AIDAS strategy?

The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations. AIDAS stands for Attention, Interest, Desire, Action, Satisfaction. The AIDAS theory simply states that a prospect goes through five different stages before finally responding satisfactorily to our product. thus he should be led comfortably through all five stages. 
Attention – Gaining attention is a skill and and just like any skill, gaining attention can be improved upon with practice. A common phrase applicable over here is “First impression is last impression”. The initial attempt of the sales person must be to put the customer completely at ease. Casual conversation is one of the best openers after which the sales person can gain customer attention by leading him onto the sale.

One of the key factors which contributes to customer attention is your sales pitch as well as your conversation abilities. The sales person needs to establish good rapport as soon as possible. Thus the sales person can use 3 main techniques to get customer attention

 

1) Have a ready sales pitch – By a sales pitch i mean you should have an idea of what you are going to speak, along with the normal conversation starters. It shouldn’t be that you have a 500 word speech ready and as soon as you are in front of the customer you start reciting it. A sales pitch should greet the customer, ask him for his free time and then proceed. gauge the customer reception and remember – if the customer is irritable, it is best to postpone your pitch for later or vary it on the spot according to the customers mood.

2) Try to relax the customer – The customer will have expectations from you. Thus having a calm conversation with him, asking him about his business and interests and his future prospects and than later on connecting YOUR product to his vision is important. In this manner the customer slowly relaxes and is more prone to asking questions by himself and if not, than at least he will be open to conversation. You can then lead him onto the product presentation stage and gain his interest.

3) Do not appear too eager – Enthusiasm in sales is important and if you have confidence in your product, your enthusiasm shows. However it is necessary not to appear too eager because eagerness in itself can be a turn off and the customer might lose interest. Your approach towards the customer needs to be in accordance to the customer. Sometimes direct, sometimes subtle. Remember – Shouting gains attention for a minimum time period whereas talking stays in the memory. You therefore need to talk to your customer rather than shout.
2. Interest – Once you have gained attention, it is very important to maintain interest. Some sales people are very good in the opening but as the technicalities take over, they become uncomfortable while explaining the product. Whereas others who are strong in the product department might open bluntly but create interest in the second stage. 
 

Customer interest is crucial to the sales process. Gaining attention can be done in the initial stages but interest in the product needs to be maintained throughout the sales process. Once you have gone through the process of gaining customer attention, maintaining customer interest and then kindling desire is important.

There are numerous techniques for maintaining customer interest towards the product mainly depending on the technicality of the product. One of the major reasons for using such sales techniques is to induce desire in the prospect which ultimately results in action as mentioned in the AIDAS theory.

1) Present yourself as a professional – Besides the basics of personality and communication of a sales persons, the most commonly used techniques is to maintain catalogues, brochures or some presentable material. In highly technical products, sales persons carry their laptops along with presentations as well as technical data to answer any queries on the spot. This helps in maintaining customer interest.

2) Catch hints – The prospect himself drops hints during the opening stage and a smart sales person should catch those hints. Such as if you have a portfolio of 4 products, the customer might ask a question on 1 of those products. This might mean he has an above average interest in that 1 product and the sales person can than start the pitch by showing the advantages of that single product. A sales method used especially by a shoe salesmen.

3) Probe / Ask the prospect questions – Probing is a very important technique. Clear out his attitude towards you product and than proceed with your presentation. Your questions should be smart and should answer basics like Does he need your products? Does he have a preference for any specific product? Has he used your kind product before? Has he heard about your product? etc. These questions can help you determine how much convincing you need to do.

A sales person needs to understand basics such as customer motivation, body cues, hostility, understandibility as well as customer preferences to maintain interest towards the product. Customer interest is an integral part of the AIDAS theory of selling.

3.  Desire – Have you seen the commercials wherein you just have to get out of your house and get the product? Perhaps a car, an ice cream or a house. The same has to be done by the sales person in personal selling. He has to create enough desire in the customers mind such that he immediately has to buy the product. Imagine an aquaguard sales man or a tupperware sales person. They highlight the product in such a manner that you might be thinking “Why didnt i buy this product before”. Thus kindling that desire becomes an integral part of the AIDAS selling theory. Read more on how to create desire for the product.

4.   Action – Although there may be desire for the product, the customer might not act on it. He might want to buy the product but he might NOT buy it. In such cases the customer needs to be induced. There are various ways to induce the customer such that he buys the product. It is important for the sales person to understand whether to directly induce the customer or whether to push subtle reminders that you are there for a sales call 😉 . Both methods work, but you need to know your customer.

5.  Satisfaction – What would you do after the customer has given the order? Will you stand up, Point at him and shout “Fooled ya”. I dont think so. The customer has just parted with his money. Just like you part your money and expect good service, he expects the same too. So even after he has bought the product, you need to reassure the customer that he has made the right decision. The product is good for the customer and you only presented the product. It was his decision and he is right about it. These small cues post the sales process really give confidence to the customer and he then looks forward to your product rather than thinking whether or not he has made the right decision.

How to measure customer satisfaction? Perhaps the toughest of the jobs of a marketer. There are no meters to measure it; like thermometer for temperature. It is a subjective exercise but very important for marketer’s point of view. Let us see how we can do it.

Although the customer-centered firm seeks to create high customer satisfaction, that is not its main goal. If the company increases customer satisfaction by lowering its price or increasing its services , the results may be lower profits.

Tools for Tracking and Measuring Satisfaction

Complaint and suggestion systems:
A customer-centered organization makes it easy for customers to register suggestions and complaints. Some customer-centered companies-P&G, General Electric, Whirlpool – establish hot lines with toll-free numbers. Companies are also using Web sites and e-mail for quick, two-way communication.

Customer satisfaction surveys:
Studies show that although customer are dissatisfied with on out of every four purchases, less than 5 percent will complain. Most customers will buy less or switch suppliers,. Responsive companies measure customer satisfaction directly by conducting periodic surveys. While collecting customer satisfaction data, it is also useful to ask additional questions to measure repurchase intention and to measure the likelihood or willingness to recommended the company and brand to others.

Ghost shopping:
Companies can hire people to pose as potential buyers to report on strong and weak points experienced in buying the company’s and com-petitors ‘products. These mystery shoppers can even test how the company’s sales personnel handle various situations. Managers them-selves should leave their offices from time to time, enter company and competitor sales situations where they are unknown, and experience firsthand the treatment they receive. A variant of this is for managers to phone their own company with questions and complaints to see how the calls are handled.

Last customer analysis:
Companies should contact customers who have stopped buying or who have switched to another supplier to learn why this happened. Not only is it important to conduct exit interviews when customers first stop buying; it is also necessary to monitor the customer loss rate.

