Lecture 1

Lecture 1: Nov 13: Zero Wage Increase Again?

Termination as an option can be counter-productive, i.e., it can cause people to think, I may be next
and causes work environment problems.

A performance-based appraisal makes sense in the case, but needs structure. Equitability makes
sense.

Benchmarking with the market might help justify no wage hike. Like we can say that we are doing a
favour by not laying you off, when the others are. Industry average attrition rate- we will be in this
together.

There maybe bigger issues with the case, the absenteeism rate etc, can be indicators of a deeper
problem.

Relationships are very murky- 15 years from now if you ask how is salary, they will be happy but if
you say how is job then “don’t talk about it”- It doesn’t matter as long as you can buy the latest
Iphone. (This is the last slide- oh thank god)

Look at the case and see if there is a bigger problem.

Guru discussing the case:

Why is the fact that wage haven't increased a problem?

Is there a motivation problem or a security problem?

Meet employees and tell them the problem. I can’t increase the wage but maybe if there is a
pressing need that I can probably address.

Data issue here, in absence of that I can go for a need-based approach.

People who might be suffering the most need to help ahead, so the inflation would affect the people
at a lower pay level more, so we address that first.

Give them the stuff they are stealing

The case does not have data. So I ask questions:

How do I care about the employees?

Bigger issues: Can I give the employees reason to stay

Mark does not have a proper HR system.

Lecture 2,l
Shares A Case in the Chat Buy More 101 Case
Rationale is to distribute - The way you distribute would be our discussion for this class
Numbers don’t matter to me, I just want to know how you think

● Wanted to explain the concept of Tournament Theory -

The difference between salaries would increase as we move up the ladder.

He liked the assumptions that Mayank’s and Sanishtha’s group had made -
● Difference in between the CEO & VPs was more than VPs and Chiefs
● As no data was there, they did not give preference to any department
● Tejas’s & Anwesha’s group had different pay amongst the chiefs and VPs
● He said he’s fine with whatever numbers you put, if he likes your assumptions. He wants a
rationale. If you can convince him the Earth is Flat, he would consider that as answer
● Shreya & Prabhat - Fixed Pay same for all depts. Introduce a variable pay based on
performance
● Equitable Compensation -Higher the designation, higher the salary (Do not confuse with
equality), Equity means, there is a difference in pay, a valid difference that you are able to
justify
● Overall objective is to be fair
● Equity v/s Equality -
○ In this case we are taking decisions in an HR environment not in IR environment
○ In IR you go equality, you want to pay them equal, otherwise there would be
conflicts, why doesn’t such a conflict arise in HR?
○ Saanchi - HR- Individual & IR - Collective - something like that - Guru (Laughs) -
Leave Something like that to me
○ You bother about unions in IR and not in an HR setup
○ Arnav - Sir HR is more individualistic and IR is more collective
○ Guru - Right. But the question is why?
○ The answer is the level of dispensability of the job, in an IR setup the workers are
despensibile and are in abundance, but in an HR setup the resources cannot be
easily replaced because they are a scarce talent.This would always happen when
supply is less than demand. Exception - Why pilots are unionised
○ In HR, I am willing to differentiate and focus on equity because it is an individual
setup. In IR, the power lies in the Collective
● When there is no data, then pay equally. Otherwise you’ll end up with a biased decision.
Should we differentiate to show equity? Degree of Equity is different across organizations

Lecture 3

Tournament Theory-
● Theory of motivation.
● At the topmost level, the skill and responsibility difference between the CEO and his
reportee is not much but the salary difference is very much apparent.
 ● This is to make the employees feel that the salary at the next level is so attractive and
lucrative that the employees should work even harder in order to reach the next level to get
that higher salary.
● This theory is based on the extrinsic factors of motivation like money, bonuses, allowances
etc.
● At any stage the employee should not feel content with his salary and hence we motivate
him by having considerable differences in salary as we move up the hierarchy of the
organization.

Flaws of Tournament theory- The assumption that money is the only factor that keeps the
employees motivated to achieve more is flawed. Tournament Theory assumes that every factor of
motivation is extrinsically related.

Reverse Anti Tournament Theory- IN PSUs, as we go up the hierarchy the increase in pay is not
much hence the organization wants to signal that the organization does not intend to create an
aspirational ladder through the compensation structure of the employees. Hence the employees
must not expect huge salary increases as they move up the hierarchy in the organization.

Break out room Activity- Buy More 101 Case- More information regarding the relative importance
of various depts were given this time and hence we needed to apply Tournament Theory and this
extra info to distribute the salary among the various depts and posts.

Job description communicates what kind of talent the company is looking for and it is reflected in
the compensation structure.

If we want better talent, the best way to communicate this will be through guaranteed salary.
Higher the guaranteed salary, the more valuable the talent will be.

Lecture 4

Assumptions made by efficiency wage theory

Shirking will come down
If efficiency wage is universally true -> everyone will want to pay higher -> nobody will
end up paying higher
Why are pilots unionized
Airline industry -> pilots are premium talent there, salaries are huge why are they getting
into unionization ?

Read note on compensation and incentive systems

(next to increasing graph) As skills are low -> supply is high power comes down from the
collective
But as skills become high, there comes a point where skills become so niche that only
specific industry uses it eg space scientists
(next page)

So niche power comes down

So supply is low but demand also becomes low as only one industry is interested in one
Industry is niche -> 2-8 players
Also because industry is so niche; the industry as a whole gets hit when something
happens vs just one eg airline

So niche -> ^ depends on industry

Power comes from collective

HR operates in a zone where pan industry mobility ^

The variable pay level in the caselet -> could they be under similar risk
Senior talent Top/ CEO

Higher middle management

If the senior mgmt is heavily invested in one industry then there is a risk that if they lose
their jobs
Efficiency wage theory -> salary is so high no one will be able to match up to it (inside
industry)
Skills are so niche -> outside industry no one might take you

Eg) cognizant laid off some senior leadership a few years back

[how dependant are you on the organization]

People at higher level may be more vulnerable to risk

As an eg : If you want to reduce someones bargaining power sometimes all you need to do
is reward them well
Eg) PSU vs private
Gives promotion faster
By the time you realise -> in too deep

Guaranteed pay vs variable pay

Why give GP ? vs a healthy VP ?

GP
Insurance agent makes money via commissions
Unit manager
->salary

Who earns more ?

