value created in the production, which remain after
payment has been made for all these factors of production. In other
words, labour is the residual claimant.

Marginal Productivity Theory
This theory assumes that wages are based upon an entrepreneur’s
estimate of the value that will probably be produced by the last or
marginal worker. In other words, it assumes that wages depend upon
the demand for and supply of labour. Consequently, worker is paid
what they are economically worth.
Bargaining Theory of wages
The bargaining theory of wages assumes that wages are determined
by interaction of management and labour in a collective bargaining
process. Although this theory does not provide adequate analysis of
source of wages in the long-run, it forms an effective basis for
determining wages in the short-run

Behavioral Theory of Wages
1.This theory was pioneered by several psychologists, such as Marsh
and Simon, Robert Dupin, and Eliot Jacques. Based on their various
research studies, we can identify the following area of interest in
behavioral theories on wages:
2. The employee’s acceptance of a wage level; Individuals believe in
employment stability and prefer to stay on with the same organization,
pacing with their salary level. There are however, several other factors
to be considered such as size and prestige of the company, trade unions
power in the organization, their level of knowledge and competencies,
etc. 3. The internal wages structure: Employees value internal pay
equity. Moreover, some jobs also command social status (such as the
job of a journalist). Organizations design wages for different cross-
section of employees, while considering maximum and minimum wage
differentials, norms of span or control, and demand for specializes
skill-sets. Balancing wages with such internal equity also keeps
employees more motivated.

 Also known as a “wage structure” or “salary structure,”
a compensation structure is the strategy you use to
determine how each employee in your company is
paid. It considers information like the length of
employment, industry minimums and maximums, and
merit.
Wage Structure

1. Basic wages
2. Bones
3. Dearness Allowance
4. Over time
5. Fringe Benefit
Types of wage structure

1. Piece Wages:
Piece wages are the wages paid according to the work
done by the worker. To calculate the piece wages, the
number of units produced by the worker are taken into
consideration.
2. Time Wages:
If the labourer is paid for his services according to
time, it is called as time wages. For example, if the
labour is paid Rs. 35 per day, it will be termed as time
wage.
Types of wages

3. Cash Wages
Cash wages refer to the wages paid to the labour in terms of
money. The salary paid to a worker is an instance of cash
wages.
4. Wages in Kind
When the laborer is paid in terms of goods rather than cash, is
called the wage in kind. These types of wages are popular in
rural areas.
5. Contract Wages
Under this type, the wages are fixed in the beginning for
complete work. For instance, if a contractor is told that he
will be paid Rs. 25,000 for the construction of building, it
will be termed as contract wages.

 Meaning
A wage board is a statutory body established by the
government to tackle the disputes relating to the
employers or the employees. A Wage Board is a
tripartite body with representatives of management,
and workmen, presided over by an independent person
nominated by the Government.
Wage Boards

 To work out wage structure based on the principles of
fair wages as formulated by the Committee on Fair
Wages.
 To work out a system of payment by results.
 To evolve a wage structure based on the requirements
of social justice.
 To evolve a wage structure based on the need for
adjusting wage differentials in a manner to provide
incentives to workers for advancing their skill.
The main objectives of wage boards are;

 The first step is to prepare a comprehensive
questionnaires designed to collect information on the
prevailing wage rates and skill differentials, means of
assessing an industry’s paying capacity and workloads,
prospects for industry in the immediate future, and
regional variations in the prices of widely consumed
consumer goods. The questionnaire is sent out to labour
unions, employers associations, interested individuals,
academic organisations and government agencies.
The wage boards functions in three steps:

The second step is to give a public hearing at which
leaders of labour unions and employers associations, not
represented on the board, as well as others interested in the
industry in question, are given a verbal or oral bearing on
issues dealing with wages, working conditions and other
items.
The third step is to convene secret sessions at which
members of the board make proposals and counter –
proposals regarding the items covered under the terms of
reference.

Meaning
The term “Wage Policy” refers to the legislation or
Government action undertaken to regulate the level
or structure of wages or both, for the purpose of
achieving specific objectives of social and economic
policy.
Three Concepts of Wages:
1. Minimum wage,
2. Living wage, and
3. Fair Wage.
Wage policy

1. Establish good labour relations
2. Decide on appropriate wages
3. Decide wages based on the individual’s capability
4. Develop a pre-determined scheme for payment of wages
5. Establish linkages of wage payment with performances
6. Maintain parity of wages with other organizations
7. Provide for incentive payment
8. Guarantee minimum wages
9. Provide for neutralization of price rise
10. Develop wage structures that can attract talent.
Wage Policy – Objectives

I. The organizations ability to pay
II. Supply and demand of labour
III. The prevailing market rate
IV. The cost of living
V. Living wage
VI. Psychological and sociological factors
VII. Levels of skills available in the market
Wage Policy – Factors

 Payment of wages Act 1936
 Industrial dispute Act 1947
 Minimum wages Act 1948
 Wages board Act1953
 Payment of bonus Act 1965
 Equal remuneration Act 1976
Wages policy in india

 Meaning
Compensation decisions- Compensation management is a
strategic business decision and one of its most important
functions is to link individual performance with pay.
 Four Principles for Compensation Decisions
1. Secrecy is for the benefit of the employee, not the company
2. Subjectivity is a necessary evil
3. Supply and demand still matter
4. Profit sharing is not inherently wrong
Compensation Decisions

 Meaning
Sometimes called salary benchmarking, compensation
benchmarking is a process that matches internal
jobs with market pay data or a salary survey in
order to identify the market rate for each pos
Compensation Benchmarking

 1. Recruiting the Best Candidates
Today’s job market is more competitive than ever.
Compensation is a major player in attracting the highest
caliber employees. Choosing a proper pay scale that is
aligned, or superior to your competition gives you an
edge to convince the desired employee to join your
organization. Compensation benchmarking can provide
you with salary and benefit comparisons across job
positions, so you can create the appropriate pay grades,
ranges and scales, along with indirect compensation
packages.
What Are the Top 5 Reasons for Compensation Benchmarking?

2. Retaining Top-Tier Talent
You obviously want to retain the top talent you secured for your
organization. To do so, you need to be aware of the compensation
market through ongoing compensation benchmarking. A
compensation survey doesn’t follow a “one and done” strategy.
You’ll want to conduct it periodically, especially in times of volatile
job markets. Employees expect to be paid the prevailing market
salary rate, and if you fail to do so they may very well jump ship.
3. Avoiding Wage Fixing
Federal law prohibits employers to fix wages and agree to not hire each
other’s workers to keep wages low. Compensation benchmarking
provides you with credible market data on salaries and benefits to justify
the compensation you offer to potential employees and pay to current
employees. It adds a layer of protection against accusations of wage
fixing.

4. Creating a Budget
Obtaining benchmark compensation data is helpful to
know the appropriate ranges for similar positions in your
industry. Surveying the market and having salary survey
software data on hand can assist you in creating a well-
supported budget that also allows for adjustments
throughout the year.
5. Improving Employee Morale and Job Satisfaction
When you conduct a compensation survey, it’s wise to
inform your employees of the results and adjust salaries
accordingly. You show your employees that you care
about fairness and their financial wellbeing. All things
considered, happier employees are more productive,
which benefits you in the long term.

 Compensation trends in India
 There is substantial difference in gross compensation for managers and their
immediate subordinate.
 Companies’ designs personalize salaries out of box for individual senior levels.
 There has been a significant increase in basic salary, and hence in differed
benefits.
 Companies have restricted non-tax perks on the form of reimbursement under
various heads to certain top levels of management.
 Companies provide higher increments, average increment from 50-100 percent
to different level of management.
 There has been a shift in incentives to group or team incentives from
individual based incentives.
 Most companies have abolished component such as servants’ wages and utility
allowances as they are not non-taxable any longer.
Compensation trends and reward system
in India.

 Medical benefits are common with tie–ups with insurance
companies and hospitals in many cases.
 Loan provided to buy two and four wheelers are common
practices.
 Housing loans or interest subsidy is also provided.
 Some companies assist employees in their education by
sponsoring evening classes or providing sabbaticals at company
cost.
 Companies reimburse travel expense for holidays including
accomadation in guest house and transit flats.
 The trend had shifted to making components direct and taxable.
 Under profit-sharing schemes senior executives sometimes share
accrued when company earn profits beyond a certain fixed level.
 Companies also provide employees stock options (ESOP) to
employees (Bhattacharyya 2009).

 Process
These are used to measure the value of job, the worth of individuals in
those jobs, and the range and level of employees’ benefits to be
provided. These process consists of job evaluation, market rate
analysis and performance management.
 Practices
These are used to motivate people by the use of financial and non-
financial rewards. The financial consist of base and variable pay,
employees benefits and allowance. Nonfinancial rewards are
provided generally by the culture and values of the organization and
more specifically by the quality of management and leadership, the
work itself, and opportunities given to employees to develop their
skills and careers.
Employees Rewards System in India

Structure
These are used linking pay and benefits levels to the value
of positions in the organization and to provide scope for
rewarding people according to their performance,
competence, skills or experience.
 Schemes
These provide financial rewards and incentives to people
accordance to individual, group or organizational
performance.
Procedures
These are used for maintaining the system and to ensure
that it operates efficiently and flexibly and provides value
money

 Addition to Base Pay
 Individual Performance-related Pay
 Bonus
 Incentive
 Commissions
 Service-related Pay
 Skill-base Pay
 Competence-related Pay
 Career Development Pay
 Allowances
 Employees Benefits
 Total Remuneration
 Non-financial Rewards
Elements of Employees Rewards in India

 Aims of employee rewards in India vary from organization to
organization, depending on their business priorities. Keeping
in view organization requirements the overall aims of
employees’ compensation are (Bhattacharyya 2009):
 Contribution to added value
 Contribution to competitive advantage
 Management of compensation and reward
 Integration of individuals of employees’ aim with the
compensation and reward system in the organization
 Optimization of employees costs.
Aims of Employees Rewards in India

 Macroeconomics of labour market meaning
The labour market in macroeconomic theory shows
that the supply of labour exceeds demand, which has
been proven by salary growth that lags productivity
growth. When labour supply exceeds demand, salary
faces downward pressure due to an employer's ability
to pick from a labour pool that exceeds the jobs pool.
UNIT II
EMPLOYEE COMPENSATION AND LABOUR MARKET

 Unemployment meaning
unemployment, the condition of one who is capable
of working, actively seeking work, but unable to
find any work. It is important to note that to be
considered unemployed a person must be an active
member of the labour force and in search of
remunerative work
Unemployment and its impact on labour
market

 Meaning
Neoclassical economics is a broad theory that
focuses on supply and demand as the driving
forces behind the production, pricing, and
consumption of goods and services. It emerged
in around 1900 to compete with the earlier
theories of classical economics.
Neoclassical microeconomics of labour
markets

 Meaning
The law of supply and demand combines two
fundamental economic principles describing how
changes in the price of a resource, commodity, or
product affect its supply and demand. As the price
increases, supply rises while demand declines.
Conversely, as the price drops supply constricts while
demand grows.
Demand and supply model

 market supply,
 short-term supply,
 long-term supply,
 joint supply, and
 composite supply.
There are five types of supply

 i. Individual and Market Demand:
 ii. Organization and Industry Demand:
 iii. Autonomous and Derived Demand:
 iv. Demand for Perishable and Durable Goods:
 v. Short-term and Long-term Demand:
The different types of demand are as
follows