The company might be able to increase its profitability by means other than increased satisfaction ( for example, by improving manufacturing processes or investing more in (R&D). Also, the company has many stakeholders, including employees, dealers suppliers, and stockholders. Spending more to increase customer satisfaction might divert funds from increasing the satisfaction of other “partners.” Ultimately, the company must operate on the philosophy that it is trying to deliver a high level of customer satisfaction subject to delivering acceptable levels of satisfaction to the other stakeholders, given its total resources.

When customers rate their satisfaction with an element of the company’s performance-say, delivery – the company needs to recognize that customers vary in how they define good delivery. – the company needs to recognize that customers vary in how they define good delivery. It could mean early delivery, on-time delivery, order completeness, and so on. Yet if the company had to spell out every element in detail, customers would face a huge survey questionnaire. The company must also realize that two customers can report being “highly satisfied’ for different reasons. One may be easily satisfied most of the time and the other might be hard to please but was pleased on this occasion.

Direct compensation or Indirect Compensation?

Direct compensation

 refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.

Basic Salary
Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.

HRA
HRA stands for House Rent Allowance, it is an allowance that almost every salaried employee receives as part of there salary package from there employer to meet the cost of rent that they pay for their home. In other words, HRA is a compulsory part of salary of an individual which every salaried person receives irrespective of the type of property he resides in. Which means, if your employer chooses to offer HRA then you will get this as part of your salary whether you stay in a rented house or reside in your own house. As being a taxable part of salary, HRA gets special treatment in income tax law and is exempt from income tax to a certain extent.

Conveyance
Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.

Holidays and Leave
Payment for holidays and leave is also included in direct compensation. Leave includes sick time, funeral leave, maternity leave, military duty or other paid time away from work.

Bonuses
All forms of bonuses are included in direct compensation. Bonuses are compensation for employees for work performed; they are paid in addition to salary or wages. Bonuses are considered compensation if (per the IRS) they "arise out of an employment relationship or are associated with the performance of services." Bonuses are considered taxable to employees, but are considered an expense of doing business and are, in most cases, a tax benefit to the employer.

Facts [+]

According to The Payment of Bonus Act 1965, in Indian organizations irrespective of  profits or losses it is  mandatory for payment of bonus to the Every employee (receiving salary or wages up to RS. 10,000 p.m). engaged in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work is entitled to bonus for every accounting year if he has worked for at least 30 working days in that year.  For employees Minimum payment of bonus is 8.33% and maximum bonus payable is 20% on the allocable surplus derived form available surplus of the organization. [Allocable surplus= 67% of the available surplus (other than banking companies) or 60% of the available surplus (banking companies and companies linked with abroad)]. This act exempts certain class of employers prescribed under [Section 32]of this act.

Other Allowances
Other paid or reimbursed allowances are included in direct compensation, including ravel (including meals) and some medical care when it is paid by the employee and reimbursed.

Special Allowance
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.

Indirect compensation

What doesn't fall under direct compensation is indirect compensation, of which the employee is the beneficiary, but does not receive directly.

Indirect compensation refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Leave Policy, Overtime Policy, Car policy, Hospitalization, Insurance, Leave travel Assistance Limits, Retirement Benefits, Holiday Homes.

Leave Policy
It is the right of employee to get adequate number of leave while working with the organization. The organizations provide for paid leaves such as, casual leaves, medical leaves (sick leave), and maternity leaves, statutory pay, etc.

Overtime Policy
Overtime is the amount of time someone works beyond normal working hours. Normal hours may be determined in several ways:. Employees should be provided with the adequate allowances and facilities during their overtime, if they happened to do so, such as transport facilities, overtime pay, etc. Overtime pay rates can cause workers to work longer hours than they would at a flat hourly rate. Overtime laws, attitudes toward overtime and hours of work vary greatly from country to country and between different economic sectors. Overtime means extra productivity from employee that should be equal or more than the overtime payment made.

Facts [+]

In the United States, the Fair Labor Standards Act of 1937 applies to employees in industries engaged in, or producing goods for, interstate commerce. The FLSA establishes a standard work week of 40 hours for certain kinds of workers, and mandates payment for overtime hours to those workers of one and one-half times the workers' normal rate of pay for any time worked above 40 hours. The law creates two broad categories of employees, those who are "exempt" from the regulation and those who are "non-exempt". Under the law, employers are not required to pay exempt employees overtime but must do so for non-exempt employees.

European Union (EU) directives

The directives require:

• maximum average working week (including overtime) of 48 hours over a 17 week reference period
• minimum daily rest period of 11 consecutive hours in every 24
• breaks when the working day exceeds 6 hours
• minimum weekly rest period of 24 hours plus the 11 hours daily rest period in every 7-day period
• minimum of 4 weeks paid annual leave
• night work restricted to an average of 8 hours in any 24-hour period

The directives apply to:

• all sectors of activity, both public and private
• Doctors in training used to work a maximum week of 58 hours until 2009. From 1 August 2009 their maximum working week fell to 48 hours

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According to The Factories act, 1948 [section 59] in India worker works in a factory for more than nine hours in any day or for more than forty-eight hours in any week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.

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Biometric system leads to reduction in sum paid as overtime

INDIA, March, 2012: The amount paid on an average per month as overtime allowance to the employees of Finance Ministry has come down by around one fourth after installation of biometric attendance system, the Ministry has said in response to an RTI query.

The Ministry used to pay an average overtime allowance of Rs 2,26,978 each month, which after installation of biometric attendance system has reduced to Rs 62,600 approximately, the RTI (The Right to Information Act 2005 ) reply.

Biometric attendance system was installed in the Ministry to ensure that the employees and officials come to their office on time and do not leave early.

The application to seek the information on overtime allowance paid by the Ministry was filed by RTI activist Gopal Prasad.

He had also sought information on the modernisation plans undertaken by the Ministry at its offices here.

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Hospitalization
The employees should be provided allowances to get their regular check-ups, say at an interval of one year. Even their dependents should be eligible for the medi-claims that provide them emotional and social security.

Insurance
Organizations also provide for accidental insurance and life insurance for employees. This gives them the emotional security and they feel themselves valued in the organization.

Leave Travel
The employees are provided with leaves and travel allowances to go for holiday with their families. Some organizations arrange for a tour for the employees of the organization. This is usually done to make the employees stress free.

Retirement Benefits
Organizations provide for pension plans and other benefits for their employees which benefits them after they retire from the organization at the prescribed age.

Holiday Homes
Organizations provide for holiday homes and guest house for their employees at different locations. These holiday homes are usually located in hill station and other most wanted holiday spots. The organizations make sure that the employees do not face any kind of difficulties during their stay in the guest house.