Socially desirable

Entrepreneur Employee

High risk Low risk

High reward Low return as far as returns are guaranteed

If organization does not give guaranteed salary rather be on the streets trying luck with
entrepreneurship

Key relationship between employer and employee is the gp

What differentiates an entrepreneur and employee is that guaranteed pay

Org gives 100 as GP

But changes that to 70 + 30
Employees think of that as pay cut
They see it as 70 +15 and not 70 +30
So what you do is keep GP the same at 100 and offer 100 + 30 so they think of it as
incentive and not pay cut

Introducing variable pay you have to be willing to pay more and not rearrange existing
stuff

Minority of the orgs look at data and say great

Trap -> people fall for it
Make people dependant on this money
Once this happens I cant start of my targets usually VP and costs
This can also be done with GP also (the existing 100)
(Make 100 -> 105)

GP is unconditional is incorrect it depends on PMA

Lecture 5 | 24 Nov
 1. Performance Management System is essentially a control mechanism employed by
companies. It does not take into account value fit. Value fit comes later into the system, to
look at employees companies can trust. Explanation:
a. Pay hike control targets. This is the pay for potential argument:
i. If you use pay hike and focus on variable components relating it to
achievement of targets, you can make sure employees are performing.
ii. If you do use it as guaranteed pay, you are simply saying we trust the
employee and hence we want to conserve him
b. Value fit: Another way to manage compensation. Not everyone can meet targets.
But we still laud an employee’s effort and compensate him for the same
2. In entry level jobs, colleges come into picture. However, as one advances in the career, at
VP levels, a person’s college does not matter. There are exceptions to this though. For
example, a startup hiring CHRO only from XLRI to signal to the investors that we appreciate
quality.

3. Work experience is a powerful proxy for talent and organizations put a price on it. Hence
they tend to have a threshold level of work experience for posts.

Loyalty argument:
1. Organizations do not value loyalty when the market is not active.Conversely, they value
loyalty if the market is active.
2. Organizations do not value loyalty when they want diversification as well. It signals this by
offering higher salaries to people who leave, diversify and then come back.

Advantages of Organization Specific Skills:

Organizations need to work with intangibles (such as culture, values). It rewards people who are
good at dealing with these things. Eg: Union leaders good at simmering down a crowd. However,
payment for Organization Specific Skills is very industry dependent.

Most companies do not look at achievement of last year’s targets to look at pay mix. Also, in retail,
certain companies value loyalty department wise. As an example, an expert on furniture will be
rewarded more than a shopfloor worker if he chooses to stay

Lecture 6: 26 Nov
Whether it is PMA, Compensation or Recruitment in HR, the 'job' is your primary concern; The
clarity in terms of input, output and processes.
We talk about knowledge, skills and abilities in this context.
When you have the talent, what 'job' do you have to assign them?
The person point of view is the last you'll get into.

As an organization, what are you communicating if you will not pay a person beyond P40?
By itself, that does not communicate anything. You have to see if it is consistent with the rest. Once
you have that data, and your organization seems cool with paying at P40, it essentially means that
you are happy with the kind of talent you attract at P40.
That said, companies would still prefer to pay higher for critical functions.
Case: Finemaster Project Ltd.
A quick summary of the case:

ORGANIZATION – FINEMASTER
•Design-build residential and commercial construction firm in Ottawa, Ontario
•Offered regular and challenging work along with many other benefits which attracted people to
join despite lower pay as compared to industry
•Keeps workers employed year around. Has lower turnover
•Philosophy: To prove oneself before earning pay increases or promotions
•Does not have a uniform pay system
•No proper tracking(employee working hours) and security system

BALMER
•Wanted to settle down in Ottawa so accepted the job at FP despite lower pay as he liked the work
and vision of the organization
•Experienced, skilled, hard-working, high-performer, loyal, ethical
•Not happy with the company's non-uniform pay system

An hour worth stand-up content. Apart from roasting all of the presenters, not much that he added.
Still, for the sake of making notes, here goes;

● Put your facts that are strongly backed by data at the beginning of your presentation.
● When you talk of possible options that Balmer has, you should be clear on what he intends
to achieve. So, if you're talking about switching a job directly, he'll have to get that raise
before to have a good hike. Say he earns X and wants a 1.7X that'll not happen unless he's
probably at a 1.3X.
● An organization that is paying the lowest and is still holding onto the best talent, you can't
see a problem. Also, if you remove Winters, the case closes.
● Also, they are paying consistently, even in the stormy periods.
● Maybe there's no case. Perhaps the caselet is not the problem and the prof is. I'd love it if
we have a group that says, "Hey! Things are fine; let's move to the next."

Guru's take on the case:

=> Firm attracts talent that does not have enough on their CV to command opportunities yet, so can
get upskilled.
Why do Finemasters get projects consistently despite attrition?
=> Right talent and the low price might attract all the projects. Those at the cusp of leaving, about
to get their certifications, would be highly skilled and draw low salaries, creating a conducive space
for attracting further projects.
1. Balmer should meet with Donovich and have the discussion. Will he get anything out of it?
In my opinion, no.
2. Balmer, should he listen to Winters? It's a dangerous thing. If somebody's saying they steal
because the org is paying less, don't fall for such. People who will steal will always steal.
People steal because they don't get caught, not because the money is less.
 3. Here are the questions that I want you to ponder over when doing any case. What is the
organization's pay philosophy? What is its total rewards statement? What's the overall HR
policy, and where does compensation feature there? What does the word career mean in
such an organization? What are the pay ranges and pay mixes? After all this, why is the org
doing what it's doing and does it work?

I'd say there are no issues with the company.

The right talent, low cost, consistent demand for projects, people leaving them are getting into
places much higher, hence, providing a superb platform. So, I would not rush into changing
anything right now.
So when you go into an org and say, "Hey! We should change this!", they'll first ask why they should
listen to you. So, do you have something that can make them listen?

=>So what is that missing piece of data you'd want?

If the company has data that substantiates that people leave the org for much higher pays, they can
establish that things are going fine.
Lecture 7 (28 November)
Buffer.com

Why is pay transparency good?

Secrecy is dangerous as it results in information asymmetry.
Employer wins - Employee loses

Secrecy -> creates a perception that company has something to hide -> trust deficit
(eg finemaster case)

Implication of transparency
Employees will
● Trust HR
● Trust one another since everyone knows the salary

Organization tells implicitly -> You want money? Find that info on the website -> Let us negotiate
other things -> Technical, Behavioural Knowledge

Sharing formula - procedural fairness

Position v/s salary - distributive fairness

Salary structure looks objective -> but is subjective - note that subjectivity isn’t unfair
(Because eg. Two work ex. Even though of similar time duration are not comparable)

Buffer is using transparency as a signaling strategy

Trying to align -> investor, customer, employee. Communicate how important Transparency
Default to transparency -> We will be transparent unless there is a reason to not be transparent.
Show that we are a trustworthy organization.
Make a strong statement.
Build customer relation based on trust

Transparent email system -> redundant. Fills people inbox with redundant information

Buffer doesn’t know the implications of diversity but its heart is in the right place.
Tournament theory - Salary difference increases as job level rises. But this can’t be explained
through job descriptions, KSAs, responsibilities
Paradox of Tournament theory - More you are transparent, the more the difference between the
salary comes down.
Tournament theory and transparency don’t go together

Lecture 8
(contains reference to Buffer.com and Paymaster)

Discussion is basically on total rewards

Every organizations when it designs compensations starts with pay philosophy in mind ->
moves to pay strategy which further becomes a pay mix.