 The three most important economists were Adam
Smith, Karl Marx, and John Maynard Keynes
(pronounced canes). Each was a highly original
thinker who developed economic theories that were
put into practice and affected the world’s economies
for generations.
economic theories and employee
compensation

Types
Compensation provided to employees can direct in the form of
monetary benefits and/or indirect in the form of non-monetary
benefits known as perks, time off, etc. It does not include only
salary but it is the sum total of all rewards and allowances provided
to the employees in return for their services. If the compensation
offered is effectively managed, it contributes to high organizational
productivity.
1.Direct
2. Indirect

1.Historical Wage Theories
 Subsistence Theory: Also called the Iron Law of Wages, this theory
proposes that wages tend towards a minimum wage necessary to
sustain basic need of a worker over the long run. Thus wages cannot
fall below a certain subsistence wage level since workers will be
unable to work at wage levels that do not allow them access to the
most basic of necessities. Subsistence theory also believes that there
is an inherent equilibrium, which is achieved whenever there is an
imbalance between labor supply and demand, which will lead to the
resetting of the minimum or subsistence wage. In simpler terms,
whenever wages are higher, the number of workers will increase until
there is excess, which will force wages to decrease to the subsistence
level.
Economic Theories in Compensation Management

Just Price Theory: This theory proposes that wages are set in
accordance with established status distributions in society. Thus the
aim is to regulate wage levels in such a way as to allow individuals
to maintain their place in society. Even though this theory was
popular in the time of Aristotle and Plato, one can see its influence
even in today’s compensation systems where maintaining the status
of a group of employees drives compensation behaviours (e.g.
supervisors are paid more than the people who report to them).
Surplus-Value Theory: This theory posits that the value created
by a worker in excess of what he gets paid is the surplus value that
is appropriated by the business as profit. Thus, a business can
generate tremendous increases in wealth, productivity and capital
resources by maximizing the surplus value generated by
employees.

Wages Fund Theory: This theory assumes that wages are
regulated by how much fixed capital employers have allocated to
a wage-fund against the number of workers available in the
labour market. The basic assumption here is that the wage fund is
a fixed and unchanging amount and so wage rates will fluctuate
up or down based on the number of available workers in the
market.
2.Modern Wage Theories
Human Capital Theory: This theory looks at the effects of
experience, skills, on-the-job training and education on the workforce,
and the decisions that employers and employees make regarding
investments in human capital. Analysis of wages according to the
human capital theory show that the amount of early schooling a
worker receives is directly proportional to the wage the worker
commands. On the other hand, schooling received in later years does
not contribute to a wage differential in any significant manner.

Marginal Productivity Theory: This theory proposes that the
demand for labour is determined by the marginal productivity of that
labour, and wage rates are determined by the value of the marginal
product of labour. In simpler terms, organizations value the efforts
of a worker in terms of the revenue earned by employing each
additional worker. Operating under the assumptions of this theory,
an organization will continue to employ workers until the marginal
revenue product is equal to the wage rate, because it would not be
efficient for an organization to pay its workers more than the
revenue generated by the work. Employment and wages are thus
inversely related according to the marginal productivity theory.

 Employee compensation valuation- Companies use
stock options as a form of employee compensation
for a number of reasons. An option is a form of
compensation, the value of which increases as the
company is more successful.
valuation of employee compensation.

UNIT III
MANAGING EMPLOYEE BENEFITS AND REWARDS
Nature and types of employee benefits- statutory
employee benefits in India- Deferred compensation
plan- Non-monetary benefits. Reward - Meaning,
Elements, Types- Basic concepts of reward
management - Designing reward system- Approaches
to reward system- Difference between reward and
compensation.

 Meaning
Employee benefits can be termed as
non-cash compensation which is given to the
employee. These benefit are given to the
employee a part of from salary and wages
retain employee.
Employee benefits

Indirect Compensation: It is an indirect compensation which
can be provided as perquisites and fringe benefits which an
employee gets in addition to the basic salary or wage. Therefore, it
is also called as non-wage/non-salary compensation.
Not linked with performance/merit: Employee benefits do
not accrue to an employee for reaching the targets, for a
particular level of performance, or possessing a particular
skill/merit rather they are provided for keeping the interest of the
workers intact and making the job valuable to him/her.
Labour cost: No matter if an employee receives cash or non-
cash benefits, it ultimately accounts for the cost to the company.

Accrues to all: Whatever perks provided by the
employer in the name of employee benefits are offered to
all the employees, and not just to a particular group.
However, the designation of the employee does make a
difference in the number and amount of benefits.

 Medical insurance
 Life insurance
 Retirement plans
 Disability insurance
 Benefits at work
 Benefits for health
 Benefits for financial security
 Lifestyle benefits
What are the four major types of employee benefits
Types of employee benefits every HR practitioner should know

Benefits at work
•Working hours & leave
•Skills development
•Food & Beverage
•Employee clubs, activities & gifts
Benefits for health
•Health and wellness
•Healthcare
Benefits for financial security
•Pension plans
•insurances
•Financial benefits
•Personal finance benefits

Lifestyle benefits
•Work-life balance
•Mobility
Concept of Reward Management
Reward means a thing given to anyone because of his contribution to
the organization. Rewards and incentives contribute to strategy
implementation by shaping individual behaviour in the organization.
Reward management is important for any business that has
employees. Human resources are usually in charge of the reward
management program in a company. This lesson discusses the theory
and importance of reward management. A good design reward system
is consistent with organizational goals, visions, missions and job
performance. The most obvious reward that individual gets from the
job is in the form of pay.

 Statutory benefits refers to labour benefits that
are implemented and required by the
government. Some common examples of
statutory benefits include social security,
Medicare, unemployment insurance, and work
injury insurance, just to name a few.
statutory employee benefits in India

1.Gratuity payment
Gratuity payments are welfare payments made to employees
who retire, resign, become disabled or pass away, or are under
superannuation.
The Payment of Gratuity Act, 1972 sets the employer gratuity
requirements and applies to employees working in factories,
mines, oilfields, plantations, ports, railway companies, shops, or
other establishments with 10 or more employees.
2.State insurance
Under the Employees’ State Insurance Act, 1948 (ESI),
companies with 10 or more employees must extend benefits to any
employee making under 21,000 Indian Rupees (INR) per month.
These benefits are offered in cases of sickness, maternity, and
employment injury.

The financing for these benefits are paid by both the employer
and employee. Employer contributions are equivalent to 4.75% of
payable wages and employee contributions are equivalent to 1.75%
of payable wages. Employees who make under INR 137 per day
are exempt from paying their contribution.
3.Provident fund
The Employees Provident Fund and Miscellaneous Provisions
Act, 1952 sets the regulations for employee provident funds. The
Employee Provident Fund (EPF) is a scheme to offer benefits to
factory workers at companies with 20 or more employees. This is a
requirement for any employee whose salary is equal to or less than
INR 15,000 per month.

The employee receives the payment from the scheme, including
interest, upon retirement. Typically, employees must wait until
they are at least 55 years old to withdraw the full amount.
4.Minimum wages
The Minimum Wages Act, 1948, sets the minimum wage for all
workers in India. There isn’t a uniform wage rate, as wage rates
differ across states, skills, and sectors to account for variations in
cost of living and industry capacity to pay.
5.Maternity benefits
The Maternity Benefit Amendment Act, 2017 (the Amendment
Act) brought significant changes to outdated maternity laws
governing the required benefits for pregnant women and put India
ahead of many developing countries.

The requirements set under the Amendment Act apply to any
company that employs 10 or more individuals. Benefits include
mandatory maternity payment benefits for women, regardless of
income, as well as maternity leave and work from home provisions
for nursing mothers. New mothers who just gave birth are entitled to
26 weeks of maternity leave. Adoptive mothers and commissioning
mothers (those who used a surrogate) may receive 12 weeks of
maternity benefits.
6.Mandatory leave
There are three national holidays for which all employees must be
given paid time off: Republic Day (January 26), Independence Day
(August 15), and Gandhi Jayanti (October 2). Other festive holidays
may also be given depending on the State of employment.

Outside of the national holidays, The Factories Act requires 12
days of leave for employees that have worked at least 240 days
in a year. The amount of paid leave that can carry over year to
year varies based on the State of employment, ranging from 30
days to 60 days.

 What Is Deferred Compensation?
Deferred compensation is a part of an
employee's salary, which is set aside for
later payment. Taxes on the profit are
postponed in most situations before it is paid
out. Deferred compensation forms include
insurance schemes, contingency plans, and
stock option plans.
Deferred compensation plan

Deferred compensations can be broadly classified
into
Qualified Deferred Compensation and
Non-Qualified Deferred Compensation.
Qualified Deferred Compensation
The Employee Retirement Income Security Act (ERISA),
which was introduced to ensure protection to retirement assets,
sets the rules for qualified deferred compensation. Under such
rules, employees have a right to full information about their
retirement plans free of cost. The law requires employee
retirement assets to be held in a trust account.

 The plans must be offered to all employees, and they are for
the sole benefit of an employee. It means that creditors cannot
claim the funds in case the company fails to pay its debts. Some
examples of qualified deferred compensation include 401(k) and
403(b) plans.
 ERISA also restricts the amount of money that can be
deposited into a qualified plan. For example, the 401(k) plan
limits the contribution of employees into the pension account at
$19,500.
 In general, qualified deferred compensation plans are governed
by stricter rules, since the ERISA also specifies the minimum
criteria that an employee must fulfil to qualify for the plan and
includes extensive rules on how employers should provide
sufficient funding for it.

Non-Qualified Deferred Compensation
 Non-qualified deferred compensation plans (NQDC)
evolved in response to the restrictions imposed on qualified
deferred compensation plans by ERISA. The most
distinguishing factor is that NQDCs have no maximum cap
on the amount of employees’ contribution to their retirement
savings account.
 NQDCs are offered by companies to employees who earn
high levels of income and wish to defer a greater portion of
their income. The plans allow people to avoid taxes on a
greater proportion of their earnings and enjoy higher tax-
deferred investment returns.

1. Security after retirement
Deferred compensation plans provide a stable income
to people after they retire. The money received through
retirement plans provides financial stability.
Beneficiaries can also invest their money in mutual
funds or other investment options later so that they can
earn interest income.
Benefits of Deferred Compensation Plans

2. Tax benefits
The portion of one’s income deferred for payment on a future date
reduces current income and is not taxed until the beneficiary
receives the payment. Individuals who expect to come under a
lower income tax bracket in the future greatly benefit from the
scheme. Moreover, in case future tax rates fall in the country,
beneficiaries of deferred compensation plans will eventually pay
less in taxes.
3. Capital gains
Many employers invest the funds deposited in deferred compensation
accounts in mutual funds or other safe investment options that offer
steady interest payments. Regular interest payments add to the value
of the post-retirement payment. Moreover, if the value of the
investment rises over time, the beneficiary stands to make capital
gains as well.