Flexible Timings
Organizations provide for flexible timings to the employees who cannot come to work during normal shifts due to their personal problems and valid reasons.

Determining Employee Compensation?

Employee compensation can be a sensitive subject, and people get very passionate when trying to determine the most appropriate compensation plan for any business. Many human resource-related concerns need to be addressed, but equally important is understanding the financial aspects of employee compensation. Employee compensation is much more than just the direct amount that you pay an employee. There are other costs that need to be incorporated in the overall payroll budget. Here are five areas to consider when figuring out how to compensate employees:

1. Incentives and bonus plans need to have clear guidelines to minimize any confusion. They shouldn't be seen as a guaranteed payment, but instead should be measured by performance of the individual, team or company. If end-of-the-year bonuses are given every year regardless of performance, they no longer serve as a motivating factor; they are expected payments. Incentives and bonus payments should be reserved for employees who go above and beyond their everyday performance to help the company exceed its profitability goals.

2. Understand the costs of a benefit plan before you offer it. Offering benefits is a nice incentive for employees, but they can be a very costly burden to the company. So when assessing what benefits to add, consider not only today's direct costs, but also long-term expenses. Adding and removing benefits can be very demoralizing to your staff. So don't add anything you don't plan to continue long term. Of course, unexpected situations can always arise that may affect your ability to continue offering a certain benefit, but employees will become disgruntled when benefits are added and removed frequently.

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Public banks’ average salary overtakes that of private peers
2012.MUMBAI: The average cost per employee for public sector banks has overtaken that of their private sector peers since FY11-a development that has emerged from data released by RBI on Tuesday. This has prompted RBI to raise issues of productivity. The central bank has warned that public sector banks are losing their cost advantages with per-employee expense of public sector banks today being 150% of their peers in the private sector. The central bank has said that an HR transformation is required to address the issue of lower productivity as there is competition for talented manpower.

3. You also need to calculate employer payroll taxes into your overall payroll budget. Employers incur expenses, such as Social Security and Medicare tax, unemployment insurance for both state and federal entities, and workers' compensation insurance.

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---------------------------------------------------------------------------------------Each week, the U.S. Department of Labor issues its weekly report of first-time unemployment insurance claims for U.S. workers. Most economists agree that when first-time unemployment-insurance claims fall below 350,000 it is a positive sign that the economy is going well and hiring workers. If above 400,000 the economy is loosing jobs and is in potential danger of falling into recession.-------------------------------------------------------------------------------------
Every legal worker in the U.S. is entitled by federal law to three basic benefits. Workers' compensation provides insurance for work-related injuries or death. Social security provides retirement income and disability coverage for workers and their dependents. Unemployment insurance provides payments for a period of time presumably long enough to allow workers to find new jobs.

4. What type of position will the individual hold? Does it best correlate with direct payment on an hourly or salaried basis or is commission a better arrangement? Employees in sales-related positions should have commission as a part of their compensation package. Whether they're 100 percent commission or some other combination depends on the circumstances. These types of positions are most successful when their compensation is tied to their performance. It's a win-win for both the company and the employee.

5. Payroll budgeting is a necessity. There are many aspects to budgeting for a company, and a payroll budget is one component that should be done as well. Payroll budgets need to include direct wage and salary payments, commissions, bonuses, incentives, payroll taxes and insurance, along with any other directly related costs the business incurs in the payroll function. There will only be so much money that can be allocated to the complete compensation package and knowing that up front will help you in setting your commission, incentive, bonus and raise strategies up front.

Compensating employees is a delicate balance between meeting the employees' expectations and the company's financial goals. Assessing these five areas when putting together or evaluating your compensation program will help you ensure you're proactively moving your company in the right direction. Our employees are our most valuable assets and we should make sure we're treating them that way.

Factors Influencing Employee Compensation?

A number of factors influence the remuneration payable to employees. They can be categorised into (i) external and (ii) internal factors.

Internal Factors

These factors include the following:

Ability to pay
This is one of the most significant factor influencing employee compensation. Generally, a firm, which is prosperous and successful, has the ability to pay more than the competitive rate. This way it can attract a superior caliber of personnel. Often the labour unions also demand an increase in compensation on the grounds that the organisation is prosperous and is able to pay more.

Employee
Numerous employees related factors also influence his or her compensation. These include rhe following:

• Performance—It is always rewarded wirh pay increase and as a result it motivates the workers to do better in future.
• Experience—This makes a person perfect by providing valuable insights and thus rewarded also. Today companies are demanding for 10 to 20 years experience candidates especially for the executive positions. The companies presume that experience candidate posses leadership skills which influence the other behavior and performance. Generally experience candidate  perform the job without need of training which is time consuming and deals with matter of cost to company. Hence the experience candidates demand more pay than an unexperienced candidate. 

• Seniority—In today's environment seniority of employee making difference in payment of compensation compared to Jr employees. Naturally senior employees demands for more salary than fresher because of their hold on related job and its functions. Today many companies are demanding senior employees for key positions by offering fat pay and even sometimes retired employees are offered with  handsome salary for key positions  which deals with multitasking in organisation. Trade unions always prefer this objective criterion for pay rises.
• Potential—Firms also pay their employees, especially young ones on the basis of their potential. software companies are very good example for this, IT graduate just who completed his education having potential in the subject can gain a good job with high payment anywhere in the world. Good example, student of Indian Information Technology (IIT) from Delhi had bagged job of payment  7 million (70 lakhs) Indian rupees per year in Twitter Inc famous social networking website 

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A Brazilian firm, Semco,( best known for its radical form of industrial democracy and corporate re-engineering.) has 3,000 employees, a turnover of over $200 million and has been growing at 20-30% every year.

Semco does have managers but employees have more freedom than elsewhere. They can choose their hours of work, decide their salaries and pick their bosses. Managers are anonymously evaluated every six months by their subordinates. Semco has practised this philosophy for 25 years now.

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Job requirements
Wages arc also influenced by the requirements of a job such as physical and mental requirement. Jobs, which demand more skill, responsibility, efforts and are of hazardous in nature, will carry high wage tag with them.

Job evaluation
Job evaluation establishes a consistent and systematic relationship among base compensation rates for all jobs. In other words, it establishes the satisfactory wage differentials.

Organisation's strategy
The organisation's strategy regarding wages also influences employee compensation. For example, an organisation, which wants rapid growth, will set higher wages than competitors. On the other hand, organisations that want smooth going and just maintain the current earning will pay average or below average.

