# MBA HR case on Critical components of compensation design and execution criteria to make pay for performance effective Class Assignment Project on case of Google compensation strategy role of compensation Pay bands/ranges of Google for Technical Rank Pay For Performance Designing an Effective Pay for Performance Compensation System Key Decision Points When Considering Pay for Performance Performance evaluation

 

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EMPLOYEE COMPENSATION-INDIVIDUAL PROJECT GUIDELINE (PROJECT I)

The objective of this project is to allow the student to have a “hands-on” experience in appreciating a critical component of compensation design and execution.

Students shall choose one topic from the following for their project:

1.      Job evaluation

2.      Designing pay levels-broad bands etc

3.      Pay for performance schemes

4.      International compensation

5.      Equity (stock/stock options) based compensation

First, the student shall introduce the student to his/her organization’s compensation system by giving an overview of

1.      Compensation strategy (as discussed in class)

2.      Pay bands/ranges

3.      What role compensation plays in the entire HR system.(The above shall not take more than one full page.)

The student shall then choose any of the above topics and discuss at length. The length of this component should not be more than 4-5 pages.

Solution to the assignment

Compensation

Compensation plays a critical role in aligning employee behavior with business objectives. Since the industrial age, the four Ms of business management i.e. Man, Material, Machine and Money are said to contribute to the business’s success. Among these, man has been considered to be the most important factor contributing to organizational effectiveness and efficiency.

 

Compensation attributes to all forms of pay and rewards received by employees for their performance, including all forms of benefits, perks, services and cash rewards. It is paramount to acknowledge and announce the total compensation to your employees. This needs to be done so that the significance of what you are putting forth in compensation is clear and hence attracts and retains talent.

 

A variety of elements need to be considered when designing a compensation plan that is also compatible to the employee demographic and budgetary bridles.

The following should be included when designing a compensation plan:

 

• Various elements that will embody the total compensation offered to the employees.
• Comparable and competitive compensation rates within the industry.
• Compensation needs to be unbiased. There must always be a logical increase in pay when it comes to length of service, job title, skills and abilities required to accomplish the job in a productive manner.
• An already established criterion that results in a pay increase.
• A well designed system to measure and control payroll costs.
• A proper procedure to measure the success of the organization’s compensation program by determining if the compensation results into favorable retention numbers, workforce performance and motivation.

 

Google’s Compensation Strategy

Google’s compensation strategy is highly competitive compared to the compensation strategies of competing firms. The company provides high salaries, together with comprehensive incentives and nonconventional benefits. Financial and moral incentives are provided. In addition, the company provides benefits like medical insurance, retirement pensions, free meals, and free use of exercise equipment. Realistically, Google’s human resource management has succeeded with regard to the compensation strategy because it effectively attracts highly qualified smart and excellent employees. People perceive Google as one of the best places to work.

 

 

Compensation is usually given in the form of monetary rewards that can be either direct or indirect:

 

Role OFCOMPENSATION IN AN ORGANIZATION

 

• Attract & retain employees
• Motivate workforce & sustain high morale
• Meet legal requirements
• Motivate personal growth
• In every organization it is essential to understand the importance of compensation and the flexibility the hiring managers can have in designing a compensation package that can in turn attract, retain and develop a quality talent pool.

 Pay bands/ranges of Google for Technical Rank

 Google's technical track from lowest to highest:

1. Software Engineer I (skipped because the range is all over the place and I feel people from I/II/III have placed their salaries under this title making the range for I hard to decipher)
2. Software Engineer II ($72-150k based on 104 salaries)
3. Software Engineer III ($85-166k based on 226 salaries)
4. Senior Engineer ($80-222k based on 241 salaries)
5. Staff Engineer ($84-240k based on 61 salaries)
6. Senior Staff Engineer ($110-250k based on 14 salaries)

  

Pay For Performance

The term “pay for performance” refers to a pay strategy where evaluations of individual and/or organizational performance have significant influence on the amount of pay increases or bonuses given to each employee.

 When a pay for performance system functions properly:

 

1.       Outstanding performers will receive the greatest rewards, to acknowledge their superior contributions and to motivate them to continue high performance.

 

2.       Average performers will receive substantially smaller raises, which may encourage them to work harder to achieve larger raises in the future.

 

3.       Poor performers will receive no increase, which is intended to persuade them to improve their performance or leave.

 

Designing an Effective Pay for Performance Compensation System

Decisions that are made during the design and implementation of a pay for performance system are crucial. Therefore, decision makers should carefully consider their design options with full awareness of potential advantages and disadvantages. The decision makers must address topics such as who should be covered, what should be rewarded, how to reward employees, and suggestions for preserving the integrity of the pay system.

Key Decision Points When Considering Pay for Performance

1. Is the organisation ready for pay for performance?

·         The organizational culture supports pay for performance.

·         Management is committed to changing the culture.