 Meaning
Non-monetary benefits are benefits that are not, or
cannot be, directly measured in terms of monetary
units
Non-monetary benefits

1. Flexible working
 This has shown to be one of the most popular work perks out
there. As a reward, offer your employees the opportunity to
work from home or switch their hours around if they don’t
already have the option.
 Of course, many businesses are offering this as part of a
hybrid working approach and more and more employers are
becoming more flexible with their working approach.
 However, this level of flexibility can be adjusted for
employees as a great non-monetary reward option.
Non-monetary benefits

2. Give employees time to work on their own projects
• Some companies offer this as a standard part of
employment, however it’s also a great non-monetary
reward.
• People are motivated by the things they’re passionate
about, and employees appreciate the welcome
opportunity to work on their own projects.
• A popular example of this is at Google, where
employees are encouraged to use 20% of their time on
personal projects. Often employees spend the time
developing solutions to support their work or the
business.

3. Extra leave
Why not reward employees by giving them an extra day’s annual
leave or a longer lunch break?
• You could reward employees by letting them leave an hour early
or giving them half a day off. However, you choose to do this
should of course depend on your business needs too.
 An earlier finish on a Friday, later start on a Monday or simply
some more time to take off to use whenever the employee decides
would certainly be a well received reward.
4. Allow time to do volunteer work
 There are a number of benefits that come from this. Employees are
rewarded with a welcome break out of the office and a charitable
cause reaps the benefits of extra volunteers. It’s also great for the
company’s image and CSR!
 Many companies do this and giving employees the option to
choose who they volunteer for is a great way to make this reward
even more personal.

5. One-on-one meetings
Reward employees by speaking to them one-to-one and
asking them what you can do to help them improve and
grow.
It’s a great opportunity to get some constructive
feedback on the way the business operates while helping
an employee improve and showing that you appreciate
their hard work.
Of course, meetings like this are common for many and
used as part of performance reviews, for example.
However, lunch with a senior figure in the business for
example could be a good reward and could be beneficial
for everyone involved.

6. Reward employees with more responsibility
Initially, this doesn’t sound like much of a reward.
However, employees are motivated by the right amount
of challenge and responsibility.
This will be a better reward for some employees than
others. Some employees may be happy with the current
level of challenge and responsibility they have; however,
some may be looking for more responsibility or looking
for ways to apply new skills or experienced gained.

7. Let everyone know who you’re rewarding and what you’re
rewarding them with
The shift towards hybrid and more remote working have made it
more important than ever for companies to utilise their digital
internal communication channels.
This is important not just to keep everyone connected and in the
loop, but also for reward and recognition too.
A centralised reward and recognition platform can help with this,
giving your business a place for all your company rewards, so your
team can see who’s been rewarded and what for.

8. Give your employees the opportunity to attend educational or
wellbeing events/workshops
Many companies do this already, but letting your employees take a
day off to attend an event or workshop that could benefit them is a
great non-monetary reward.
Themed days away from the workplace like this are becoming
more common. One of the most popular recent examples was
Channel 4’s ‘Wellbeing Day’, where staff were given a day away
from work to focus on their wellbeing.
These initiatives can be really rewarding and beneficial,
particularly for teams who’ve been busy working on big projects.

9. Recognise your employees on social media
This is a great way to not only show your employees you care,
but your followers on social media too.
Recognising employees for personal achievements is great too.
Write a blog on their journey to achieve their goals or you could
even interview them about it.
It could be work-related, charity or fitness-related or anything
that’s had a really positive impact on your staff in recent times.

10. Employee of the month/quarter
A classic non-monetary reward, rewarding employees monthly
or quarterly can make a real difference.
It’s not only important for the employee being rewarded but it’s
a company-wide show of appreciation that the rest of your team
will appreciate too.
It’s also another fantastically simple yet effective reward to hand
out.

 What is Reward?
Reward is an incentive plan to reinforce the desirable
behaviour of workers or employers and in return for their
service to the organization. Rewards can be monetary in the
form of salary or non monetary in the form of awards for
some special services to the company or simply giving an
employee a work which he enjoys doing. The primary
objective of organizations in giving rewards is to attract,
maintain and retain efficient, high
Reward - Meaning, Elements, Types

 Extrinsic Rewards: These types of rewards satisfies basic
needs like security and survival, pay, treatments and
conditions.
 Intrinsic Rewards: These rewards focuses on satisfying
higher level needs like development and esteem.
 Individual Rewards: Includes base pay, incentives,
rewards attendance, performance, competence, and benefits.
 Team Rewards: Includes team benefits and rewards groups
cooperation.
 Organisation: Includes profit sharing, gain-sharing and
revenue sharing.
Types of Reward Management

 Support the company’s strategy
 Recruit & retain
 Strengthen psychological contract
 Motivates the employees to a greater extent
 Comply with legislation
 Internal & external equity
 Financially sustainable
 Efficiently administered
 Retaining the employee
 Attracting new employees
 Avoid cost of hiring and training of new employee
 Encouraging positive attitude
 Encouraging honesty and loyalty
 Provoke employees to seek advancement
 Help strengthen company’s reputation
Objective of Employee Reward Management

 Compensation
 Benefits
 Work-Life
 Performance and Recognition
 Development and Career Opportunities
What are the Key Elements of Reward Management
Compensation
Compensation is referred to as money and different advantages
acquired by an employee for supplying offerings to his business
enterprise. Compensation refers to all types of economic returns

tangible offerings and advantages personnel obtain as a part of an
employment relationship, which can be related to worker’s provider
to the business enterprise like provident fund, gratuity, coverage
scheme, and another charge which the worker gets or advantages he
enjoys in preference to such charge.
Compensation management, additionally called salary and profits
administration, remuneration control, or reward management, is
concerned with designing and enforcing a complete compensation
package.
Compensation is the human resource management that offers with
each reward people get hold of in alternate for acting an
organizational task. The consideration for which exertions are
exchanged is known as compensation.

Benefits
Benefit management is the technique of making an investment of time
and sources to be able to power a nice extrade in a task. This is
executed through identifying, planning, measuring and monitoring
blessings from the start of the task to the end, while all blessings are
achieved.
Benefits control includes specific, measurable, agreed upon, sensible
and time-sure blessings. These blessings can practice organizational
etrade, process, task blessings or approach planning. All of those
definitions reply to a want for the alignment of task effects and
enterprise strategies.
While benefit management can talk to consequences larger than a man
or woman venture, it continually ambitions to boom the fulfilment of
any venture. According to the Project Management Institute (PMI),
many groups don’t measure (and consequently don’t manage)

advantages, because of this that most effectively a small range of
groups are reaching their targeted benefits. Meeting expectancies on
a project ought to be the bare minimum and greater interest desires
to be targeted on benefits management.
Work-Life
Work-Life stability is a completely extensive time period in Human
Resource Management and frequently mentioned locating the proper
equilibrium among the unique components and roles in a person's
existence. Although there are unique perspectives and ideas about
work-life stability, it's far typically coupled with retaining a usual
stability in unique components of life.
During the last decade technological revolution has stormed all
factors of life and there have been distinctive debates about the
destiny of work. Different eventualities expected a growing fashion
in unemployment and financial insecurity.

Industrial restructuring and emergence of new generation now no
longer handiest affected the significance of the team of workers
however it became additionally felt that personnel could be handled
as superfluous overheads.
Performance and Recognition
Extrinsic and intrinsic motivations are the cornerstones for excessive
performance, and this comes from growing a sturdy feel of motive
and alignment, setting up powerful rewards and recognition practice.
Today, the place of job dissatisfaction is developing rampant, and
attrition fees are popping up each minute. It’s time we pause to invite
ourselves why. Even though companies globally goal to recognize
what drives their personnel’ overall performance via more than one
overall performance control tools, it has unfortunately help them to
only map out ‘what’ leaders and group contributors goal to achieve,
and does now no longer lay emphasis on the ‘how’ and the intangible

elements that influence motivation and wellbeing of personnel
inside the organization.
Development and Career Opportunities
Any organization succeeds best whilst it has the guide and
steering of an awesome dealing team. Most recently, we've seen
in the sample that many brilliant start-up thoughts fail to reveal
the impact. That is mostly due to the fact they don’t get an
awesome deal with the team. India is presently within side the
country of monetary improvement complemented with an
extensive availability of manpower. We want skilled experts who
understand the way to manipulate human resources. Not best that,
however, we additionally want experts for dealing with the
accounts, technical segments and so on. Management is the
diploma that endows a character with the competencies to deal
with all these.

In India, we get diplomas, levels in addition to certificates in
control. Many operating experts choose the government control
programme to deal with each expert and academic life.
The elements constitute the "device kit" from which an organization
makes use of to create a fee for each organization and the employee.
The change relationship among the enterprise and employee &
powerful overall rewards approach consequences in satisfied,
engaged and efficient employees, who in flip create favoured
tangible and intangible fee that enriches their lives. Excellence
praise structures ought to be embraced on the place of work via the
means of successful HR managers to create a higher region for the
enterprise & employee.

 Reward means a thing given to anyone because of his
contribution to the organization. Rewards and incentives
contribute to strategy implementation by shaping individual
behaviour in the organization. Reward management is
important for any business that has employees. Human
resources are usually in charge of the reward management
program in a company. This lesson discusses the theory and
importance of reward management. A good design reward
system is consistent with organizational goals, visions,
missions and job performance. The most obvious reward that
individual gets from the job is in the form of pay.
Concept of Reward Management

Reward management is a motivational practice that businesses use to
reward employees for their achievements and success. In managerial
term, the reward is defined as the total return given by an employer
to an employee for rendering his/her services towards the
organizational objectives. The company sets goals and establishes
rules for its employees to follow to achieve those goals. This is the
overall return from the work. Every person asks for return from the
organization before involving in any type of activities, which is
termed as the reward. It attracts a worker’s attention and inspires
him/her to perform the task. Moreover, a reward is a pay-off for
performance which is directly concerned with the level of motivation
and job satisfaction.
Reward management is important for the following reasons:
•Retains employees
•Attracts new employees

•Avoids the cost of hiring and training new employees
•Builds loyalty and honesty
•Creates a healthy work environment
•Encourages positive attitudes and behaviour
•Makes employees more likely to seek advancement
Therefore, management of reward in an organization helps to motivate
and retain employees at work. It is a vital aspect of HRM because a
well-designed reward system will lead towards organizational
productivity and employees satisfaction. Moreover, reward
management is the process of creating, implementing and controlling
an effective reward system in the organization that helps to maintain
and improve organizational performance. It senses the strategic
purposes of attracting, motivating and retaining employees. Reward
management basically focuses on how the employees can be retained
or motivated at work.

All employees follow the same reward system, and the system is
organized and just. Using a website to track employee development
enables the employee and employer to monitor progress and easily
identify when goals are reached and rewards earned.
Hence, reward management is a crucial aspect of Human Resource
Management that revolves around designing and implementation of
the appropriate payment system. This system helps improve
organizational performance and get people motivated at work.