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14 highest-paying tech jobs of 2015

1. Software architect
 Software architects earn an average annual base salary of $130,891.

2. Software development manager
The average base salary of a software development manager is $123,747.

3. Solutions architect
Average annual salary of a solution architect is $121,522.

4. Analytics manager
Average annual base salary of an analytics manager is $115,725.

5. IT manager
Average base salary of an IT manager is $115,725.

6. Product manager
A product manager is not a tech-specific job, but plays major role at most technology companies. Product managers earn average base salary of $113,959.

7. Data scientist
The clamour for Big Data has been growing. Little surprising then that data scientist has emerged as another hot job. The average annual base salary of data scientists is $105,395.

8. Security engineer
A security engineer is responsible for the safety of an organisation's IT infrastructure. Average annual base salary of a security engineer is $102,749

9. QA manager
The No. 9 IT job on the list is that of QA or quality assurance manager. The average annual salary of a QA manager -- whose job is to ensure that a product, service or software performs as it should -- is $101,330.

10. Computer hardware engineer
 The guys who design computers and other electronic devices earn an average annual salary of $101,154.

11. Database administrator
Next on the list is database administrator. Database administrators make an average of $97,258.

12. UX designer
A UX or "user experience" designer is next on the list. The key responsibility of a UX designer is to ensure that the look and feel of a product is user-friendly. UX designers earn an average base salary of $96,855
.
13. Software engineer
The average salary of software engineers is $96,392
.
14. Sales engineer
A sales engineer, who helps ensure bids and contracts meet customers' technical specifications, earns an average base salary of $90,899.

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External Factors

Facts [+]

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The Cost of Living Adjustment (COLA) is an annual adjustment in wages to account for a change in purchasing power as measured by the Consumer Price Index. The Consumer Price Index is an inflationary indicator calculated monthly by the U.S. Department of Labor that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food, and transportation.

(Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.)

To set the COLA rates, the Office of Personnel Management (OPM) surveys the prices of over 300 items, including goods and services, housing, transportation, and miscellaneous expenses. OPM conducts these surveys in each of the COLA areas and in the Washington, DC, area.

The U.S. Office of Personnel Management (OPM) is the world's largest HR department. OPM provides HR services for the federal governments workforce of nearly 2.8 million workers. It's staff carry out the tasks to recruit, interview, and promote employees; oversee merit pay, benefits and retirement programs; and ensure that all employees and applicants are treated fairly and according to the law.

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These factors include the following:

Laws and RegulationsLaws and regulations impact the remuneration of employees in many areas, such as:

• Work hours and compulsory time-off (paid and unpaid) 
• Minimum wage
• Overtime 
• Compulsory bonuses
• Employment at will

India
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Countries like India have a Plenty of labour laws at the central level as well as at the state levels. Some of the central laws which have a bearing on employee remuneration are the Payment of Wages Act, 1936; the Minimum Wages Act, 1948; the Payment of Bonus Act. 1965; Equal Remuneration Act, 1976; and the Payment of Gratuity Act, 1972. The Payment of Wages Act was passed to regulate payment of wages to certain classes of persons employed in the industry. It also seeks to protect workers against irregularities in payment of wages and unauthorised deductions by the employers. In addition, the Act ensures payment of wages in a particular form and at regular intervals. The Minimum Wages Act enables the central and the state governments to fix minimum rates of wages payable to employees in sweated industries. The Payment of Bonus Act provides for payment of a specified rate of bonus to employees in certain establishments. The Gratuity Act provides for payment of gratuity to employees after they attain superannuation. The Equal Remuneration Act provides for payment of equal remuneration to men and women workers for same or similar work. The Act stipulated stringent punishments for contravention of its provisions.

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Labor market

• Official laws on wage and salary, labor contract, payment time, wage payment delay, working insurance, and so on.
• People’s standard of living in the areas where the offices of the company are.
• People’s living and consuming customary.
• The average wage rate in the labor market of similar work.

Facts [+]

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Moscow is the most expensive city in the world, according to a survey compiled by Mercer Human Resource Consulting. The survey ranked 144 cities around the world in terms of costs of such things as housing, transportation and food. Moscow moved up three spots in the latest survey and surpassed perennial cost leader Tokyo.

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Economy
The state of economy also influences the wage and salary-fixation. Wage rates will he different in a stable economy than in a depressed economy. In case of depressed economy there may be increase in supply of labour and this results in the fixation of lower wage rates.

Inflation
Increase in the prices of commodities and decrease in value of the money is called as inflation. The causes of inflation are many which are raising  costs, fall in the currency value in international markets, raising taxes by government and stagnation in the development of economy, etc. In India year 2012, due to the inflation nearly 22 listed companies had increased salary of its employees ranging between 12% to 27% compared to last year. Example Reliance Industries Ltd had paid nearly13% increase in salaries to its employees compared to last year salaries and HDFC (Housing Development Finance Corporation) Bank had paid nearly 21% increase in salaries to its employees compared to last year salaries.

Technological changes
Technological changes also influence the fixation of wage levels. Due to the advancements in the technology there may be shortage of skilled manpower in that area. So, the organisation will provide high wages for skilled personnel. For example, information technology (IT) industry in India and abroad is suffering from the shortage of IT experts.

Academic Institutions
Having good academic qualifications from Reputed and standard educational institution influence the compensation of the potential candidate in their recruitment in companies. Example, Indian Top Business schools like Indian Institute of Management, and IIT (Indian Institute of Technology) graduates demands higher pay packages compared to other normal institutions. Candidates seeking admission into theses institution requires to qualify tests conducted on domain knowledge. Candidates those who admit in these institution are determined, having competence and good domain knowledge which companies require.


2013:MUMBAI: XLRI Jamshedpur has placed 98% of its batch in four days with 75 recruiters making 255 offers to the batch of 240 students. The median salary of the batch was over Rs 16.2 lakh per annum and around 64 students bagged pre-placement offers from their summer internships.

Facts [+]

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Dec,2012-India: South Korean multinational company, Samsung Electronics offered annual package of $ 150,000 (81.6 lakhs) to students in the final placements of Indian Institutes of technology (IITs) at Madras. Google Inc offered annual package of $ 135,000 (73 lakhs) two students in the final placements of Indian Institutes of technology (IITs) at Kharagpur. Other companies like Boston Consulting Group, Deutsche Bank Group, Goldman Sachs, ITC (Indian Tobacco Corporation), Google, Sony (Japa ), Facebook, Morgan Stanley and Microsoft offered an annual salary of Rs.20 lakhs on an average to  students of the IITs at final placements.