Employee- employer relationship and the expectations

Alt to employee being in the firm is to being in the market on its own

Gig economy = market like relations (employer is the buyer and and employee is the seller
is probably what he meant)

People are going for these. However, Employer employee relationship is stronger.

Performance management has become subjective and so has compensation. There are a lot
of components that we can’t measure.

Contract today are = Employment contract + psychological contract involving social

exchange. Both are looking at a larger relationship, larger than just the money there. Hence
this relationship becomes complex.

Rewards:

1. Transaction (easily monetized)

CTC/ TCC etc.
2. Relational (not easily monetizable)
● job challenge, work life balance, autonomy, brand, culture, job security,
organizational values, Peer group learning
 ● There needs to be clarity on life goals to appreciate these.
● Highly subjective

(One is not greater than the other. Depends on personal preference.)

CASE reference Finemasters-

It might have a dual pay policy. The lower attrition at lower levels might be because of high
relational rewards (people want to learn etc etc) despite of low salary, however at higher
levels the low attrition could be coz they are paying the higher management higher, so that
they bring good projects which they could give to the lower level people. So the company
can and can not be a paymaster at the same time, depending on the level.

Different relational rewards are required at different levels.

Are transactional and relational rewards interchangeable? Not entirely. Depends on the
person to which extent.

Job security- Tendency of org, not to throw people away when business goes bad. It’s not
a policy, rather value system.

CASE reference Buffer.com-

Absolute transparency can be a problem, especially at a higher level as tournament theory

takes a hit.

Here the relational reward of transparency is playing a Signaling role rather than a
substitutional role to transactional rewards as Buffer is signaling people to join or not join
basis the salary figures.

Org that are relational reward intensive are usually poor paymasters (there are exceptions
though)

Relational rewards come from other HR systems and not from Pay systems
(Compensations)
Job rotation is a relational reward if it gives value to the employee (Learning and
development) however it is not when it’s just a mandatory policy and is sort of forced upon
employees.
Long service reward is not a relational reward as it’s monetary in nature.
Even if they are non-monetary, they could still be non-relational when they are specific
rewards offered in return of specific behaviour. Relational rewards are not given for any
specific behaviour.
Everyone is materialistic. It’s not that relational rewards are for altruistic people. It’s just how
much of the money you are planning to part away with for a little better work life balance and that
would be different for different people.
Total rewards gained popularity among organizations as they are more sustainable for the
organizations. They can retain people without having to pay as much. They become interesting for
employees usually after they have some work-ex- they have seen some life, have some
responsibilities in their lives.
Companies invest a lot in PR exercises to propagate their Total rewards. They also do it through
word of mouth publicity.

Lecture 9

December 5, 2020

Case presentation – Tata Motors Compensation Restructuring

3. Overlap in pay grades isn’t bad or good. For instance, for two different functions,
managerial and engineering, there are different designations and different pay ranges.
However, in reality, the labour market isn’t very different. So, there is overlap, in spite of
the intentions of the organization.

4. Pay levels are ordered from A to M with A at bottom and M at top. D’s highest pay > F’s
lowest pay. The topmost level of the bottom most part of the hierarchy can match.
F may be entry level for some position and D can be the max level for another position. D’s
basic pay < A’s Basic Pay Level starts from A and goes up to M. But D is entry level for
Graduate Engineering Trainee, therefor they may have lower basic

5. People may understand the value of superannuation only when they get their pension. But,
such benefits can be postponed for the younger employees to save costs if they do not
seem attractive in the short term.

6. Internal transfers are problematic. HRA will be location dependent. Adjusting HRA is easy
from tier-2 to tier-1 city. Problem: when they have to move back to tier-2 city, because
allowance will decrease. If transfers are not important - PAN India equal HRA

7. What is the problem at TM?

Probable Problems
- Idc about employee engagement survey, I just want a simplified compensation structure
- I want to answer employee engagement survey concerns step by step

8. Transparency does not mean sharing compensation data but the procedure to calculate
them. Distributive fairness vs procedural fairness

9. Check out:
What is basic pay as a percentage of total fixed pay (~50%)
What is fixed pay as a percentage of total pay
 What is labour cost as a percentage of total cost
Which components are actually correlated to basic pay?

10. If basic is used as a base, other components can be looked at a percentage of basic

11. Why is there a merit allowance in TM pay structure? Why not increment basic pay (as per
performance) instead of adding a merit allowance?
- PF and Gratuity (% of basic) go up drastically

12. All the allowances exist in order to reduce basic and control PF contribution. Government
has said that if basic is less than 40% of total fixed pay, we will consider allowances as
basic.
TM has added increments based on performance to the merit allowance instead of basic.
Thus, as basic increases, merit allowance will also increase, but the correlation may not be
one to one.`

13. Reduce pay levels and merge bands to increase flexibility and vary salaries of people in the
same band. Acc to sir: A b C D merge, E F merge.

14. Promotions reduce in flat hierarchies. Then employees feel there is no growth in the
organisation. Flat organisation -> hierarchy remains same, the levels reduce. So jumps are
steeper. Reducing hierarchies is very complicated.
If the difference in salaries between bands isn’t much, it means the company wants to
promote you frequently. You can’t recommend flat structure and frequent promotions
together.

15. In the TM case, at the lower level, it is a pay level problem and not a pay mix
problem. Employees are asking to convert superannuation into cash so maybe cash
components aren’t enough.

16. Instead of simplifying things (reducing allowances, pay levels), can we explain why they
are there? Instead of assuming that they are wrong, we can explain why they exist in the
first place

17.Why are there tax benefits for HRA, travel etc? Government thinks we are a welfare state.
Cost of earning the income should not be confused with income. Thus, basic necessities
should not be taxed like house, travel etc.

18. Why does child education allowance need to be given?

In the 60s and 70s, these were meant for class D employees to encourage them to send kids
to school. But, today, is it reasonable to give tax benefits to high level executives for low
amounts like 2-3 dollars?
No, it is too low to worry about. Org is saying that if the emp has a kid and he sends them to
school and brings the bill to the company, they will have to be given tax benefit

19. What is the purpose of basic?

Basic is used to reward KSA -> capability to do the job. We decide basic by looking at the
 market and by looking at the actual job (job evaluation)
So basically, Basic is the worth of the position. Higher the basic, more critical the position
Basic is the match between the potential of the employee and the criticality of the position

20. There are 3 candidates. Who will you pay more?

Tier 1 (fresher), tier 2 (fresher), tier 3 (workex)
Organisation may pay the first candidate more as it believes that they have high potential
or high capability. This method uses organisation as a proxy. Such an academic proxy may
not be considered for experienced people.