 The organization should be clear about what it
would like to reinforce through rewards -
performance, effort, process, credibility, team
building, loyalty (retention), sincerity etc. This needs
to be clearly communicated advance to the employees
concerned
Designing reward system

 Develop a management philosophy
These principles should be based on the business leaders’ own
personal beliefs and values. Although they do not have to
match precisely, values should be aligned to help leaders
establish how they want to run the company and make
impactful decisions.
 Identify the business strategy
The business strategy is the means by which the company
plans to achieve its goals, based on the management
philosophy and in a way that supports the company culture.
What are the five steps in designing a
reward system

Establish a company culture
The company culture should be supported by the management
philosophy and should encompass the employer brand. It should also
cascade down into a strong employee value proposition and be a
major guiding factor upon which many total rewards decisions are
made.
Define your employee value proposition
This encompasses the offerings presented to employees in exchange
for their contributions. It is defined by total reward elements and
improves an employer’s ability to attract and retain quality
candidates, as well as to help others self-select if they are not a
culture fit, thereby saving the company countless hours and finances
on employees who do not share the same values or work
philosophies.

Create a total rewards strategy
The total rewards strategy is the stance that employers take in
establishing their position on different decisions when crafting a
total rewards program. It also highlights the acceptable and desired
employee behaviours that match with greater business goals. These
behavioural expectations can then be translated into measurable
performance metrics to evaluate results against business plans.
Each of the business intangibles described above are closely linked.
Thus, these steps are typically not completed in a linear fashion but
instead are intertwined. The goal for business leaders should be to
aim for purposeful alignment amongst these elements.

 Reward system refers to all the monetary,
non-monetary and psychological payments
that an organisation provides for its
employees in exchange for the work they
perform. ' Rewards schemes may include
extrinsic and intrinsic rewards.
What is the reward system

 1. Bargaining Approach:
For a long, within the HR scenario, whatever the
employees required to get some consideration or wages
that were the mutual rate towards the compensation
structure. The capitalist and workers have been
mutually determine the considerable amount between
them. So it was the long back approach which
determine the compensation based on bargaining
capacity of workers with their employees.
There are three major approaches as given
here

2. Traditional Approach:
This approach compensates employees through job based
pay system. It is based on the analytical study as well as
job evaluation of a particularly job and its design. It is
determine the relative worth and technological factors
concerning of jobs or a specified job.
3. Contemporary Compensation Approach:
This approach has more emphasise on skill, efficiencies
and competencies which are worthwhile aspect to
determine the compensation and rewards. Today, within
HR scenario, there is need to promote and accommodate
most skilled and knowledgeable employees. The
employees can influence their compensation through their
efficient performance.

BASIS FOR
COMPARIS
ON
COMPENSATION REWARDS
Meaning Compensation connotes
the total earnings
received by the
employees, both as
financial rewards and
benefits.
Benefits implies the
non-financial
rewards offered by
the employer to the
employee in
exchange for the
service provided by
him/her.
Difference between reward and compensation.

Consideration Cash or kind In kind
Nature Direct Indirect
Tax Fully taxable or
partially exempt.
Exempt or partially
exempt
Objective To attract and retain
qualified personnel.
To motivate
employees, for
raising their
performance.
Key Differences Between Compensation and Benefits
The differences between compensation and benefits can be
drawn clearly on the following grounds:

1. Compensation is used to mean the financial and non-financial
reward paid to the employee for the services provided by him/her
to the organization. On the contrary, benefits entails the non-
monetary rewards offered to an employee as a part of their salary
package for his/her contribution to the organisation.
2. Compensation is a form of direct remuneration, as it is related to
the performance of the employee. Conversely, benefits are a part
of indirect remuneration, that is offered as a condition of
employment.
3. While compensation is a payment in cash or kind, benefits are the
consideration in kind, provided for the services offered.
4.The elements of compensation are either fully taxable or
partially exempt from tax. Unlike, benefits offered by the
employer to the employee are either tax-free or partially
exempt from tax.

5.Compensation helps in attracting and retaining talented and
qualified personnel. As against, benefits induce employees in
raising their performance standard, to avail better fringes.
conclusion
In the labour industry, employment benefits constitute around
20% of the total wage. An employer offers such fringes to attract
talented personnel, to induce a sense of commitment in the
employees towards the firm, to ensure a better working
environment and also to help in creating a good reputation in the
market, etc.

UNIT IV
EXECUTIVE AND SALES COMPENSATION PLAN
Executive Compensation – Components, Theories,
Design- Relationship between Fixed and variable
pay-Executive Incentive Programmers. Sale
Compensation plan- design and administration-
sales incentives and motivations. Compensation
Management in Multi-National organizations.

Executive Compensation
Executive compensation, also known as executive pay, refers
to remuneration packages specifically designed for business
leaders, senior management and executive-level employees of a
company. Executive compensation includes benefits such as
salaries, perks, incentives, insurances etc.

•Perquisites
“Perquisite” may be defined as any casual emolument or benefit
attached to an office or position in addition to salary or wages.
“Perquisite” is defined in the section 17(2) of the Income tax Act as
including: (i) Value of rent-free/accommodation provided by the
employer.
A supplemental benefit is a payment from an employer to an employee
to make up the difference between their regular wage and the benefit
paid by Paid Family and Medical Leave. This could be salary
continuation, or paid time off (PTO).
•Supplemental benefit

A long-term incentive plan (LTIP) is a company policy that
rewards employees for reaching specific goals that lead to
increased shareholder value. In a typical LTIP, the employee,
usually an executive, must fulfil various conditions or
requirements.
Long-Term Incentive
For example
long-term incentive could be a cash plan, equity plan or share
plan. A long-term incentive plan can typically run between three
years and five years before the full benefit of the incentive is
received by the employee.

A bonus is an extra amount of money that is added to someone's
pay, usually because they have worked very hard.
Annual bonus
Annual bonus calculated
Employers can give between 8.33% and 20% of salary ((Basic +
DA) or minimum wage) per month to the employee as a bonus,
depending on the profits they have accrued that financial year. ...
The formula to calculate a statutory bonus is. ...
For example, let's say an employee draws 15,000 per month and
₹
the basic pay is 7500.
₹

Executive compensation, also known as executive pay, refers
to remuneration packages specifically designed for business
leaders, senior management and executive-level employees of a
company. Executive compensation includes benefits such as
salaries, perks, incentives, insurances etc.
Senior Executive salary in India ranges between 2.3 Lakhs to
₹
8.5 Lakhs
₹ with an average annual salary of 4.2 Lakhs. Salary
₹
estimates are based on 197.7k salaries received from Senior
Executives.
Executive salaries
For example

7 Important Theories Executive Compensation
1. Marginal Productivity Theory
Marginal productivity theory is mainly concerned with predicting
the pay levels of executives. Many of its propositions about
executive compensation are made with a context of analysing the
firm’s ability to generate profits and maximise productive output.
Two main conclusions regarding the magnitude of executive
compensation are drawn from MP theory.
(i) The size of the executive pay package reflects the firm’s net
profits. In a firm where the entrepreneur is the sole owner and
functions as chief executive officer, the entrepreneur desires to
achieve the highest returns on his investments and this will occur
where the marginal cost of production is equal to the market price

of the product. At this point the firm maximises its profits and the
executive maximises his compensation which is equivalent to the
profits of the firm.
In practice, there are no such pure situations. Most entrepreneurs
borrow capital from outside investors and decision must be made
about what share of profits goes to whom. The marginal productivity
theory is not a framework for determining the allocation of profits
between an executive and others who invest their money.
(ii) The size of the executive pay package is proportional to the
executive’s marginal revenue product. It is assumed that the
executive is hired by the firm and is paid commensurate with his
economic contribution. The amount of compensation equals the
executive’s marginal revenue net product.

The practical implication of marginal productivity theory is that both
the firm’s profitability and the executive’s relative economic
contribution are pay-level determinants. To some extent, this theory
can explain the “star” system that has developed in the hiring of
certain chief executive officers and other key executives.
These are executives with demonstrated track records of creating
shareholder value through their management skills. Such individuals
may demand and receive outsized compensation levels compared to
others doing the same job because of their potential to influence a
firm’s future profitability and value.

2. Governance Theory
It is held that executives should pursue strategies that will create
long- term shareholder value and that they should receive closely
related rewards. Executives may feel free to pursue interests that do
not coincide with those of the firm’s owners, knowing that the
owners have a limited ability to influence the executive’s rewards.
As a result, the executive compensation package may not be
effectively linked to performance that creates or maximizes
shareholder value.
Marginalise and agency theories are subsets of governance theory
that deal with issues arising when the firm’s owners are removed
from the decision-making processes of the executive.

Advocates of this theory believe that a hired executive will act in
the best interests of the owners if he has a personal ownership
stake. Many contemporary executive compensation programmes
are structured to reflect this theory by paying substantial amounts
of compensation in the form of stock options.
3. Managerialism
The separation of ownership and control in organisations can lead to
executive pay decisions that benefit the executive regardless of
what the organisational outcomes and effects might be on
shareholders.
One researcher has found that when firms are management
controlled (i.e. no shareholder owns 5% or more of the company’s
stock) opposed to owner controlled, there is little uncertainty in
executive compensation amounts.

In other words, an executive in such a firm is more likely to have a
pay package that will increase when firm performance is good and
remain at the same level even when the firm performance is poor.
4. Agency Theory
Agency theory may be considered as a theoretical extension of
managerialism. A firm’s owners are called the principals and the hired
executives are called the agents. Owing to widely dispersed
ownership, the agent may pursue activities that benefit him rather
than the firm’s owners.
This represents an “agency cost” to firm owners which is the
difference between net profits of the firm had the owners been the
managers and the net profits under the agent’s stewardship. Agency
theorists hold that agency costs are a necessary evil that comes with
the advantages of modern corporations.

5. Structural Theory
Structural theory examines executive compensation at the firm level.
Structural theory focuses on the “social standards” of pay at different
hierarchical levels. According to this theory, organisations attempt to
maintain particular salary differentials between the management and
subordinate levels to comply with cultural norms of proportionality.
Executives can expect to receive a relatively large amount of
compensation in a firm that is of a considerable size and where there
might be a large number of hierarchical levels. Conversely executive
compensation levels would decline in response to the trend towards
corporate ‘downsizing.’
6. Human Capital Theory
Human capital theorists examine the individual characteristics of
the executive in attempting to predict pay levels.

These characteristics include factors that are intrinsic to the
executive such as his knowledge base. It is possible to calculate a
rate of return on investments made in human capital.
The amount of human capital acquired by the executive at any given
point determines how valuable he is to the firm. This in turn,
predicts how much the firm will pay for his services.
7. Symbolism Theories
The symbolism theories of executive compensation held that the
executive’s power and political influence are the primary
determinants of his pay level. Power and politics are of more
direct importance to those who make executive pay decisions than
the economic elements of firm performance and executive
productivity. Two symbolism theories are discussed below:

a) Tournament Theory:
Tournament theory holds that the amount of compensation received
by executives of an organisation is similar to tournament winnings.
Tournament participants are members of the organisation who could
ultimately reach the top most post-the chief executive officer.
The prospect of this prize post sends powerful signals throughout the
organisation that by working harder one may win the number one post.
The emphasis is not on whether an executive deserves his amount of
compensation, rather the focus is on the motivational properties that
executive compensation levels brings to those in the lower level of the
organisation.
b) Political Strategist:
Theory The political strategist theory tends to ignore the rational
justifications of executive compensation. Instead, attention is paid to
the executive’s ability to cater to the needs of the multiple constituents

of the firm such as board members, shareholders, customers,
Government and the general public.
This theory proposes that the level of executive compensation can
best be understood by examining how well the executive appeases
these various constituent groups. The amount of skill the executive
has in serving as political strategist determines his level of
compensation.
Design- Executive Compensation
Designing an effective executive compensation plan requires
organizations to balance shareholder alignment, performance-based
pay, recruitment and retention, and the assessment of cost versus
perceived value. A long-term compensation plan with performance-
based incentive vehicles can help achieve that balance

Executives are privy to a wide range of compensation arrangements.
Executive compensation arrangements may include several
employees, or they may consist of individual agreements between
the organization and one executive. According to the Center on
Executive Compensation, "Executive pay arrangements typically
consist of six distinct compensation components: salary, annual
incentives, long-term incentives, benefits, perquisites and
severance/change-in-control agreements.
The following are some of the latest trends in executive
compensation:
•Non-financial environmental, social and governance (ESG) metrics
such as diversity, equity and inclusion efforts, waste reduction and
climate commitment are common.
•Pay incentives are more focused on long-term results. Long-term
incentives like stock options often make up more than 60 percent of
total direct compensation.