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Indian Institute of Management, Rohtak first passing out batch has got 100 per cent placement in various companies, with an average salary of Rs 12.22 lakh. The final placement offers came from companies such as HSBC, Cognizant, Tata Power, BPCL, Ernst & Young, Tata Steel, Pfizer, Mother Dairy, Tata Motors, HDFC,

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IIM-Indore student offered Rs 53 lakh annual pay
2012:A Singapore-based infrastructure advisory firm has recruited an IIM-Indore's student on an annual package of Rs 53 lakh. "This international offering was made to a student of a 2010-2012 batch while a leading European investment bank has offered an annual package of Rs 32 lakh to another student," a spokesman of IIM-Indore said without revealing the identity of the companies and the students. A total of 443 students completed IIM's flagship Post Graduate Programme (PGP) in 2010-2012, out of which 434 got the jobs in different sectors.

This year a total of 138 companies participated in the placement process, he said.

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Fifth batch of IIM Calcutta's PGPEX VLMP programme bags average salary of Rs 13.55 lakh

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May, 2012, KOLKATA: The fifth batch of IIM Calcutta's PGPEX VLMP (post-graduate programme for executives for visionary leadership in management) programme has wrapped up its placements with a top offer of Rs 16.8 lakh offered by Shinsei Bank. Leading companies across multiple domains offered salaries ranging between Rs 8 lakh to Rs 16.8 lakh with the average salary coming in at Rs 13.55 lakh.

Consulting ruled the roost with as many as 11 offers with the maximum number of offers (4) made by Tata Consulting and CGN & Associates. Consulting companies which participated in the process included Mckinsey & Co, Cognizant Business Consulting, Wipro Consulting, TATA Consulting, CGN & Associates, Renoir Consulting, CII Consulting and Amazon.

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Compensation for Individual Performance?

Pay for Individual Performance

Organizations may reward individual performance with incentives such as piecework rates, standard hour plans, merit pay, individual bonuses, and sales commissions. These alternatives are summarized in Figure

 

INDIA: Defence Minister A K Antony in a report to Parliament upper house disclosed that 637 scientists have resigned from the Defence Research and Development Organisation (DRDO) during the period of 2007-2011, most of them were younger scientists who resigned.  Better incentives, better increments and promotions  are few  main reasons behind the resignation of scientists from DRDO. defence Minister said "corrective measures " had been put in place "to stem the flow of resignations". The government has planned to grant performance related incentive scheme to DRDO scientists, on par with the similar organisations.

Source: TOI, 6-12-2012

Facts of world

A recent WorldatWork survey of more than 6,000 managers and employees in 26 organizations in North America found that many employees and managers do not understand why they get paid what they do. Forty percent reported as knowing what to do to increase their base pay. Only thirty-eight percent reported knowing how to increase the size of their cash bonus.

1. Piecework Rates

As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce. This rate is often paid in addition to employees' base pay. The amount paid per unit is set at a level that re-wards employees for above-average production volume. For example, suppose that on average, assemblers can finish ten components in an hour. If the organization wants to pay its average assemblers $12 per hour, it can pay a piecework rate of $12 per hour divided by 10 components/hour, or $1.20 per component. An assembler who produces the average of 10 components per hour earns an amount equal to $12 per hour. An assembler who produces 12 components in an hour would earn $1.20 x 12, or $14.40 each hour.

Women worker working for piecework rate at flowers nursery. Normally piecework rate is paid daily to workers in most cases, but some employers pays at certain intervals like for weekly or monthly. It all depends upon the understanding between workers and employer.

An obvious advantage of piece rates is the direct link between how much work the employee does and the amount the emoloyee earns. In spite of their advantages, piece rates are relatively rare for several reasons. Most jobs, including those of managers, have no physical output, so it is hard to develop an appropriate performance measure. This type of incentive is most suited for very routine, standardized jobs with output that is easy to measure. For complex jobs or jobs with hard-to-measure outputs, piecework plans do not apply very well. Also, unless a plan is well designed to include performance standards, it may not reward employees for focusing on quality or customer satisfaction if it interferes with the day's output.

2. Standard Hour Plans

Another quantity-oriented incentive for production workers is the standard hour plan, an incentive plan that pays workers extra for work done in less than a preset "standard time." The organization determines a standard time to complete a task, such as tuning up a car engine. If the mechanic completes the work in less than the standard time, the mechanic receives an amount of pay equal to the wage for the full standard time. Suppose the standard time for tuning up an engine is two hours. If the mechanic finishes a tuneup in 1 1/2 hours, the mechanic earns two hours' worth of pay in 1 1/2 hours. Working that fast over the course of a week could add significantly to the mechanic's pay.

Payment according to standard our plan is mostly seen in areas where there is daily labour intensive. Daily labour will be paid according to the hours he has worked. Standard our plan for payment of wages is being used in the field of construction, agriculture sector and in the areas where more manual labour is required. 

In terms of their pros and cons, standard hour plans are much like piecework plans. They encourage employees to work as fast as they can, but not necessarily to care about quality or customer service. Also, they only succeed if employees want the extra money more than they want to work at a pace that feels comfortable.

3. Merit Pay

Merit pay refers to the process of determining employee compensation (base salary or bonuses), in part, on the basis of how well each employee performs at work. The principle is simple, at least in theory. It makes sense to reward more productive employees for their increased contributions to the organization, in the interests in fairness, but also with an eye to trying to retain the best employees in a company.

Almost all organizations have established some program of merit pay—a system of linking pay increases to ratings on performance appraisals. (described the content and use of performance appraisals.) Merit pay is most common for management and professional employees.

A drawback of merit pay, from the employer's standpoint, is that it can quickly become expensive. Managers at a majority of organizations rate most employees' performance in the top two categories (out of four or five). Therefore, the majority of employees are eligible for the biggest merit increases, and their pay rises rapidly. This cost is one reason that some organizations have established guidelines about the percentage of employees that may receive the top rating.

Another drawback of merit pay is that it makes assumptions that may be misleading. Rewarding employees for superior performance ratings assumes that those ratings depend on employees' ability and motivation. But performance may actually depend on forces outside the employee's control, such as managers' rating biases, the level of cooperation from coworkers, or the degree to which the organization gives employees the authority, training, and resources they need. Under these conditions, employees will likely conclude that the merit pay system is unfair. The HR How-To box suggests ways to set up a merit pay system so that is maximizes the advantages of this type of pay while minimizing the drawbacks.

Advantages of Merit Pay 

These are reasons why you might want to consider merit pay.

• Allows the employer to differentiate pay given to high performers.

• Merit pay helps an employer differentiate between the performance of high and low performing employees and reward the performance of the higher performers.

• Merit pay, unlike profit sharing or similar bonus pay schemes, allows an employer to differentiate between the performance of the company as a whole and the performance of an individual. While many merit pay programs also provide an overall reward that is distributed to all employees, to promote such values as team work, a portion of the available compensation is reserved for strong performers.