21. Basic (pay for position) will have a range. This will create a range of basics for the same job,
depending on their potential and experience. Organisation says I want to reward a person
of higher -potential with higher basic, because I can get more out of them. But I can’t give
them a better position, because they’re not THAT much better. ie the delta difference that I
want to reward doesn’t warrant a better position.

22. Pay range -> broad

- the job can accommodate a wide range of skills i.e. people doing the same job are paid
differently. The person being paid higher can do the job really well. But ultimately, they’re
doing the same job and so, pay range increases.
- usually seen in higher levels where growth opportunities are low. Thus, you tend to
stagnate and the range spread increases
- As we’re only talking about pay levels in TM, there can be multiple departments at the
same pay level. Some departments may pay higher than others. So we see them as one pay
range with a huge range spread. The more diverse jobs get added, the wider the page range

Pay range is narrow

- job requires niche or specific skills
- usually at lower levels, because growth opportunities higher

23. Why does Pay Range exist?

To give different basics for the same job. Higher end of the pay range is given to people
with higher capability.
Basic is important because other components are percentages of basic. Basic is the first
step towards equity.
For jobs that are more critical, basic is higher -> CTC becomes higher as it can be calculated
as a percentage of basic -> total pay is more. Differentiation becomes easier.
But organisations are selfish. They will pay you for the value you add. Thus, there is a
maximum on the pay range. After that, your skills can increase but your pay will stagnate.

1. You should be very clear why you are paying differently at the same job. Because after a
while, there may be a huge difference in salary at the same pay level
2. At TM, we’re not discussing jobs, only the pay levels. So, we don’t know how many jobs
are accommodated at a particular pay level. Eg. A, B, C may be completely different kinds of
jobs with similar midpoints, so the minimum and maximum may vary.
 24. Google comparative ratio.

25. Check if merit allowance is based on performance or seniority.

If performance, we should see a good performance rating spread across all pay levels.
If seniority, we’ll see higher merit allowance at the higher end of each pay level. We know
that officer's allowance is paid based on experience.
Can we find any correlation between merit and officer’s allowance?

26. Check merit-based allowance from the textbook.

27. Equity is about differentiation. If you are the same grade but different potential, you will
want some differentiation.

28. Also, when you decide to remove some components, the basic goes up. And PF goes up.
Will the organisation be okay with this?

29. If merit allowance is paid based on performance and officer’s allowance is paid based on
seniority, you may not want to remove them as they have a purpose.

30. FIN

Lecture 10 Dec 8th

PAY- MIX

● Basic - > position

○ > Adjustments according to potential, which generates a pay range
● Comparative ratio = actual salary/ ideal salary. Its not industry/market median. Its in
reference to what you pay.
● What is the criteria for moving from minimum to maximum ? - > change in potential
● Performance management system - > what will be the characteristic?
● See Performance is data on capabilities which can be interpreted in many ways - >
increasing basic
● Rating is data about behavior but its interpretation is competency
● PMS - > competency - > basic pay
● Guaranteed salary goes up, basic pay goes up, basic goes up if competencies increase/merit
based pay
● 360 degree feedback (multi rated system) - > a lot of factors are involved so this is very
subjective
● At senior level amount of money is more, so you can play with variable pay
● What should the organization do ? Fairness and aptness to the context should be kept in
mind
● Organizations select the data of your selection to compare increasing competencies
● When you reach middle and senior level, you have more data about the person
● When they don't have data, organizations use proxies, like giving another chance etc.
 ● In the pay range (minimum) is usually lets say around P30 , it is when you are yet to prove
yourself, lower than the ideal pay, P60 is around the middle(ideal pay), P75 is the max ->
very competent/ good performance at this level but not worth promoting to next level
● Minimum and maximum emerges from the ideal pay
● Percentage increase keeps going down because the organization is signalling/
communicate
○ There is a better job for you
○ We can't really invest so much
○ Orgn wants to delay reaching the max
○ Expectations change over time
● The rate at which this tapers is dependent on the organization
● Compa ratio makes sense only if there is transparency in pay
● Job/ designation/department based compa ratio
● Compa ratio matters for individual, but its more useful for asking questions
● It can help you look into trends, if you know what data(extra) you want, you can get
answers
● Movement in a particular pay range - In India, you get promoted til you reach the maximum
of your competency
ALLOWANCES & BENEFITS
● Earlier - small basic + large allowances
● Now - > 50 - 50 both
● Allowances are temporary, there is no PF on allowance except DA.

Lecture 11 December 10th

- Pay levels and flat organization structures are different. Job doesn’t change with pay level
change. This is in regard to tenure promotions. The initial promotions are based on tenure, the job
doesn’t change, role doesn’t change, it is just to recognize the employee’s work.

- Even in government organizations, in most cases, pay level keeps changing periodically but
the job is unattached to it. Such a scenario could also be because of less available promotion
opportunities.

- Organization is paying someone the highest pay for that job (highest in that pay range) and
the others are being paid less than that. This brings in differentiation. The one with more pay is
being rewarded for his/her performance. At this point, this employee has to move up in his job
otherwise the cost to company is increasing. Consider, opportunities are there but the
employee is not capable enough for next job level.

- Now the options with organization are –

i) Promote the person (even if he is not capable)

ii) Ghost pay range (will not promote will not throw out, it is a signal to people
that the org has high performing employees, high talent)
 iii) Signalling the slowing of pay hike to the employee beyond the current P80
level. The options also depend on the how scarcely is that talent available in
the market. The organization can also look at training the employee in order
to retain and promote to next level.

- In some cases, the high performing employee may not be eligible for the next job level due to
lack of competencies so the next best performer or the next best with required competencies
for the next level is promoted. This can be taken wrongly by the employees. Different
organizations follow different methods. Some go with promoting the best performer even if
they lack competencies, which is a mistake. Some say we pay best performers very high, but
promotion is different and depends on required competencies. These are some challenges in
compensation and promotions.

- For creating promotions, the employees in the above level should be promoted to signal to
the high performing employee at the below level that he/she will be promoted in the future
when opportunity arises.

- Allowances & Benefits –

- Generally -> Small basic + Large allowances. Discussion is on to make 50% basic and 50%
allowances.

- If basic goes up PF (12% of basic) goes up and Gratuity goes up. To balance this growth
other allowances will be reduced. In the future, this finally reduces the take home with less
increments to keep the CTC same.

- Allowances are primarily to reduce the PF and Gratuity burden and it provides tax benefits
to employees.

- HRA – Makes sense only in a transferable job. But most organizations only give HRA because
of the tax benefit (IT Companies).

- Allowances depend on a lot of factors – whether it is temporary, its context. If the need for
allowance is permanent, then it would be included in the basic itself.

- Since allowances are temporary the company can withdraw it as per the need.

- PF, Gratuity, Meal coupons - Benefits

- Benefits are not seen in cash by the employee, but it adds to the company’s costs.

- Specific end is taken care of. For example – medical expenses.