•Companies have cut back on perquisites for executives, especially
the types most likely to raise shareholder ire—such as cushy
severance packages, tax gross-ups on golden parachutes, spousal
travel, cars and private security.
Recently, politicians and the media have made a case that
prevailing executive compensation practices drive employees to take
short-term risks with little consideration for long-term effects on the
organization and the overall economy. Regulatory proposals have
suggested that employers offer more pay through restricted stock or
other forms of long-term incentives designed not to reward short-
term performance. Researchers from Washington University in St.
Louis reviewed data from filings of more than 700 large publicly
traded firms in the U.S. and found that a large number of firms
manipulate data to meet short-term targets. While the research did
not find evidence of fraud or illegal activity, it does question
whether these firms are acting in the best interest of shareholders in
the long term.

What is Fixed Pay?
 Fixed pay is the in-hand salary that an employee gets at the
end of the month. This includes basic pay, conveyance
allowance, house rent allowance, and other components minus
the tax.
What is Variable Pay?
 Variable pay is a kind of performance-based incentive that is
paid to an employee on a quarterly or annual basis.
Relationship between Fixed and variable
pay

Features of Fixed Pay:-
•It is a fixed amount that an employee would receive regardless of their
performance.
•The only scenario where an employee does not receive his fixed pay is if they have
taken unpaid leaves or has done some sort of damage to the company (broken any
appliance or lead to some sort of loss for the company).
•This amount is guaranteed for the employee and gives them a sense of security that
they will be earning this much at least.
•Fixed pay at times can lead to demotivated employees. Under fixed pay, both good
performers and bad performers are paid their base salary.
•This leads to good performers not wanting to put in extra work as they are not
rewarded for it.
•In the same way, bad performers are not going to improve their performance
because they are not losing anything.
•The fixed pay system leads to employees looking for higher-paying jobs.

Features of Variable Pay:-
•It is an incentive that employees get depending on their performance.
•This is variable, with the amount directly based on whether or not the
employee met their targets and how much profit they made for the
company.
•In India, sales job has the highest variable pay system. Where the
ratio of fixed pay to variable pay is 60:40.
•For non-sale jobs, the ratio of fixed pay to variable pay is 80:20.
•Variable pay leads to a highly motivated employee, as their
performance will directly lead to their incentive being higher.
•However, variable pay then leads to unhealthy competition. This
leads to a toxic work environment where everyone is trying to
sabotage each other.
•Often, to meet their targets an employee can undertake unfair means.

•For example, in a sales job just to make a sale, the employee can
advertise false information to their customers. This can damage the
brand reputation of the company and also strain their relationship
with the customers.
•Variable pay affects employee retention. If the company is not
making a profit then this would affect the variable pay and
employees then start looking for other avenues.

Advantages Disadvantages
One of the primary advantages of
variable pay is employee retention.
Most of the companies fail to establish an
equalizer in their variable pay. It results in a
seemingly high pay package, which turns out
very less paid in reality.
Variable Pay helps the organization
to balance out and equalize the
salaries of their employees.
If the criteria for variable pay are not defined
accurately, it can result in the improper
implementation of the pay structure.
Performance-based variable pay
helps to reward hard-working
employees, thereby motivating them.
An increase in variable pay adds to the cost of
the organization.
Variable pay allows organizations to
tie compensation to revenue and
financial performance.
Variable Pay isn’t factored into an employee’s
annual compensation, although the amount
may be based on the employee’s salary.
Advantage and disadvantage Variable Pay

 Executive Incentive Compensation awards are paid within two
months of closing the organization's fiscal accounts for the
performance period. The organization's financial plan includes an
operating budget that allocates resources to implement the plan.
 The objective of the Executive Incentive Compensation
Program (EICP) is to allow executives who meet or exceed
annual performance goals, both financial and non-financial, to
participate in the organization’s overall success. The more a given
individual or group is responsible for the organization’s success,
the greater their share of participation in the rewards. Participation
in the program is an important career milestone.
Executive Incentive Programmers

•Participants
Executives with significant scope and scale of responsibility for
achieving an identifiable portion of the organization’s financial plan
and who are, and who are expected to continue to be, employees in
good standing are eligible to participate in the program. All staff
proposed for inclusion are reviewed and approved by the Core
Leadership Group.
Participation is not required. To indicate their desire to participate,
each eligible executive submits to the Core Leadership Group, via
their manager, a draft of his/her performance goals. The draft is
reviewed and edited iteratively with the participant as necessary in
order to arrive at agreed-upon, approved, signed, and filed
performance goals.
Key staff who join the organization after a quarter of the performance
period is completed may participate in the program on a pro-rated
basis with the approval of the Core Leadership Group, and with an
approved performance plan completed within 21 days of their start.

•Award
At the end of the year, participants review and evaluate their
performance relative to the plan. Participants who have met both
financial and non-financial goals receive their target award. If not quite
all goals are met (e.g. 80 – 95 % attainment) then a portion, (e.g.,
50%), of the target Incentive Compensation (IC) is awarded. In cases
of truly extraordinary performance against financial goals, there may
also be the possibility for additional awards to be earned.
•Payment
Executive Incentive Compensation awards are paid within two
months of closing the organization’s fiscal accounts for the
performance period.

•Guidance on setting performance goals
The organization’s financial plan includes an operating budget that
allocates resources to implement the plan. This planning and budgeting
process is simultaneously both top-down and bottom-up so that by the
end of the process, each part of the plan is clearly the responsibility of
a specific individual or group. To complete the process, upon final
approval by the firm’s leaders and board, individual and group
financial and non-financial responsibilities are explicitly recorded
as Executive Performance Goals.
At the end of the performance period, each participant determines
whether they have earned all or part of their target incentive
compensation award based on how actual performance compares to
financial and non-financial targets that were approved at the beginning
of the period and recommend a corresponding reward.
Recommendations are then reviewed and approved by their manager
and the Core Leadership Group.

Objectives
It is important to keep in mind the objectives of the Executive
Incentive Compensation Program. When in doubt about how to
handle a specific situation, refer back to these objectives. In
evaluating a participant’s performance, The Core Leadership group
will judge any specific situation in light of these objectives:
•Provide Clear Direction: Performance goals are to provide
clear communication about what an executive or group is
expected to accomplish. Difficulty in setting goals generally
reflects indecision or lack of clarity on the part of the executive
and his or her unit leader. It is their responsibility to drive the
process until clarity and specificity are achieved.

•Provide a Means of Measuring Accomplishments: Clear goals,
both financial and non-financial, ensure a way of measuring
whether an individual, or a group, has accomplished what it set out
to do. For the program to serve this objective, goals must be
defined so that their achievement is measurable.
•Provide a Means for Rewarding Accomplishments: If key
people meet their goals, the organization as a whole will meet its
overall goals and can, therefore, afford to provide additional
compensation in the form of individual bonuses. The objective is
to reward individuals for accomplishments that contribute to
the success of the organization.

 A sales compensation plan is a structured program for
determining how much a sales representative earns based on
their performance. It includes details about all aspects of a
salesperson's earnings, such as their base salary, commission,
bonuses, and benefits
1. Straight Salary
Straight salary sales compensation plans aren’t very common, but
they do have a place in some organizations. With this type of
structure, you’d pay your sales people a straight—albeit competitive
—salary like all of your other employees, and nothing else. No
bonuses, no commissions, and few, if any, sales incentives.
Sale Compensation plan

This type of compensation plan is most often used when the industry
you operate within prohibits direct sales, when sales people work as
part of small groups or teams and all contributions are equal, when
your sales team is relatively small, or when your sales people are
expected to spend much of their time on other responsibilities other
than selling
2. Salary plus Commission
Salary plus commission sales compensation plans are possibly the
most common plans used today. They’re structured in a way that sales
people receive a lower base salary along with commission pay that
makes up the majority of the total compensation.
Organizations use salary plus commission sales compensation plans
when there are opportunities to support all sales people on this
structure and when there are proper metrics in place for tracking sales
to ensure that the splits are fair and accurate.

This type of plan is often the better choice as opposed to straight
salary because it offers motivation to increase productivity and to
achieve goals. It also offers more stability—sales people will still get
some type of pay even if they’re in training, when sales are low
during certain months, or if market conditions get volatile. However,
it can be more complex to administer.
3. Commission Only
Commission only sales compensation plans are exactly what they
sound like—you pay your sales people for the sales they bring in
and nothing else. There is no guarantee of income.
These types of plans are easier to administer than salary plus
commission and provide better value for your money paid as they are
based solely on sales achieved. They also tend to attract fewer
candidates, but do attract the most top-performing and hardest working
sales professionals who know they can make a good income because
they know how to sell.

On the other hand, though, they can create aggression within your
sales team and low income security, which can lead to a high turnover
rate, and sales rep burnout from stress.
4. Territory Volume
Territory volume sales compensation plans are most often used in
team-based corporate cultures. They work through the calculation of
territory volume at the end a compensation period. The total sales
for the territory are then split equally among all of the sales reps
who worked that territory. This plan works best when your sales
territories are clearly outlined, when your sales team supports each
other to reach common goals, and when your territories are rich
enough to support competitive wages.

5. Profit Margin
Last but not least, we have profit margin sales compensation plans.
These plans compensate sales people based on how well the
company is performing. Profit margin plans are most often used by
start-ups that have a lack of liquidity. It’s best to use the profit
margin plan if you know that your sales people are able to support
themselves through your lean periods, when you can also
incorporate long-term incentives such as stock shares, and when you
have other incentives and job benefits to attract sales people, such
as flex time.

What is a Sales Compensation Plan?
 A sales compensation plan lays out how you are going to pay
different salespeople for their contribution to the business.
Typically it will include two main elements: base pay, and
variable pay, sometimes known as incentive pay, or commission.
Step # 1. Determine Sales Force and Compensation
Objectives:
The sales manager should identify the corporate objectives and
also the objectives of the salespeople while developing a
compensation plan.
Sale Compensation plan
6 Major Steps in Designing a Compensation Plan

The sales objectives can be attainment of the annual sales volume
target and gross margins, attainment of monthly and specific period-
wise sales targets, market penetration and exploitation of the territory
potential at a specific rate, management of sales calls and development
of potential in key accounts, development of new customers, and
gaining support of the salespeople for the new product introduction.
By evaluating the relative importance of these broad objectives, the
sales manager will be able to finalize the level and type of
compensation plan to offer to the sales force.
Step # 2. Determine Major Compensation Issues:
Once the sales manager is able to finalize the compensation objectives,
he needs to compare his available payment structure with that of the
industry and major competitors. In the case of a new compensation
plan, the industry average and the competitors’ compensation plans
serve as the benchmark for designing the compensation plan.

