Reference no: EM132874892

Mr S. Banerjee who has been working as HR manager in a car tyre manufacturing company for about last three months is wondering as to why the employees are not happy with the compensation policy of the organization. He talked to a number of employees and most of them appeared to be dissatisfied with the compensation policy. He was all the more surprised to find that average total compensation/reward being given per employees was almost as much as was being given by the competitive organizations in the market, still most employees felt aggrieved. Mr Banerjee, therefore, constituted a committee comprising Mr A. Sharma, production manager, Mr G. B. Gupta, finance manager and Mr Banerjee himself as the chairman of the committee to review the compensation policy of the company. Having a number of sittings and examining various relevant documents, the committee made a number of observations and recommendations as follows:

It was pointed out by the committee that the compensation policy does not provide explicit guidelines for the implementation of compensation strategy as also for working out design and management of compensation processes. Not only that, the compensation policy did not reflect the compensation philosophy of the company. There appeared to be mismatch between the two.

It was also observed by the committee that the compensation policy does not spell out the company's approach towards internal and external equities which was one of the major factors responsible for dissatisfaction among the employees. It appeared that the representatives of employees were not involved, while the policy was formulated. Besides, the criteria for contingent reward for good performance or acquiring new/additional skills and so on were not clear. Flexibility was missing. Guidelines on determination of salary and benefits for new recruits, supervising salary adjustment policy, benefits accruing due to promotion or on transfer, pay bands policy, salary progression policy, red circle policy, overtime policy and so on left much to be desired. Another major cause of employee dissatisfaction emerged from the fact that there was an imbalance between the financial benefits and non-financial benefits. Not only this, there were no cafeteria packages. Amount was being spent on certain benefits which were not appreciated by many employees.

The committee further observed that it was three years back that the compensation policy was reviewed, whereas in the last three years several changes, both inside and outside the company, have taken place and, therefore, policy review is overdue.

The committee, in particular, stressed on the immediate review of relational benefits being extended to the employees. It was pointed out in the report submitted by the committee that since expenditure incurred on relational benefits is minimal and its impact is great, these benefits which are intrinsic and have a great impact on motivational level of the employees need immediate review.

Based on the observations and recommendations made by the committee, the HR manager prepared a final report and submitted it to the top management recommending a complete overhaul of the compensation policy of the company.

Questions

1. Why was the compensation policy not proving effective in keeping employees satisfied and motivated? Support your answer with solid arguments.

2. Do you agree that the compensation policy of the company required a complete overhauling? Yes or no, why? Give arguments.

3. As a CEO of the company, which of the recommendations made by the committee should be given effect to and why?