- For allowances, organization doesn’t care what the employee spends that amount on. But for
benefits the organization only wants to compensate specific ends (requirements). Organization
want to show that it cares about its employees through benefits.
 - If the organization says that they will pay the house rent directly to the owner on
submission of bills, then it is a benefit.

- Reimbursements (on submission of bills of a specific requirement like medical, fuel etc.) are
also benefits.

- Through benefits the organization can decide where or what the money goes for.

- Reasons why benefits started –

· Long term uncertainty – Employees can’t handle or plan for the long-term
uncertainty on their own. (PF, Gratuity) They are called income insurance. Hence,
governments tend to provide tax exemptions to organizations and employees on
these benefits that take care of long-term uncertainty.

· Encouraging behaviours – Perquisites: Club memberships, Certifications for specific

skills etc.

· Efficiency advantage – leave travel concession, take holidays at company owned

properties etc. Low cost for employees for doing certain activities.

- Tata motors case –

- HRA should be location driven if it is a transferable job. HRA should be made part of basic if
it is a permanent factor in Tata motors. It also needs a PCA to some specific locations like
Pantnagar.

- If it is a one-off situation, then the company can have a dual policy – from Pantnagar, to
Pantnagar.

- HRA should be a benefit it solves the transferable job problem. The company just ensures
that the employees stay is taken care.

- Career transfers, culture transfers can solve the problem as it is for career progression or
learning in which case the employee cannot ask for cash or allowance as it is needed as part of
his career path.

Lecture 12 Dec 12

Why do Benefits matter?

Organization takes care of the uncertainties of an employee(retirals medicals, job security), in
return for commitment

-Why have a build strategy ? over buy Strategy

Build strategy-About culture/ intangibles that the organisation believes in. when the organisation
wants the person to stay longer. So the organisation has invested on each person for a longer time,
so would create HR policies accordingly. Companies believing in build strategy- invests in L&D, pay
will not be very high.
High attrition rate at lower levels. Very low attrition at higher level
Pay mix is also different from buy

Define contribution pension and defined benefit pension (aka both called Superannuation)
Define contribution pension: Typically , 15% of your Basic pay will go to a fund, you get to
choose which fund it should go to,
The fund will go to a corpus. 1/3rd of which you can withdraw- called commutation
Other 2/3rd will be given to you as a monthly pension - called annuity
This will go on till around 85 years of age
Employer has no risk. Primarily funded by employees though employers make matching
contributions.

Define Benefit pension:

Gives a part of the last drawn salary (50% of LDS) as pension
Employers have to take a huge risk. The company takes responsibility for the investment and for its
distribution to the retired employee

Flexible benefits:
“This is completely irrelevant here” pauses and continues
It takes long term uncertainty aspects. Can change benefits to fit the person better.
Eg. Can change a medical insurance into a life insurance/pension fund/dental insurance or
whatever if the person already has medical insurance.

Lecture 13 Dec 15
Tata Motors Case

There are 8 grades (A-H) employees, market data is given, we should calculate Basic as a percentage of total

salary for those 8 grades and comparison ratio = (Tata Motors median salary for the grade / Market median

salary for same grade)

Sir says, when calculating basic as % of total, remove benefits, superannuation.

Comparative Ratios Calculation -top grades have ratio above 120% and above.

Many org paying median or above the median but tata motors around P40

Levels A-F below 1 comparison ratio

From G – crossing 1, lower levels people don’t get proper salaries. Organisation was paying P40. Means, not too many

promotions policies. Maybe it has other pays or benefits, but P40 means less for basic pay.

Sir says, PF Gratuity superannuation should not be put in CTC– these allowances Benefits – social security things

PCA not to be put in CTC only for location specific people.

Most organizations are paying above median.

In general, Look into Total fixed pay and look into basic. Calculate if it is 50% or not.

Gratuity and PF companies just want to inflate the CTC. Gratuity is once in 5yrs. Companies just add these to show

more CTC. Ideally companies should not do that. But companies say others are doing it and numbers look high.

Superannuation is company policy, you can ask for cash in salary every month.

Health insurance, medical bills, meals go into CTC. These aren’t shown in CTC of Tata Motors.

Bonds break trust. Companies try to make it legal obligations that I’m giving u 5L worth training so you should stay.

Probation – why? U should know before recruiting only if he is fit or not. Wherever there is no probation, u observe

that interview levels are high. Sodexo coupons – just because the company should give you food expenses.
Lecture 14
Fairness in pay
● Internal equity
● External equity
Tournament theory can lead to a feeling of inequality within the organization,

Industry Life Cycle

1. Startup Stage:
a. HR focuses on setting direction
b. High Uncertainty and hence JDs are quite vague. Also, because expectations keep
changing rapidly
c. Key HR System -> Talent Acquisition, but
i. Is HR really sure of the right talent in the dynamic environment?
ii. Quite often the talent acquired can’t deal with the uncertainty and leaves,
hence HR has to keep the organization ready for attrition
d. No well-defined pay policy as there is no market to refer to
e. For the same reason, HR can only maintain Internal equity. External equity can’t
really exist
f. Startups try to lure experienced professionals using stock options. However there is
no guarantee of returns. It can work for top level employees as three are chances of
huge returns in the future but it won’t really help with lower and middle level
employees
g. Risk vs Uncertainty: Risk is when you can put a number to an uncertainty.
2. Growth Stage
a. Company is clear about their business model and goals
b. A lot of new competitors come into the market leading to poaching of talent for
more money
c. HR systems start to be standardized and JDs start taking shape
d. HR philosophy gets defined.
e. Uncertainty with performance goals turns into risks and hence pay for performance
can be justified.
f. In the growth stage, External Equity plays a major role (a lot of market data)
g. Tendency to mirror other firms is quite high and hence:
 i. JDs are more or less same everywhere -> importance of External equity goes
up
ii. Job Evaluation would only help in ranking jobs internally. Importance of
jobs and their critically don’t really matter
3. Maturity Stage
a. There is a consistency in HR philosophy and subsystems like comp & ben, PMS etc.
b. Very few new players enter the market -> Little risk of attrition
c. Companies present growth and careers development as a reward and hence focus
shifts to L&D
Lecture 15(Jan 5)

JOB EVALUATION(COLPAL)

Job Evaluation - More about consistency and not policy making

● Purpose - Compare jobs and arrive at hierarchy.

● Method - Arrive at a scale which can be measurable. This will then be used to compare

We are talking about criticality of job which is a relative concept. Therefore, a common set of
parameters need to be used.
Generally the three compensable factors for evaluating a job can be - skills(input), effort(process)
and responsibility(outputs) -(Hay evaluation method).
Then they have to further split into subfactors. Eg: Skills could be further split into education,
experience, certification etc
A scale can then be created by further grading each subfactor i.e Education can have 5 grades → 1-
10th std, 2- 12th std, 3- Graduation, 4- Post Grad.