The major components of salary are decided by taking into account
the wage level, the wage structure, the salesperson’s wage, and the
salary administration procedure.
The wage level of compensation talks about the salary in relation to
the competitors’ sales force compensation. If the organization’s salary
level is lower than that of the competitors, the salespeople will always
wish to join the competitor, and the competitor will in turn allure
them to work with them, which may lead to loss of manpower for the
firm. Salaries for various sales
people should be established by doing
a comparative analysis of the salary level in the industry.
The wage structure is the explanation of the pay differential inside
the organization at different levels. The evaluation of the job and
description indicates the extent to which the job contributes to the
success of the enterprise. Depending on this evaluation, salary
structures are planned at various levels in the organization.

The individual wage is the salary paid to the individual salesperson
depending on his work experience, nature of the job, and personal
background. His abilities related to job descriptions are evaluated
while deciding on the compensation structure.
The administrative issues related to compensation management
include the sales force evalu
ation and control mechanism,
mechanism for modified compensation, and pay revisions and raises
which should be meaningful enough for the salespeople to stay
longer with the sales organization. The sales manager prepares the
budget for compensation of the salespeople, consi
dering the ability
and intention of the organization to compensate the sales force in the
form of wages, commissions, perks, bonus, and incentives.
Step # 3. Implement Long-Term and Short-Term Compensation
Plans:
The sales manager should take both long-term and short-term views of
the sales compensation plan.

While in the short term, it should address the issues of adequate
compensation and low cost drive for the firm, in the long-term, it
should reduce the attrition rate and develop employees to take up higher
challenges including managerial responsibilities.
Long-term planning includes promotions, retirement plans,
disability benefits, and life insurance for the salespeople. The
compensation plans should have a long-term vision and lasting value
for the organization. Short-term issues related to the compensation
plan include bonus, expenses management, and sales contests. This
should be coordinated with the total marketing efforts of the
organization and in sync with the long-term compensation plan.
The sales manager should communicate the compensation plan to the
sales staff inside the organization through inter-office memos, email,
newsletters, and all other means, and explain the advantages and
mutual benefits of the sales compensation plan. Many salespeople ask
the company at the time of joining about the nature and type of
compensation they are likely to receive for the job.

The sales compensation plan should be designed and communicated
in such a way that it increases the clarity and comprehensiveness of
the salespeople in the organization. The sales supervisor is the key
link in the chain of communication to the salesperson. Since
salespeople normally work in the field, it is important to brief the
sales supervisors about the compensation plan so that they can
handle the salespeople’s queries.
The compensation message should include the part of the
salespeople’s job that will help the organization in attaining its
goals. The sales supervisor should also brief them about the role of
the salespeople in achieving the sales objectives.
The sales supervisor should make the salespeople realize that their
compensation will largely depend on their ability and intention to
contribute to the organization’s goals. If the salespeople commit
themselves to the organization and their performance improves, so also
will be the sales of the organization and hence the level of
compensation for the salespeople.

Step # 4. Relate Rewards to Performance:
In a scientifically designed compensation plan and the plan-related
communication strategy, the rewards are always related to the sales
performance. This is an important stage in the compen
sation process,
where each stage of performance and reward system should be linked
with the contribution of individual salespersons towards the
organization.
It also links the performance of the salesperson to the rewards
through an objective and logical method of performance evaluation.
Step # 5. Measurement of Performance:
Like the compensation plan, the method of evaluations should also be
objective and transparent. Sales organizations need to measure the
performance of the salespeople periodically. The criteria for
evaluation should include the new sales volume achieved in the last
period, the level of customer satisfaction, and the level of information
dissemination about the performance of the company and its product
in the market.

Step # 6. Appraise the Compensation Plan:
It is necessary to look at the redundancy effect of the compensation plan.
This should be done on a periodic basis so that the sales manager can
find out the relevance of the company’s com
pensation plan in the face of
competition and evolutions in the sales management function.
The success of the plan can be evaluated by looking into the
achievement of compensation objectives, ability of the firm in attracting
new salespeople with- the current compensation plan, and finding out the
relationship of the compensation plan with the attrition rate in the
organization. The compensation plan should be updated continuously to
respond to new sales force objectives. There should be a continuous
attempt to link the available compensation methods with the desired
performance of the salespeople.

Overview of Compensation Management
 Meet Bill! Bill has decided to start his own business selling
wood furniture. In order to be successful, he knows that he has
to hire some help. He needs someone to pick up the wood at the
lumber yard, someone to work in the office, and someone to
deliver the finished products. Obviously, Bill knows that he
will have to compensate them for their work, but how to begin?
How does a compensation system work? How much should he
pay each employee? Should he offer benefits?
 While we've all been paid at one time or another for a job we
did, many of us hardly pay much attention to the process many
employers utilize. Let's explore further.

Basic Definitions
First let's take a minute to first define some key
terms. Compensation in business is an exchange for services, like
getting paid for a job done. Compensation management is overseeing
the process of providing pay or other benefits to employees for doing a
job. The objective is to use compensation in order to recruit and retain
the highest quality employees. Compensation helps motivate employees
to work hard and promotes a positive morale.
Compensation Management Process
Let's now look at the process. Once a company is organized and ready
to begin hiring employees, they need to develop a process to reward
those employees. The following is a list of steps management may take
to complete this process:

1. Understand the Budget
First, management must understand the budget. Before a company can
pay workers for their services, they need to know how much money
they have available to spend. For Bill, he would need to determine how
much money he suspects he will have available to pay his new
employees. So, if he projects $1000 in sales and has $200 in expenses,
he would have $800 left over to use for compensating his employees.
2. Put Someone in Charge
Second, management needs to put someone in charge. Many big
companies have a department responsible for paying employees
with a management team overseeing the entire process. For a start-
up business, like Bill's, often times it's the owner that will be in
charge of payroll. This means that he will have to be in charge of
the budget and will have to make sure each employee gets paid
instead of relying of someone from HR.

3. Analyze the Jobs
Third, management needs to analyze the jobs. Before you can pay
employees, you need to know what their job duties and/or position is
worth. This can be determined through surveys and data collected
from companies within the industry. The tasks the employee will be
required to complete also play a role in deciding how much to
compensate for each position. For Bill, he might do some research on
other furniture businesses and determine how much their employees
are getting paid. Using a comparison, he can determine how much he
should pay his employees.
4. Decide Levels
Deciding levels is the next step. More specifically, in large companies,
there are often different levels of employees. You might have new hires,
executives, management, etc. A company with different levels may have
a pay range.

For example, a new hire might only get paid between $25,000 and
$30,000 a year, whereas a higher up executive might be paid more
like $120,000 and $140,000.
5. Develop a Compensation Package
Once you have decided how much you want to pay, you need to
create a compensation package. Will there be benefits? How often
will the employee get paid? When Bill gets to this step, he might
decide to pay each employee $15.00/hr with the option of health
insurance as a benefit.

 Sales incentives have been proven to boost employee
engagement: One study by the Incentive Research Foundation
found that when an incentive program is built correctly, it can
increase performance by up to 44%.
 Especially during these times, motivation can be hard to find.
If you’re thinking of starting a sales incentive program to
boost morale on your team, you need to make sure it’s set up
in a way that truly appeals to them.
sales incentives and motivations

11 sales incentive ideas to motivate your whole team
1. Cold hard cash
Yes, it’s true, money talks. This is why many reward programs for
sales teams revolve around a set amount of money as a bonus for hard
work.
Cash works because, let’s face it, your team is at work to earn money.
To make this incentive work, you can set up a clear commission
structure, or use cash bonuses to help your reps focus on a specific
goal. Usually, this involves giving a set amount of money for a
specific achievement: For example, reaching the quota, exceeding
quota, closing a certain amount of deals, or hitting a sales activity
goal. (That's one of the reasons why sales teams should embrace
leader boards.)
That said, don’t take for granted that your team prefers cash to any
other kind of prize. In fact, another study by the Incentive Research
Foundation found that up to 85% of people would choose a non-
cash

reward if they really liked the other option.
2. Product prizes
Giving away physical products as a sales incentive is a fun way to
motivate your sales team.
You might offer:
Tech gadgets, such as the latest iPhone or a smartwatch
Fun products for the home, like a high-end coffee maker, 4K TV, or
advanced sound system
Hobby products, such as a high-end bicycle, rock-climbing equipment,
or a musical instrument
Product prizes are a great incentive for your team (as long as it’s a
product they actually want) because they’re a physical reminder of
their achievements. It’s something that people might ask them about
down the road, allowing them to relive the glory of winning over and
over again.
To make sure this incentive is appealing to all the different members of
your team, you might offer a choice between two or three different
products.

3. Courses and training
Personal and professional development can be a powerful motivator
for reps who are eager to improve themselves.
And this type of incentive is severely lacking: According to
the American Psychological Association, only 44% of US employees are
satisfied with the development opportunities they’re offered at work.
So, why not offer professional development opportunities as an
incentive, such as:
•Special sales training from a professional coach
•Tickets to an upcoming conference or sales event
•Sales courses to develop advanced techniques
•Workshops, training, and guides to make better use of sales tech, such
as CRM training
•Workshops, training, and guides to make better use of sales tech,
such as CRM training

The opportunity for personal development may also appeal to your
team. You can offer incentives like:
•Cooking classes
•Art classes
•One month of a fitness class membership
•Access to an online course website, such as Master Class
4. Entertainment
Tickets to the big game. Front-row seats to their favourite band. A
romantic dinner for two.
Entertainment incentives are good motivators because these are the
things your reps would love to do but may not be willing to splurge
for themselves.
Of course, during these times you may need to be a bit more creative
with your entertainment options. For example, that nice dinner out
could be replaced with a fancy dinner at home with food delivery
services.

5. Activity-based rewards
After a month of pushing hard to reach their quota and go beyond to get
the reward, wouldn’t your reps love to unwind with a day at the spa or a
round of golf?
Or, if your team likes to get out and have an adventure, you could offer
activity incentives such as:
•Rock climbing
•Sky diving
•Bungee jumping
•Zip line
•Escape rooms
In this category also enter travel incentives. Research dating back to the
’70s shows that travel incentives have a much higher ROI than other
non-cash rewards since they produce a high level of motivation.
But again, with current world conditions, normal activity-based sales
incentives may need to be adapted.