• Merit pay also provides a vehicle for an employer to recognize individual performance on a one time basis. This is useful for rewarding employees who may have participated in a one-time project such as implementing a new HRIS or opening up a new sales territory.

4. Performance Bonuses

Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period. In some cases, the bonus is a one-time reward. Bonuses may also be linked to objective performance measures rather than subjective ratings. Bonuses for individual performance can be extremely effective and give the organization great flexibility in deciding what kinds of behaviour to reward.

Rewards employees with 200% variable payout

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INDIA: After growing faster than Indian information technology (IT) industry, Cognizant Technology Solutions Corp has now rewarded its employees by giving out as much as 200% of the variable components of their 2011 salaries.

Typically, anywhere from 20 to 30% of an employee salary is labeled as variable pay, linked to a combination of overall company performance and individual performance.

"The company has done the repeat of 2010 in rewarding its top performers. The top performers got around 200% of their target bonus while the average bonus given was 150%. The bonuses were on expected lines as the company has been scoring good quarter on quarter," said a Cognizant employee in Chennai on condition of anonymity.

5. Sales Commissions

A variation on piece rates and bonuses is the payment of commissions, or pay calculated as a percentage of sales. For instance, a Insurance policy salesperson might earn commissions of 5 percent on the amount of the insurance policy of an insured person by him. Selling a 100000 worth Insurance policy will earn 5000/-  commissions for the Salesperson. At most organizations today, commissions range from 5 to 20 percent of sales. 21 In a growth-oriented organization, sales commissions need not be limited to salespeople. Many of the technical experts at Scientific &. Engineering Solutions are eligible for commissions and bonuses tied to the profitability of the sales they help to close. The HR How-To box provides additional suggestions for incentive pay.

Pay For Team Performance?

Gainsharing

Organizations that want employees to focus on efficiency may adopt a gainsharing program, which measures increases in productivity and effectiveness and distributes a portion of each gain to employees. For example, if a factory enjoys a productivity gain worth $30,000, half the gain might be the company's share. The other $15,000 would be distributed among the employees in the factory. Knowing that they can enjoy a financial benefit from helping the company be more productive, employees supposedly will look for ways to work more efficiently and improve the way the factory operates.

Gainsharing addresses the challenge of identifying appropriate performance measures for complex jobs. Even for simpler jobs, setting acceptable standards and measuring performance can be complicated. Gainsharing frees employees to determine how to improve their own and their group's performance. It also broadens employees1 focus beyond their individual interests. But in contrast to profit sharing, discussed later, it keeps the performance measures within a range of activity that most employees believe they can influence. Organizations can enhance the likelihood of a gain by providing a means for employees to share knowledge and make suggestions, as we will discuss later in this chapter.

Gainsharing is most likely to succeed when organizations provide the right conditions. Among the conditions identified, the following are among the most common:

• Management commitment
• Need for change or strong commitment to continuous improvement 
• Management acceptance and encouragement of employee input 
• High levels of cooperation and interaction 
• Employment security
• Information sharing on productivity and costs 
• Goal setting

HOW GAINSHARING MOTIVATES EMPLOYEES

Many firms have had a difficult time developing compensation systems that were simultaneously motivational and cost-effective. Managers have reported that gainsharing motivated employees in their organization in several ways. First, financial rewards, applied in the proper setting and in the proper way, can be a powerful motivator. In addition, gainsharing provides:

• Financial participation, which is a powerful tool for increasing employee commitment and loyalty—the same psychological processes that operate for senior and middle managers are applicable to other employees;
• The ability to see the outcomes of work in monetary terms;
• Rewards that are directly tied to work behavior;
• Group rewards that lead to group cohesion and peer pressure to perform;
• An expanded role for employees in an organization that fulfills higher level psychological needs by encouraging employees to take more responsibility, utilize more talents on the job, and become a genuine partner in the operation of the business;
• An opportunity for expanded communication leading to greater trust in the organization—the calculation of the monthly bonus formula permits employees to understand fundamental business problems;
• An opportunity to unify the organization as many gainsharing plans include all employees (hourly, salaried, clerical, and so on) as participants; and
• An equitable distribution of the gains from productivity improvement.

Gainsharing Plans

Improshare

Improshare, which stands for Improved Productivity through Sharing. Improshare was created by Mitchell Fein, an industrial engineer.

The Improshare plan is a form of gainsharing that focuses on sharing physical productivity gains with employees. Standard hours are calculated for the production of each unit, and Improshare pays a bonus when the time needed in the production process is reduced. Gains realized by working either faster or more efficiently are then split between the employer and employees, and the employee portion is shared among all workers. Improshare does not require any form of employee participation, although participation is compatible with the process.

Improshare bonuses are based on the overall productivity of the work team. Improshare output is measured by the number of finished products that a work team produces in a given period. Both production (direct) employees and nonproduction (indirect) employees are included in the determination of the bonus.' Since a cooperative environment benefits all, Improshare promotes increased interaction and support between employees and management.

The bonus is based not on dollar savings, as in the Scanlon and Rucker Plans, but on productivity gains that result from reducing the time it takes to produce a finished product. Bonuses are determined monthly by calculating the difference between standard hours (Improshare hours) and actual hours, and dividing the result by actual hours. The employees and the company each receive payment for 50 percent of the improvement. Companies such as Hinderliter Energy Equipment Corporation pay the bonus as a separate check to emphasize that it is extra income.


Scanlon plan
"Cost saving productivity-incentive plan"
Joseph Scanlon was a union organiser in a steel works, who put a proposal to the owners aimed at saving the jobs of his union members. The steelworkers agreed to work in a more efficient way in return for an equal share of the savings that this generated.

Since its development in 1927, the Scanlon plan has been implemented in many organizations, especially in smaller unionized industrial firms. The basic concept underlying the Scanlon plan is that efficiency depends on teamwork and plant-wide cooperation.

The philosophy behind the Scanlon Plan is that employees should offer ideas and suggestions to improve productivity and, in turn, be rewarded for their constructive efforts. The plan requires good management, leadership, trust and respect between employees and managers, and a workforce dedicated to responsible decision making. When correctly implemented, the Scanlon Plan can result in improved efficiency and profitability for the organization and steady employment and high compensation for employees.

A Scanlon plan can help reduce a firm’s labor costs without corresponding decreases in productivity levels. According to Scanlon's proponents, effective employee participation, which includes the use of committees on which employees are represented, is the most significant feature of the Scanlon Plan. Under a Scanlon plan, employees make suggestions for how to improve a firm’s productivity and offer those suggestions to a review committee for its consideration for implementation. If the review committee accepts the plan and its implementation results in increased efficiency, the gains of that efficiency are shared with employees.