Some Issues to be kept in mind

● Never confuse people with jobs
● Scale should remain constant for all the factors

Job Evaluation depends on Job description. If certain factors like responsibility is not mentioned in
the JD then work with what you have.
The entire job evaluation is about comparison between jobs within the organization(and not
external).

When doing JE,ideally, the weights should remain constant throughout(eg, Skills -50%, Effort-
20%,Responsibility-30%) but the degree(eg:1,2,3,4,5) should change based on the job.
Weights are a bias that the organization adds to convey a message. In the above eg- That the
organization values skill over responsibility and effort.

JE - has an inherent subjectivity to it

How to reduce the subjectivity in the whole process ?

 1. Use a multi-functional team(including diversity) - All of them come to consensus on scale
for each job eg: Assign ‘3’ on this job for education
2. Using an independent expert like a consultant - No bias since they are not from within the
organization but has a good idea of JE process

JE - Generally focuses only on guaranteed salary

Some ways in which orgs decide pay after evaluation. Suppose the final order after evaluation is
J3,J5,J2,J4,J1 :
1. Pay J3 higher than market(eg-75th percentile) and J1(much lower than mkt) - Ready to live
with attrition at lower levels
2. Pay J3 P75 and J1 relatively low (P60)
3. Pay J3 high and J1 low. But ensure that next promotion will be filled internally therefore
making it a more career related issue.

In style 1. → Evident difference in skills of the different roles. J3 might be the most critical(takes
most burden), J1 is just helping J3.
In style 2. → Don't want to be seen as bad paymasters. J3 is still a support to J1 but J3 has to be
done well for J3 to perform well(highly dependent)
In style 3 → J3 most critical. Others are jobs in waiting to reach critical job.

Style 2 - used when company is in growth stage (doesnt mind extra salary).
Style 3 - Used in mature stage. Focus on careers.

How to do job evaluation ?

1. Do a proper job analysis . This will help you create an updated and robust Job Description.
This will also helps in selection, performance management(PMS) etc
2. Look for jobs that deviates → Decide whether you should pay them more

JE vs PMS
● Job vs Person
● JE - Typicality and PMS - Excellence
● PMS - Flexible eg: Ask emp to focus on innovation in one year. If it doesn't work then
regress back in the next. JE - Reasonable permanent
What started as an experiment in PMS → if its consistent over a span of time→ it becomes part of
the JD → then it impacts the JE
Technology could be another reason for change in JD
Lecture 16 - Jan 7 Susan

CASELET AND BREAKOUT ROOMS

Discussion:
Can we compare between two departments like sales and R and D?
How do you answer for an R and D guy having salaries much higher than the sales team?

1)Sales versus R and D is fundamentally 2 different professions and therefore becomes very
difficult in terms of comparison.
It is easier to compare sales and operations / Marketing and HR.
Definition of performance and the timeline involved is not easy to decide in R and D.
Better to look at different measurements for both departments.

2) Issue of Ease of measurement

R and D do not have a target focus like sales do. A lot of money goes into R and D but nothing to
show for the same. However for sales, output is very obvious and measurable.

3) Value Chain or what the customer buys

If you look at Pharma- Generics and out of patent drugs you see that sales has more importance in
the company. Example:Paracetamol-
If you look at drug discovery, patent driven, R and D has the upper hand in terms of value added
since the customer is purchasing unique products. In that kind of orgs sales job is more about
awareness creation, information gathering and not about targets.
This is a business model issue, the orgs strategy determines the Sales versus R and D emphasis. It is
about what aspect the org values more.

Ultimately if you as a company cannot differentiate your products, sales teams drive your value and
vice versa.
To pay which of these more depends on which dept drives your org.

INTERNAL EQUITY ASPECTS IN R AND D:

How do you arrive at a guarenteed pay and consequences on variable pay?
Hierarchy-
Colpal had a job based hierarchy. Job1==>J2==>J3 and each time you shifted upward, your
responsibilities and skill requirements increased too. Job-based hierarchy motivates you to move
up the ladder and asks you to augment skills and perform better so that you get promoted.
However, when you look at R and D, its flipped. We ask 3 questions:
1. Is comparison within org and outside very difficult? And here you dont compare the job, you
start to compare the person. Eg : are you able to compare the superspecialization that Mr X has
within the org and outside in the market?
2. What is the hierarchy in such a department? Do i start to do a different job if I get promoted?
No. I can get better as a person (expertise changes) but the job essentially remains the same.
Ultimately no job-based hierarcy. Seniority driven.
3.Performance timeline in the short-term is tough.
Genuine research is not the place to measure success or failure.

When these 3 conditions exist, we move into an internal equity structure based on persons
and no longer the job. (Aka input/ knowledge/ skill based structures). It’s based on personal
attributes like skills and experience. You could look at proxies for skills. Eg patent certification.
In a job based structure aspiration is to do a more challenging job.
In person based structures aspiration is to augment skills and not necessarily perform well. But
here the consequence is no guarantee in performance.

*WATCH VIDEO BY DAN PINK- AIS

Lecture 17 - (Jan 11)

Person Based structures - To design pay levels using person characteristics.

R&D, eduction, specialised careers - docs

Is the job more of a nebulus issue - trickier to play with the measurement or perf.

As size of org (roles, emps) increases structure becomes a necessity in the org. There is need for
clarity on what people should be doing. Job Desc and job based struct is reqd.

IT prods - person based struct is possible.

Autonomy, Mastery, Purpose - let me do what I want to, Be the best at it, to be intrinsically
motivated to do it.
Results only Work environment - no schedules, bas kaam karna hai , kaise bhi karo kahi bhi karo
bas karo.
Intrinsic motivation AMP beats money any day.
Rewards work only in narrow band, rewards can destroy creativity.

Intrinsic works - we know- just need to apply. Need to grow up from carrot and stick approach vo
outdated hai.

Creative work and incentives - rewards hinder creativity.

Self Determination Theory - Reward accept is not about whether they like the reward. It is about of
communication of the rewards. Be it intrinsic or extrinsic.
Creative mein you come back to heavy GP because VP does nothing.

Pay Level matters but pay manipulation doesn’t affect the performance of a creative guy.
PFP doesn’t help them or us much. Hence GP is where we go.

So performance kaise kare? PMS and C&B don't determine it. Selection matters. You need to get the
genuinely interested people. Peer driven.. Selection - grooming
Wrong person is wrong person.. Galat le liya to chud gaye
Are growing

Lil risk is where you can stay with PFP.

How to determine Pay Level - how much you value it + what is market paying
C&B :
1. Rewarding good behaviour
2. Monitoring if someone is doing a good job

Management by ability vs motivation

1 Assumes ki he wants to do this, what can I give him so that he does his best
2. You came for the money, so only if you do this work will I pay you.

Freq of promotion is high - genuine - change in responsibilities -

1. Vacancy is there, because they have lots of attrition or they are in a growing phase.

In mature phase - promotion kaise maintain?