For example, Airing now offers many online experiences such as
cocktail making at home, magic shows, cooking classes, scavenger
hunts, online escape rooms, dance classes, private concerts, and more.
Why not search for online experiences that you can gift to your reps?
6. Subscription boxes
Subscription boxes are all the rage now, with personalized products
being delivered to your home to enjoy. This is an excellent choice for
sales teams that are currently remote during the crisis, allowing you to
give your reps the things they love while maintaining a safe distance.
Some of the most popular subscription box offerings include:
•Birchbox: Skincare and beauty products
•TryTheWorld: Gourmet foods from around the world
•Frank and Oak: Eco-friendly clothing and style box for men and women
•Barkbox: A box full of treats for man’s best friend
•MistoBox: Personalized boxes of coffee from top roasters

•Dollar Shave Club: Crated grooming products for men and women
•KiwiCo: Boxes with hands-on crafts and activities for children and
teens
•Winc: A wine club subscription with wines personalized to your likes
7. Extra PTO
They say time is money, and if that’s true for your reps then you should
probably consider extra paid time off as an incentive.
After all, your reps are working hard to reach their goals and hit the
metrics necessary to win the incentive. So, why not reward them with
some time away from work?
Rewarding your sales reps with time also encourages a better work-life
balance within your team. It’s a way to remind them that there are more
important things to life than working, and the reward for working hard is
being able to spend time with their families.

8. Recognition in the company
Although most workers are satisfied with their jobs overall, a study from
the American Psychological Association found that a whopping 44% of
workers are not satisfied with the recognition they receive from their
employer.
Another study found that up to 50% of workers who received an
incentive at work are more focused on how the reward is presented to
them than on the reward itself.
So, recognition in itself can be a powerful motivator. (Thus the very
popular ‘employee of the month’ reward system.)
That said, how can you use recognition as a sales incentive (without
hanging your rep’s picture on the wall)?
For example, why not implement recognition into your incentive
program with offerings such as:
oA lunch with the CEO of the company
oSpecific praise in the company Slack channel
oA Camera video from their favourite
celebrity that’s shared with the team

9. Office upgrades
If you want your reps to be more productive at work, why not offer
upgrades to their office as an incentive?
This is another option that’s great for remote sales teams since each
person has to set up their own office at home and may not be as willing
to drop a lot of cash on expensive home office upgrades.
For your remote sales team, office upgrade incentives could
include:
•Standing desk
•High-quality office chair
•Noise-canceling headphones
•Dual-monitor system
•Lighting or other office accessories and decoration

10. A chance to spin the prize wheel
Can’t decide on a sales incentive? Put a bunch of options on a wheel and
let your reps spin it!
There’s something very exciting about spinning a wheel for the chance at
a fantastic prize. The mystery of not knowing what you’re going to get
can be appealing, and the actual spinning of the wheel can be a fun event
that adds the recognition factor we talked about above.
11. Let them choose their own incentive
Within reason, of course.
Your team is made up of individuals with their own specific tastes,
hobbies, wants, and needs. Instead of choosing one prize that may not
appeal to many of them, letting your reps choose their own reward
within a certain budget or limit gives them the freedom to pick what
motivates them.
In fact, you can encourage your reps to visualize what they would
pick they won at the beginning of the month,
giving them the motivation to push for that reward.

 Compensation management can be defined as the provisions
of monetary and non-monetary rewards, including base salary,
benefits, perquisites, long and short-term incentives, valued by
employees in accordance with their relative contributions to
MNC performance.
Compensation Management in Multi-
National organizations.
Major Components in an International Compensation Package
1. Base Salary
This term has a slightly different meaning in an international context
than in a domestic one. In the latter case, it denotes the amount of
cash compensation that serves as a benchmark for other
compensation elements like bonus, social benefits. For the
expatriate, it denotes the main component of a package of

allowances directly related to the base salary and the basis for in-service
benefits and pension contributions. Base salary actually forms the
foundation block of the international compensation.
3. Allowances
One of the most common kinds of allowance internationally is the Cost
of Living Allowance (COLA). It typically involves a payment to
compensate for the differences in the cost of living between the two
countries resulting in an eventual difference in the expenditure made. A
typical example is to compensate for the inflation differential. COLA
also includes payments for housing and other utilities, and also personal
income tax. Other major allowances that are often made are:
Home leave allowance
Education allowance
Relocation allowance
Spouse assistance (compensates for the loss of income due to spouse
losing their job)

Thus, multinationals normally pay these allowances to encourage
employees to take up international assignments to make sure that they
are comfortable in the host country in comparison to the parent country.
4. Benefits
The aspect of benefits is often very complicated to deal with. For
instance, pension plans normally differ from country to country due to
difference in national practices. Thus all these and other benefits
(medical coverage, social security) are difficult to imitate across
countries.
Thus, firms need to address a number of issues when considering what
benefits to give and how to give them. However, the crucial issue that
remains to be dealt with is whether the expatriates should be covered
under the home country benefit programmes or the ones of the host
country. As a matter of fact, most US officials are covered by their
home country benefit programmes. Other kinds of benefits that are
offered are:

•Vacation and special leaves
•Rest and rehabilitation leaves
•Emergency provisions like death or illness in the family
These benefits, however, depend on the host country regulations.
5. Incentives
In recent years some MNC have been designing special incentives
programmes for keeping expatriate motivated. In the process a growing
number of firms have dropped the ongoing premium for overseas
assignment and replaced it with on time lump-sum premium. The lump-
sum payment has at least three advantages. First expatriates realize that
they are paid this only once and that too when they
accept an overseas assignment. So the payment tends to retain its
motivational value. Second, costs to the company are less because there
is only one payment and no future financial commitment. This is so
because incentive is separate payment, distinguishable for a regular pay
and it is more readily for saving or spending.

6. Taxes
The final component of the expatriate’s compensation relates to taxes.
MNCs generally select one of the following approaches to handle
international taxation.
• Tax equalization: – Firm withhold an amount equal to the home
country
tax obligation of the expatriate and pay all taxes in the host country.
• Tax Protection :- The employee pays up to the amount of taxes he
or she would pay on remuneration in the home country. In such a
situation, The employee is entitled to any windfall received if total taxes
are less in the foreign country then in the home country.
7. Long Term Benefits or Stock Benefits
The most common long term benefits offered to employees of MNCs
are Employee Stock Option Schemes (ESOS). Traditionally ESOS were
used as means to reward top management or key people of the MNCs.
Some of the commonly used stock option schemes are:

•Employee Stock Option Plan (ESOP)- a certain nos. of shares are
reserved for purchase and issuance to key employees. Such shares serve
as incentive for employees to build long term value for the company.
•Restricted Stock Unit (RSU) — This is a plan established by a
company, wherein units of stocks are provided with restrictions on when
they can be exercised. It is usually issued as partial compensation for
employees. The restrictions generally lifts in 3-5 years when the stock
vests.
•Employee Stock Purchase Plan (ESPP) — This is a plan wherein the
company sells shares to its employees usually, at a discount. Importantly,
the company deducts the purchase price of these shares every month
from the employee’s salary.

 Performance management is the systematic process by which
the Department of Commerce involves its employees, as
individuals and members of a group, in improving
organizational effectiveness in the accomplishment of agency
mission and goals.
The 4 stages of performance management
1. Planning
 Goal planning and setting is an integral stage of your
performance management cycle. It is where employee, team,
and business goals are aligned and set.
UNIT V
PERFORMANCE RELATED COMPENSATION

To ensure small-scale goals are tied to organizational goals, leaders need
to outline company objectives before individual goals are set. When
company goals are clear, managers and employees can create strategic
plans to achieve individual performance goals.
A SMART goal template is valuable to leverage, as it ensures your
employees’ goals are specific, measurable, attainable, relevant, and time-
bound. With this structured outline, you can analyze employee goals to
ensure they are realistic and aligned to the bigger picture.
2. Monitoring
The monitoring stage is where goal progress is tracked. This step is
critical to help employees achieve the goals set in the planning stage.
To monitor employee goals, plan regular check-ins and 1-on-1s to
address any roadblocks preventing employee productivity. These
conversations should be on-going to stay up to date with goal progress
and needed adjustments.

Provide resources, discuss performance, and oversee goals with
effective monitoring. As these steps are leveraged, employees grow and
adapt to produce optimal results.
3. Reviewing
A comprehensive evaluation of employees’ final results occurs in the
reviewing stage. This is where a performance review is implemented
to assess employee success or possible shortcomings.
If leaders have utilized the monitoring stage effectively, they should
already have a grasp on how well an employee performed to achieve
their goals. But reviewing helps managers evaluate end results and the
process leveraged to achieve them.
This is a great opportunity for management to understand the
employees’ perspectives, provide feedback for improvement, discuss
future development opportunities, and create a roadmap for the future.

4. Rewarding
The last step in an effective performance management cycle is
rewarding. This is where leaders provide rewards and
recognition for employees’ efforts and success.
While this step is sometimes overlooked, it is crucial in safeguarding
employee engagement and motivation. By acknowledging your
employees’ success, you demonstrate their value to the organization,
from top to bottom. Without rewards, your employees risk losing
motivation and their future performance may decrease.
Common ways to reward employees are through bonuses, promotions,
or through public and private recognition. With sufficient, merit-based
rewards, employee engagement and performance increase.

Performance Objective 1: Quality
Quality is the visual sign of how well an operation does what it does. It's
a consistent indicator which customers and staff base their expectations
around.
Does the product work as it should? Or has it been made with low-value
parts that undermine its integrity? Quality is a fundamental aspect of
performance and, because of this, has a huge influence on whether a
customer is satisfied or not.
For example, giving each individual warehouse packer the responsibility
to pack their own boxes improves quality as mix-packs are made less
likely to occur.
In terms of the operation principles, quality can create the potential for
better services and products which reduce costs in the long run thanks to
having more satisfied customers.

Performance Objective 2: Speed
Speed is the turnaround time between customers ordering a product or
service and the point at which they receive it. When an organization
delivers the goods or services on time, the more likely a customer is to
be satisfied with their experience.
If you can provide a service or product faster than other companies
without compromising on quality then you are already off to a winning
start.
In terms of operation principles, high speed can allow for faster
delivery of services, therefore saving costs.
Performance Objective 3: Dependability
Dependability means that customers can rely on your organization to
receive their goods and/or services as and when promised. While this
may not affect the chances of a customer selecting the service - as they
have already 'consumed' the product - it influences whether the customer
returns to make a future purchase or recommends your business.

No matter how cheap or fast a pizza is made by a takeaway company,
if the customer can't depend on it to be delivered on time or to the
correct address, then they will go elsewhere.
In terms of operation principles, dependability is important in
providing the reliable delivery of service and products.
Performance Objective 4: Flexibility
Flexibility is the means of changing an operation to match a customer's
requirements. This may involve changing what the operation does or
how it works so that the service is bespoke.
Customers are likely to require change for four reasons:
•Product/service flexibility occurs in order to introduce a new or
modified product.
•Mix flexibility is the ability to have the variety of products available
grow.

•Volume flexibility involves the output of a process and being able to
produce different quantities/volumes.
•Delivery flexibility is being able to change the timings of delivery in a
product/service.
•Being flexible gives the potential for a business to hold a competitive
edge due to their wider variety, different volumes and varying delivery
dates.
Performance Objective 5: Cost
Cost is an important factor for companies which compete directly on
rates. The lower a company can keep its production costs, the lower
they can have their customer-facing prices.
Even companies who do not compete on price want to keep their costs
as low as possible while still maintaining the levels of quality, speed,
dependability and flexibility that their customers demand.
The minimalization of costs is as important so that resources can be
spared to grow other areas of the business.