2. What are the goals of pay for performance?

·         Improved recruitment and/or retention

·         Increased individual and/or organizational performance

·         Greater fairness in pay

3. Who should be paid for performance?

·         All employees

·         Front-line employees

·         Top-level managers

4. What should be the timing for implementing pay for performance?

·         Wholesale

·         Stages

5. What should be rewarded?

·         Individual, team, and/or organizational achievements

·         Short-term and/or long-term goals

·         Efforts vs. outcomes when external constraints exist

6. How should employees be rewarded?

·         One-time cash bonus

·         Increase to base pay

·         Combination, such as control points

7. How much pay should be contingent upon performance?

·         Less than 5 percent

·         Approximately 30 percent

 8. How should performance-based pay be funded?

·         Existing funding (e.g., general increases, within-grade increases)

·         Additional funding

9. How can costs be managed?

·         Forced distribution

·         Reward only top performers (as a percentage of the workforce)

10. Who makes pay decisions?

·         First-level supervisor

·         Second-level supervisor

11. Who provides input on the performance ratings?

·         First-level supervisor

·         Second- or higher-level managers

12. How can organisations facilitate pay system integrity?

·         Improved performance evaluation process

·         Supervisor and employee training

 Because of the longstanding practice in organisations of basing pay primarily on position tenure, shifting to pay for performance require careful planning, implementation, and operation to facilitate the organizational change that produces a performance-based organizational culture. Such organizational change impacts readiness for implementing pay for performance, but organisation need not wait for the ideal organizational culture to be present before they move forward. Pay for performance can serve to drive an organizational culture in the desired direction.

Organisation must tailor pay for performance systems to their mission and environment. Pay for performance focuses attention on the monetary aspect of the relationship between employees and organizations. However, the greatest changes that pay for performance effects in individual and agency performance are probably those stemming from increased emphasis on defining and communicating goals to employees, providing concrete feedback, and heightening employees’ sense of responsibility for contributing to well-defined portions of their organization’s goals. To ensure that employees’ efforts are aligned with agency priorities, supervisors need to take the agency’s unique goals, needs, and environment into account when defining employee objectives.

For payfor performance to be effective, organisation need to meet certain requirements. These include:

1.            A culture that supports pay for performance;

2.            A rigorous performance evaluation system;

3.            Effective and fair supervisors;

4.            Appropriate training for supervisors and employees;

5.            Adequate funding;

6.            A system of checks and balances to ensure fairness; and

7.            Ongoing system evaluation.

 

While many of these requirements relate to effective human resources management practices that are important to any organization, pay for performance further increases their necessity. Attending to these human resources management issues provides organisation with a much greater likelihood of achieving a fair and effective pay for performance system.

To make pay for performance successful, organisations need to make a substantial investment of time, money, and effort. Pay for performance systems require substantial initial and continuing investment. These resources must be carefully spent on building and maintaining a system that suits the organization’s mission and objectives.

 Performance evaluation serves as the foundation of a pay for performance system.

An effective performance evaluation system is a fundamental prerequisite of pay for performance. Organisation must be able to communicate with employees regarding what the organization values and how it will accurately measure employee contributions to these goals. Without this information, organisation would be unable to appropriately distribute performance-based pay increases and bonuses.

Organisation should select supervisors based on their supervisory potential, develop and manage them to function as supervisors rather than technicians or staff experts, and evaluate and pay them based on their performance as supervisors. 

Because supervisors play a pivotal role in pay for performance systems, it is essential that they be able and willing to perform the important supervisory functions inherent in performance-based pay systems. To achieve this goal, organisation must select, train, and pay supervisors based on their demonstration of qualities that are suited to a pay for performance environment.

Communication, training, and transparency are essential elements of a good pay for performance system.

The key to the effectiveness of a pay for performance system rests with clarifying the mission and objectives of the organization, how these are linked with employees’ efforts, and consequently, what competencies, behaviors, and/or outcomes the organization values. Open communication regarding goals and progress; training in the philosophy and mechanics of the pay system; and transparency regarding how the system operates can mobilize the workforce in the desired direction.

Checks and balances are necessary.

Organisation can greatly facilitate the real and perceived fairness of the pay system by building in appropriate checks and balances. Although knowledge about the agency’s pay for performance plan and transparency regarding its outcomes can help supervisors and employees understand how the system should work, other mechanisms to ensure fairness are needed to further raise and maintain confidence in the system.

 A pay for performance system needs sufficientfunding to provide high performing employees with meaningful pay increases and bonuses.

Being able to provide high performers with meaningful pay increases is critical to operating an effective pay for performance system. Therefore, organisation need to have adequate funding to support pay increases for those who deserve them.

Pay for performance systems should be evaluated regularly and modified when necessary. Organisation should conduct an ongoing evaluation of the compensation system to help them ascertain whether organizational goals are being met and identify ways to improve the process.