Fictional levels - person based recognition - recognise your perf. These promotions give you a
designation but your work remains the same. But yes performance and capabilities is reqd.

Just a way of telling the person that you matter. But dikkat is ki itne zyada levels bana sakte hai.
Just need to keep it very rare, so that people will care about it. Promotions maintainable rakha
crazy weapon of HR.
These promotions don’t cost them so they may abuse it and hence lose out on the rarity of this
promotion.

Production mein they say ki base it on who are doing same work diff designation but just diff
financial liberties to take decisions.
A lot of times these fictional promotions are done just to show growth so that you don't lose out on
the talent. This can obviously can happen at all orgs.

Org says let me communicate vertical promotion is not as important. Broad Banding they do. They
do lots of this in mature phase. Signalling ki aspirations or promotions are shit. Vertical movement
nahi imp.
Broad banding is about culture not structure. To compare outside they use a compa ratio and say ki
you can do diverse work. That is imp. You move within the band.
Broadbanding doesn’t affect pay just affects the promotions ka communication
Very difficult to implement.
Indians try to claim but don't work much in India.

You could be reporting to someone in the same band. He may not have a job designation as such
but will have a higher pay for sure.
BB in person based structures are prevalent. Since for them Promotions is not as much of a thing.
But we keep them since aspirations imp.

Lecture 18 - Jan 12:

Discussion:
Pay for performance is a sorting effect for a few top performers.
Problems with safelite:
1. Factors that affected performance that was rewarded were out of employee’s control.
2. The case makes you think there is a problem with low productivity, but it's not so.
3. High turnover
4. Inability of Safelite to attract people from competing organisations owing to a poor HR
policy.

PFP worked in the previous job, why not here?

Assuming: Tyre changing happens in a shop, the case mentions cars were lined up so it was easy to
measure work done. Here Job Model is different. A combination of mobile work+store based
work. So all glass replacement work isn’t the same.

When it comes to safelite, yes it has a major market share (12%) but most of its competitors are
local stores. Since the case is set in the USA where insurance is available to all, people might just go
to a local store and have repairs covered under their insurance policy.

Low skill jobs- generally emphasises PFP.

There is a link between increasing productivity due to PFP.
Assumptions:
1. Money motivates people
2. External factors dont play a big role in performance
3. Capability of individual is already high
Point 3 is where Sir gives an example of quizzes- an increased weightage might make us take
a quiz more seriously, but unless we are capable, we won’t score much.
So incentives make someone do a job, but how well they do it depends upon their ability and
efforts.
Productivity= ability+motivation.
We need to differentiate between ability and motivation. In the corporate world, throw incentives
at someone, they’ll feel offended that you think they don’t put in efforts. The prospect of earning a
high reward isn’t insulting, the communication is.
PFP solves a motivation issue. But the ability issue is much deeper. (you need to build upon non-
performers for that)

Next issue is that of demand. The business is seasonal, but installers aren’t lazy. The daily business
requires say 2-3 installations, on specific days if its 8-9 then how do a fixed number of installers
with existing capabilities respond so many.

Targets vs Commission
Targets- Forecasting can be done, and predicted demand is close to actual demand.
Commissions- uncertain, different targets different commissions (usually in sales.)
The slice of pie issue- if huge, go for commission.
Here, glass replacement should be on Targets.
Next, seasonality of demand: companies don’t decrease targets, they need people to still work
efficiently.

Two parameters in Safelite:

1. Better performers: Do we just reward them, create equitable distribution?
Some companies generally don’t bother rewarding all employees, if a better performer can
get the job done, give the job to him. This is an issue- others will lack motivation. Ensure no
bias while providing opportunity. So equal opportunity of work, but provide equitable
rewards to incentivise high performers.
2. Distance issues: How do we properly compensate employees who travel far away for
installation. This is a micro-level discussion. 3 months me if orders average out, it’s okay.
Otherwise, getting into nitty gritty details during rewards will not solve anything. Ensure
that the order system is proper- each employee gets to go on long distance work
assignments. (some may refuse, citing non-availability of trucks, not safe at night etc.) but
you need to start there, rather than fix that at the reward stage.

Lecture 19 Jan 14

● Pay Range is chosen by org- length and breadth -Whatever threshold HR is

comfortable with - threshold level of skills
● The more standardised the role easier to decide pay range
● May not always want to follow external equity
● Pay ranges always evolve
● While deciding pay ranges- compensable factors, consequences, benchmark with
market, roles - factors to be considered
● Job criticality- leads to organisation paying more than the market level
● Market paying low and org paying high is never a problem- problematic when we
pay lower than the market.
● Factors that determine - job description, job evaluation
● Mostly the JD in the market is tweaked and misleading. Consultants play a role here
● Question to ask yourself: Is there a need to pay so much above the market range? If
there's no market for this job outside will the candidate accept this job?
● No. of years > criticality in some companies
● How to ensure internal equity if we use external market data rates?- real challenge
of a HR
● In ColPal, language shouldn't be kept under job evaluation. It's an ability. You'll
learn if you have to anyway
● Challenges as a company here would be
1. Capitalise?
2. fair? And towards who?
3. sustainable?
 ● Internal equity is important in factories here- people are working closely knit in
factories, hence transparency comes into picture -Be careful about consistency
● Staggering is used between two employees with a pay gap and to ensure internal
equity. Over 4-5 year period, their salaries will be the same- Pay Rationalisation/
Pay Normalisation - pay correction not increment
● Annual lump sum- based on talent , helps- huge amount in 1st year, helps other
behaviours
● When recruitment more powerful than comp team- balance maintained by attrition
● Always keep the market with you. Keep it within the brackets and maintain int
equity.
● Monitoring of processes - operations
● Variable pay- do u want to start employer behaviour and add a bit of entrepreneurial
element?

Pay for performance is perfect if it is an organisation problem and convert it into an individuals
problem.
So its very sustainable. P4P plan is beautiful because it converts org problem to ind problem.

Biggest problem with team based incentive- it turns into a blame game -
Per person incentive- leverage effect/ power of incentive - nobody is motivated
- Leads to dilution of incentive.
- Team work in XLRI eg.
- Powerful- dilute to per person incentive.
- Can one job influence the errors of the previous jobs? Lower this job with incentives
- Team leader’s incentive power is higher
- No accountability among individual members
Criticality means this job can handle the errors of the other jobs.

‘There are times when variable pay is actually variable’(umm what?!)

- Reality- guaranteed salary
- On paper its variable
- When calc is done there's no variable
For installers, job doesn't require variance
LECTURE 20- THE FINAL COUNTDOWN
Case: The Roller Coaster ride- Resignation of a star

VERY short summary:Peter, Stephen and Rina work at RSH, an IB firm.