 Team compensation is a way of rewarding performance in
team settings. That is, individuals are rewarded based on the
performance of the team as opposed to individual
performance. Team compensation is often referred to as team-
based rewards or team-based pay.
5 EFFECTIVE TEAM-BASED REWARDS
 Goal-Based Rewards
 Merit-Based Rewards
 Gain Sharing
 Profit Sharing
 Discretionary Rewards
Team Compensation

1. Goal-Based Rewards
Some of the most popular team-based reward programs involve goal-
based rewards. These types of incentive programs reward teams only
when they reach a preset goal. These can be either short-term or long-
term goals and can include such things as reaching an established
amount of sales, securing a particular number of contracts within a
certain time frame, or reducing waste by a set percentage within a
predetermined amount of time. Goal-based reward programs are
highly effective in encouraging teamwork, motivation, and effort.
2. Merit-Based Rewards
Unlike goal-based incentive programs that reward teams when they
reach a certain goal, merit-based programs reward teams for putting
forth exceptional effort. These types of team-based reward programs
are a bit subjective in the sense that managers or supervisors
determine whether or not teams are deserving of a reward.

As stated in an article posted by Forbes, ambiguity is never a good thing
when it comes to team-based incentive programs. There should be clear
guidelines as to what constitutes exceptional behaviour and engagement.
3. Gain Sharing
Gain-sharing is a type of team-based reward program that rewards teams
for measurable accomplishments in non-financial areas. One example of
this is a bonus given to a team for increasing levels of customer
satisfaction by a certain percentage from one year to the next. Another
example of this type of program is a bonus given to a team for improving
an essential shipping or receiving procedure. The goal of gain sharing
programs is motivating teams to improve various areas of business
operations.
4. Profit Sharing
Profit sharing reward programs are similar to gain sharing programs in
that they provide team-based rewards to teams for exhibiting exceptional

behaviour. The difference between these two programs is that while
gain sharing programs offer bonuses to team members, profit sharing
programs pay them a certain percentage of the company’s overall
profits. Profit sharing plans encourage high levels of team
performance, which can ultimately increase a company’s success.
5. Discretionary Rewards
Sometimes referred to as spot rewards, team-based discretionary
rewards are given to team members based on team performance and
outcomes. While these reward programs may sound very similar to
some of the programs discussed above, rewards given in discretionary
programs are not dependent on predetermined goals. Much like merit-
based reward programs, managers or supervisors decide whether or not
a team is deserving of a discretionary reward.
Conclusion
As more and more companies see the value in team-based work
structures, it has become highly important for them to implement

reward systems based on team performance and engagement. There
are many great ways to provide team-based rewards, and the five
programs described above are among the most effective.
Gain Sharing Incentive Plan
Gain sharing (sometimes referred to as Gain sharing, Gain share,
and Gain share): Gain sharing is best described as a system of
management in which an organization seeks higher levels of
performance through the involvement and participation of its
people. As performance improves, employees share financially in
the gain.

•Helps companies achieve
sustained improvement in key
performance measures
•Rewards only performance
improvement
•Payouts are self-funded from
savings generated by the plan
•Aligns employees to
organization goals
•Fosters a culture of
continuous improvement
•Enhances employee focus
and awareness
•Measures are narrower than
organization-wide profit and
therefore gains may be paid even
though profits may be down.
•Requires a participative
management style
•Requires that management openly
shares information related to
performance measures
•Employees may question or
challenge management decisions
that may adversely impact a gain.

•Increases the feeling of
ownership and accountability
•Enhances the level of
involvement, teamwork and
cooperation
•Supports other performance
improvement efforts and helps
promote positive change
•Promotes morale, pride, and
more positive attitudes toward the
organization
•Increases the level of
organizational stress since
everyone has more of a financial
stake in the organization's
success
•Applies best to and a work
environment that requires
teamwork and collaboration
rather that individual
entrepreneurship
•Paid on the basis of group
performance rather than
individual merit

Enterprise Incentive Plans Profit Sharing Any procedure by which an
employer pays, or makes available to all regular employees, in addition
to their base pay, current or deferred sums based upon the profits of the
enterprise.
Enterprise Incentive Plan
Related to Enterprise Incentive Plans
•Equity Incentive Plans means the equity incentive plans adopted by
the Company to provide incentive compensation to attract and retain
qualified directors, officers, advisors, consultants and other personnel,
including the Manager and Affiliates and personnel of the Manager and
its Affiliates, and any joint venture affiliates of the Company.
•Incentive Plans means any incentive, bonus, deferred compensation or
similar plan or arrangement currently or hereafter made available by
Employer in which Executive is eligible to participate.

•Annual Incentive Plan means the Management Incentive Plan (MIP)
or Executive Incentive Plan (EIP) of the Company providing for the
payment of annual bonuses to certain employees of the Company,
including Executive, as such Plans may be amended from time to time
or, if such Plans shall be discontinued, any similar Plan or Plans in
effect at any relevant time.
•Equity Incentive Plan means an incentive plan, or portion of an
incentive plan, under which awards are granted and that falls within
the scope of IFRS 2 Share-based Payment;
•Long-Term Incentive Plan or “LTIP” means a plan providing
compensation intended to motivate performance over a period
greater than one financial year. LTIPs do not include option or SAR
plans or plans for compensation through shares or units that are
subject to restrictions on resale;

•Incentive Compensation Plans means annual incentive
compensation plans and long-term incentive compensation plans of
the Company, which long-term incentive compensation plans may
include plans offering stock options, restricted stock and other long-
term incentive compensation.
•Bonus Plan means for each year, the Company’s Management
Incentive Compensation Plan or any other Plan adopted by the
Board which provides for the payment of additional compensation
on an annual basis to senior executive officers contingent upon the
Company’s results of operations for that specific year, in either case
as such Plan shall be amended or modified to, but not on or after,
any Effective Date.

•STIP means the Company’s short-term incentive plan under Section
8 of the Company’s 2007 Omnibus Incentive Plan, effective May 8,
2007, as may be amended from time to time, or any successor plan,
program or arrangement thereto.
A profit-sharing plan is a pension plan, which gives an employee a
share in the company's profits. As per this plan, which also referred to
as the deferred profit-sharing plan (DPSP), employees will go onto
receive a portion from the company's profits which depend on the
annual or quarterly earnings.
Profit Sharing Plan

Types of Profit-Sharing Plans
#1 – Cash Plan
The employees covered under this plan are given cash or stock of the
organization or company at the end of every year or quarter, as the
case may be. Thus they are given instant results of their efforts in the
organization. The main disadvantage of this type of plan is that the
employees are taxed on this additional income as a regular income.
#2 – Deferred Plans
The profit-sharing is directed into a specific fund known as the trust
fund, which provides the rewards to the employees at a later date,
often on the employees’ retirement. Accordingly, immediate taxation
on the employees’ incomes is avoided under a deferred plan. Further,
the qualified investment plan provides employees with various
investment choices. Also, the retirement pay increases as and when the
contribution increases.

#3 – Combination Plan
As the name suggests, this plan is a combination of both the plans
mentioned above, which pays a part of the contribution in cash
periodically, and part of the contribution is deferred into a trust fund
to be paid at the time of retirement.
Example of Profit-Sharing Plans
Suppose a company, ABC corporation, earns an annual profit of
$500,000. This company employs three employees, X, Y, and Z. Now,
all the employees earn an income of $400,000, $200,000, and
$400,000, respectively. The company has a policy of a 10%profit
sharing plan.
Solution:
Hence the profit of $50,000 ( being 10% of 500,000 ) is shared among
the employees as under:
A: $20,000 (50,000×400,000/1,000,000)
B: $10,000 (50,000×200,000/1,000,000)
C: $20,000 (50,000×400,000/1,000,000)

Rules of a Profit-Sharing Plan
A profit-sharing plan is a way to best the interest of the
organization’s employees. The simple rule of this plan is that the
more the company earns profit, the more the organization’s
employees earn as a reward. Thus there is a direct relationship
between the efforts the employees put into the organization and the
profit-sharing incentives they receive. Thus this plan helps to
achieve a win-win situation in the organization for the employees
and the company.

Employee stock ownership plan(ESOP)
Definition: An employee stock ownership plan (ESOP) is a type of
employee benefit plan which is intended to encourage employees to
acquire stocks or ownership in the company.
How ESOP Valuation is being performed
1) Accounting Valuation The accounting valuation is required for
working out the employee compensation cost at the time of ESOP
grants itself which is apportioned over the vesting period of ESOP.
There are two methods of doing ESOP Valuations – Intrinsic
value method & Fair value method

•Intrinsic Value Method "Intrinsic Value” is the excess of the
market price of the share under ESOP over the exercise price of the
Option (including upfront payment, if any). Example: – A company
grants an ESOP to its employees whose current market price (CMP)
of the share is INR 100, which can be exercised after 2 years for INR
60 as per scheme. In this case, the intrinsic value of options shall be
INR 40 (100 – 60).
•Fair Value Method The fair value of an ESOP is calculated using an
option-pricing model like, the Black-Scholes or a binomial model. For
performing fair valuation of ESOPs, the Black-Scholes model is
mostly preferred as it takes into account the various factors like Time
Value, Interest Rate, Volatility, Dividend yield etc. These factors are
not considered under intrinsic value method which may lead to under
estimation of Employee Compensation Cost.

The Black Scholes model considers various external factors
that affect the value of the ESOP whereas the intrinsic value
method considers only factors internal to the option offered.
To calculate the value of ESOP options through Black
Scholes the following have to be considered:-
• Expected life of the option
• Exercise price
• Fair value per share
• Expected volatility of share price
• Expected dividend yield
• Risk free interest rate

2) Tax Valuation ESOP valuation is required for determination of value
of perquisite taxable in hands of employees, to comply with applicable
provisions of Indian Income Tax Act, 1961 and notification issued by
CBDT in this respect.
No method prescribed for unlisted companies in India. This also
includes shares of companies listed on overseas stock exchange as the
overseas exchanges do not qualify as the recognized stock exchanges
in India.
Notification no. 94/2009 dated 18.12.2009 issued by CBDT, wherein
it is provided that for the purpose of clause (vi) of sub-section (2) of
section 17, the fair market value of any specified security or sweat
equity share, being an equity share in the company not listed at any
recognized stock exchange, shall be such value of the share in the
company as determined by a merchant banker on the specified date.

1. Employee Stock Purchase Plan (ESPP)
In this, the company offers shares to the employees at a much lower
rate than the fair market value. It needs a minimum service period from
the employee.
Types of Employee Stock Option Plan
2. Employee Stock Option Scheme (ESOS)
In this, the employee is granted options on a pre-defined valuation,
constrained by vesting period and performance metrics. Once the
vesting period is over, the employee can exercise options to own
shares, by paying the pre-defined exercise price.
3. Restricted Stock Units (RSU)
In this, the employee is granted shares of the company only after
the occurrence of an event. There is generally no vesting period
or exercise price in RSU.

4. Stock Appreciation Rights (SARs)
Technically, this is not ESOP because, in this type, the company offers
cash in exchange of the shares if a condition is met. But several
companies use SARs as the ESOP model.
Benefits of ESOP
•The employee gets financial benefits which is much more than
bonuses and incentives
•Employees become part of the decision-making process of the
company and feel more responsible
•ESOPs provide more job satisfaction and job security to the
employees

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