Incentive rewards are paid to employees on the basis of improvements in preestablished ratios. Ratios of labor costs to total sales value or total production or total hours to total production are the most commonly used. Savings due to differences between actual and expected ratios are placed in a bonus fund. A predetermined percentage of this fund is then split between employees and the organization.

How Scanlon plan is implemented

It starts with the top-level managers, they sit together and discuss about the formulation and implementation of Scanlon plan. After thorough discussions they come up with Scanlon plan Roadmap as to how to put the plan into the practice. Before putting the plan into practice, the roadmap is communicated to all the employees irrespective of positions in the organisation for their acceptance. If the roadmap is not accepted by the majority of people in the organisation, it will be stopped. If it is accepted by the majority, a separate team is created to formulate a written plan as to how to put the Scanlon plan in to practice in the organization. Finally, written plan of Scanlon plan should be approved by all in the organisation so as to finally put it into practice. For the purpose of monitoring implementation of the written plan of Scanlon plan, subcommittees are formulated.

The Scanlon plan is not a true profit-sharing plan, because employees receive incentive compensation for reducing labor costs, regardless of whether the organization ultimately makes a profit. Organizations that have implemented the Scanlon plan have experienced an increase in productivity and a decrease in labor costs. Also, employee attitudes have become more favorable, and cooperation between management and workers has increased.

Illustration: A firm might have a target ratio of 1. In this case, if the company expected to do $100,000 in sales, it would attempt to keep its labor costs to $10,000. If employees are able to hit the same sales value of production with a ratio that’s lower than 1, the gains of that efficiency are shared with firm and employees.  For example, if the firm's workforce were able to realize $100,000 in sales value of production with only $9,000 in labor costs, the $1,000 in savings would be split among the employees and their firm.

Rucker plan
The Rucker plan, almost as old as the Scanlon plan, was developed in the 1930s by the economist Allan W. Rucker. The Scanlon formula measures performance against a standard of labor costs in relation to the dollar value of production, whereas the Rucker formula introduces a third variable: the dollar value of all materials, supplies, and services that the organization uses.
The Rucker formula is calculated as follows:

$ Value of Labor Costs

$ Value of Production - $ Value of Materials, Supplies, Services

The result is what economists call the “value added” to a product by the organization. The use of value added rather than the dollar value of production builds in an incentive to save on other inputs.

Team Bonuses and Awards

In contrast to gainsharing plans, which typically reward the performance of all employees at a facility, bonuses for team performance tend to be for smaller work groups. These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. Team awards are similar to team bonuses, but they are more likely to use a broad range of performance measures, such as cost savings, successful completion of a project, or even meeting deadlines.

Both types of incentives have the advantage that they encourage group or team members to cooperate so that they can achieve their goal. However, depending on the reward system, competition among individuals may be replaced by competition among teams. Competition may be healthy in some situations, as when teams try to outdo one another in satisfying customers. On the downside, competition may also prevent necessary cooperation among teams. To avoid this, the organization should carefully set the performance goals for these incentives so that concern for costs or sales does not obscure other objectives, such as quality, customer service, and ethical behaviour.

Pay for Organizational Performance?

Two important ways organizations measure their performance are in terms of their profits and their stock price. In a competitive marketplace, profits result when an organization is efficiently providing products that customers want at a price they are willing to pay. Stock is the owners' investment in a corporation; when the stock price is rising, the value of that investment is growing. Rather than trying to figure out what performance measures will motivate employees to do the things that generate high profits and a rising stock price, many organizations offer incentive pay tied to those organizational performance measures. The expectation is that employees will focus on what is best for the organization.

These organization-level incentives can motivate employees to align their activities with the organization's goals. Linking incentives to the organization's profits or stock price exposes employees to a high degree of risk. Profits and stock price can soar very high very fast, but they can also fall, as witnessed by many wary investors. The result is a great deal of uncertainty about the amount of incentive pay each employee will receive in each period. Therefore, these kinds of incentive pay are likely to be most effective in organizations that emphasize growth and innovation, which tend to need employees who thrive in a risk-taking environment.

2012,India: Wipro company  has tweaked the variable pay structure for its IT (Information Technology) and BPO (Business Process Outsourcing) employees. the company's annual meeting top management decided to attached their variable pay with organisational performance Linked to the customer satisfaction, this decision made clearly visible how much employee earns.

1. Profit Sharing

Under profit sharing, payments are a percentage of the organization's profits and do not become part of the employees' base salary. Organizations use profit sharing for a number of reasons. It may encourage employees to think more like owners, taking a broad view of what they need to do in order to make the organization more effective. They are more likely to cooperate and less likely to focus on narrow self-interest. Also, profit sharing has the practical advantage of costing less when the organization is experiencing financial difficulties. If the organization has little or no profit, this incentive pay is small or nonexistent, so employers may not need to rely as much on layoffs to reduce costs.

An organization setting up a profit-sharing plan should consider what to do if profits fall. If the economy slows and profit-sharing payments disappear along with profits, employees may become discouraged or angry. One way to avoid this kind of problem is to design profit-sharing plans to reward employees for high profits but not penalize them when profits fall. This solution may be more satisfactory to employees but does not offer the advantage of reducing labour costs without layoffs during economic downturns.

OBJECTIVES OF PROFIT-SHARING PLANS
The primary objectives of profit-sharing plans are to:

• Improve productivity
• Recruit or retain employees
• Improve product/service quality
• Improve employee morale

2. Employee Stock Ownership Plans (ESOPs)/ Employee Stock Option

An employee share ownership plan ("stock option" or "stock ownership", abbreviated to "ESOP") is the practice of companies giving staff members shares in their company as part of their salary and "stock option" plan converts an employee in to a shareholders of an organisation. Today, employee stock option plan has become an employee retention tool/strategy for the organisations, especially in the information technology sector. Social networking companies like, Facebook offered "stock option" to its employees those who stick to the company for a period of two years. similarly, Twitter, Google and Amazon have included stock option in the compensation package of their employees. Management experts feel that stock option is showing positive influence on retention of employees and termed it as a "Golden Handcuff ".

The stock option is the most popular long-term incentive. A stock option plans grant to employees the right to purchase a specific number of shares of company stock at a specific price during a period of time. The price at which the employee can buy the stock is equal to the market price at the time the stock option was granted.  The assumption is that the price of the stock will go up, rather than go down or stay the same. Several trends have increased the attractiveness of stock options as a long-term executive incentive and retention tool.