Stephen- Head of Research (extreme overthinker, who speculates a lot)
Peter- The leading Senior Research Analyst in the semiconductor industry ranked by II (prestigious
ranking), worked for RSH earning 400K in base, 700k in bonus and 300k in equity option plan (mid
range for star analysts in the firm, not that great for mkt. rates) {Has always been a high performer
+ Good bg (Caltech + Harvard )} ; Valuable to the firm , specially for their latest deal with
Powerchip; done with RSH like we are with XL
Rina- Jr. Analyst works directly under Peter. Earns 100k in base +60k bonus. Ambitious but loyal to
Peter who mentored her for 3 yrs, respects him, ready to follow him to new firm.
When stephen heard rumor that peter was job hunting, he confronted; peter denied and gave him
assurance, the suddenly 2 months later, BAAM- “I wanna quit” . Stephen is emo, feeling hurt and
betrayed. New employer is paying him 50% more, but he says he feels stale and his decision was
more than just about comp.
Stephen contemplates a counteroffer but fears it will become a blackmailing cycle and also invite
other employees to follow suit. BUT HE REALLY REALLY REALLY NEEDS A GOOD ANALYST AND
PETER HAS BEEN WORKING ON THE POWERCHIP DEAL.

So he thinks about promoting Rina to Sr. analyst- offers her 300k (175k base , rest guaranteed
bonus) + 1 of the only 12 slots for a training thingy for II certification. Rina is tempted but unsure.

It’s a battle of power and egos. FITE!

● Profit sharing and gain-sharing (refer to book, he says for definition), mentions scanlon
plan (profit sharing program) and rucker plan (gain sharing prog.) (again he tells us to read
book)
Why do we have them? You cannot enforce desirable behaviors unless you have
incentive structures.
● Usually, individualist structures overrides the benefit of all (the org. Needs
benefit for all for the above mentioned schemes).
● Profit-sharing affects everyone, loafing by poor performers may affect high
performers.

The Guaranteed pay and CTC graph:-

High-H(90%ile)
Med-M (60th percentile)
Low-L

1) GP-H + CTC-H; negligible Variable pay : Company values the employee; There is high
uncertainty in the mkt. regarding performance, hence they can’t push Pay for perf. This can
be interpreted as: Org is largely into innovation and prod. Development (hence the high
uncertainty)
2) GP-H + CTC-M: Zone for family run org. focused on culture of job security etc. and focus on
reasonable salaries. Largely risk averse and pay at the median, but keep whole focus wrt GP
being v high.
<SOP driven work would fall under Low CTC and some variable pay, may fall under this
but GP is mostly lower than this and have some profit sharing scheme>
3) GP-L + CTC-H (imp.): High Variable pay. Usually Sales driven org. Structures
(commissions based).
Another type of org. to do this (with med-high CTC)- all the variable pay comes through
org.-based incentive structures like profit sharing schemes. Late stage Start-ups will be
here (high CTC with high VP component < through org. Perf. incentive) and they focus on
growth); growth driven organizations go into this for costs due to uncertainty.
 Profit-sharing schemes is not always EBITA, it can have a basket of revenues, employee
cost, etc.

Eg: I can pay 100, mkt, rate 130; so i pay 130, but 30 is in these org based incentive
schemes. Good yr: Pay 130; Bad yr: pay 100- industry is bad or pick talent ring fence (to
manage attrition)

● Profit sharing induces goodwill, brings peeps together. Sir DOES NOT like this,
he believes for any incentive scheme, line of sight is important (Expectancy theory:
efforts->results->incentives that are respectable enough to stay motivated)
● Line of sight is weak in profit-sharing schemes, so it does not motivate you to do
anything other than reward you for assuming org. is performing great. <profit-
based is diff, incentive struc. are driven by profits and revenues, you are
responsible for your part in the profit; profit sharing means that a % of your salary
will depend on the company’s YOY profit.>
● How do you ensure org profits move by your efforts?
● Shares based- growth sharing
● Profit based- strong line of sight to improve profits- my actions directly reflect on
the comp. Profits (direct contribution). Individual pfp drives individual perf
through establishing responsibility for a given metric
● Is profit the right metric? Depends on org. Sometimes mkt share/ growth in mkt.
share/ mkt share in certain products/ ability to retain mkt share- several others.
● P-S schemes are typically cost-driven schemes- help to pay iff there is a perf. Outlay.
● Strong corr b/w companies with good overall perf and PS schemes , often attributed
to causation; so people believe that PS schemes are good
● IF INCEN. STRUC DOES NOT MOVE YOU IT WON’T MOVE OTHERS SO BE CAREFUL
● VP as a cost based struc. When? When mkts are volatile, this helps manage costs in
long term.

Two views on PS schemes: 1)growth happens 2) <he gets distracted, so changes topic>

GAIN SHARING SCHEMES: <Read chap 10 pay-for-perf in book> used largely in outcome of
factories.

● It is typical team-based incentive structure which is used as a tool for negotiation (from a
specific perspective) between mngmt & union where mngt tells factory workers : you give
us so much gain, we share % to you (cost savings)
● Entire org. Gets into agreement- in the next x months we will reduce _ savings and %of that
savings is given to us.
● Org tend to use it a lot more from a managing info asymmetry perspective. You dunno
what’s up but help with productivity to get help (money) from the org.
● Knowledge sharing perspective
● Useful because- orgs have been able to implement it more successfully
● **Go through scanlon and rucker plans
 ● Problems: 1)Once GS starts, withdrawing the scheme is an issue, so you keep introducing
newer schemes. 2) what if it does not pay off?

-Case analysis (sir’s points and ones he found interesting)

● Poor succession planning
● Niche specialty- replacement may be difficult
● Common practice in walmart- letting people go in such situations but in this case,
replacement may be difficult to find
● Stephen tries to divide Rina and Peter
● Rina does not fully understand the opportunity, also Stephen does not have enough data on
her. She should focus beyond the $$
● Stephen is weak at managing people. He should have foreseen such offers for peter
● Best bet is Peter, make sure you do your best for him
● If you want to set precedent of no counter offers - need robust HR policies- sound
succession planning.
● Usually orgs that do not give counter offers:
-They anticipate (ensuring correct salaries) and recognize high-risk categories
-Have sound succession planning
Neither is present at RSH. Stephen’s Rina tactic was actually to get through to Peter.
● Peter only wants higher comp, not actually leave
● Offer hike but don’t give samer. Offer 80-85% inc. not 100%
● Peter cannot replicate this again.
● Companies when they recruit star performers- v high fixed sal; no incr. For next 3-4 yrs
(that is usually when the returns start occurring). Conditions: Don’t ask for incentive in
next 2-3 yrs ; <read about resource based view of perf.>
● In these situations, ppl leave with the team
● Stephen is expecting loyalty for developing talent instead of paying for talent- thanking
behavior
● Price of talent during development and post development is different. Stephen should have
anticipated and given appraisal
● Peter wants a counteroffer, Stephen should relent