Employees prefer bonus to ESOPs in compensation: Experts

With a number of startups collapsing mid-way, many employees are now preferring bonuses instead of Employee Stock Option Plans (ESOPs) as part of their compensation package, industry experts said. Industries like pharmaceuticals, banking and IT companies are few who offered ESOPs to employees.

In the world of startups talent war was natural where every company wanted to hire the best and to attract them, ESOP was used as a component.However, with many startups collapsing gradually employees started relying on cash component. Hence, employees are now seeking bonus options. Bonuses are generally short term component, paid either yearly or quarterly, and is becoming an attractive option even if it is one-third or one-fourth of the value as compared to the ESOPs

It has seen a change where the ESOP component in compensation packages has dropped in startup companies. This is because they never reach the valuations they initially project and in the past year a lot of startups also had to close businesses. Since around end-2016, it has been witnessing a change from ESOPs to variable bonuses in terms of compensation in these companies.

As the startup world continues to see more uncertainty, employers prefer more stability and therefore, also prefer bonuses as compared to ESOPs, which is usually offered to middle and senior-level employees, he added.

This trend is seen across the startup industry, including e-commerce, food, technology, logistics and financial services.

example:-

Suppose that in 2009 a company's employees received options to purchase the company's stock at $10 per share. The employees will benefit if the stock price rises above $10 per share, because they can pay $10 for something (a share of stock) that is worth more than $10. If in 2012 the stock is worth $30, they can exercise their options and buy stock for $10 a share. If they want to, they can sell their stock for the market price of $30, receiving a gain of $20 for each share of stock. Of course, stock prices can also fall. If the 2012 stock price is only $8, the employees would not bother to exercise the options.

An Employee Share Option Plan (ESOP) is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for, thereby increasing their commitment, loyalty, and effort. It is an equity based deferred compensation plan. Under the ESOP plan, companies provide their employees the opportunity to acquire the company's shares at a reduced price over a period of time.

Apple Computer, Wang Laboratories, AirTouch, Bristol-Myers Squibb, Nike, Quaker Oats, and Sara Lee. all of these diverse organizations offers a stock option program to its employees.

According to the National Center for Employee Ownership, an estimated 15,000 firms in the United States have established broad employee-ownership programs. Of these firms, about 10,000 have formed ESOPs, covering about 9 million workers.

In recent years, many organizations pushed eligibility for options further down in the organization's structure. For example, it is estimated there are 1,000 Google employees who have become millionaires from stock grants and options.

Important goals of the plan are: 

• to attract best talented employees.
• Acts as a retention tool.
• to motivate employees to act in the best interest of the organisation as a whole; 
• to enhance employee identification with the organisation; and 

According to WorldatWork, a compensation association, the use of stock options has become a very prevalent method of motivating and compensating hourly employees, as welt as salaried and executive personnel.

NIIT Technologies leadership team gets ESOPs worth Rs 1 crore (10 million)

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July, 2012: Compensation Committee of Global IT services and software solution NIIT Technologies Ltd,India. granted 33,000 employee stock option (ESOP) to its Selected top 10-11 employees in three equal instalments. one third (i.e. 11000 stock options) granted would be given after the completion of one year. Next 11000 stock options  would be given after the completion of second year and the rest would be given after the completion of third year.

ESTABLISHING AN ESOP

An organization establishes an ESOP by using its stock as collateral to borrow capital from a financial institution. Once the loan repayment begins through the use of company profits, a certain amount of stock is released and allocated to an employee stock ownership trust (ESOT). Employees are assigned shares of company stock kept in the trust, based on length of service and pay level. On retirement, death, or separation from the organization, employees or their beneficiaries can sell the stock back to the trust or on the open market, if the stock is publicly traded.

ADVANTAGES AND DISADVANTAGES OF ESOPS 

Establishing an ESOP creates several advantages. The major one is that the firm can receive favorable tax treatment of the earnings earmarked for use in the ESOP. Second, an ESOP gives employees a “piece of the action” so that they can share in the growth and profitability of their firm. As a result, employee ownership may be effective in motivating employees to be more productive and focused on organizational performance. In one survey of over 1,100 ESOP companies, about 60% said productivity had increased, and 68% said financial performance was higher since

converting to an ESOP.

Almost everyone loves the concept of employee ownership as a kind of “people’s capitalism.” However, the sharing also can be a disadvantage because employees may feel “forced” to join, thus placing their financial future at greater risk. Both their wages or salaries and their retirement benefits depend on the performance of the organization. This concentration is even riskier for retirees because the value of pension fund assets also depends on how well the company does.

Another drawback is that ESOPs have been used as a management tool to fend off unfriendly takeover attempts. Holders of employee-owned stock often align  with management to turn down bids that would benefit outside stockholders but would replace management and restructure operations. Surely, ESOPs were not created to entrench inefficient management. Despite these disadvantages, ESOPs have grown in popularity.

Compensation Vs Remuneration?

Compensation	Remuneration
Compensation is paid to the employee in case of death of employee, physical injury, or mentally suffered.	Remuneration is paid to the employee for the work done to the organisation
Payment of the compensation is compulsory only in case of the death of employee, injury or mentally suffered.	Remuneration is paid periodically to the employee on daily basis, weekly basis, fortnightly or monthly basis for the work done.
There is separate and dedicated law for payment of compensation.	There is separate and dedicated law for payment of compensation.
Payment of the Compensation to the employee is depended on the gravity of the injury he suffered but not according to the job position or job grade.	Remuneration of the employee depends on the position of the job or grade of the job with respect to organization hierarchy.
Payment of the compensation is one time settlement or for a certain period of time unitll employee recovers from suffering.	Payment of the remuneration is paid as long as the employee work for the organization starting from appointment to retirement
Payment of the Compensation varies from injury to injury suffered by the employee.	Payment of the Remuneration varies from job to job position held by the employee in the organization.
Payment of the compensation provision is same for all employees.	Payment of the remuneration provisions is different from job to job.
Generally payment of the compensation depends and varies from age of the employee.	Payment of the remuneration of the employee depends and varies from the job title, job position or job experience
There is no other name for the word employee compensation	Other names for employee remuneration are   wages or salaries.

Executive Compensation?

Executive Compensation

Compensation or remuneration for the executive managers is different from compensation for other employees in most the organizations. Executive compensation covers employees that include presidents of company, chief executive officers (CEOs), chief financial officers (CFOs), vice presidents, occasionally directors of the company, and other upper-level managers. These high level employees are paid executive compensation.

Usually only those members of your most senior management team qualify for executive pay. It is usual the members of the “C-Suite.” (A widely-used slang term used to collectively refer to a corporation's most important senior executives. C-Suite gets its name because top senior executives' titles tend to start with the letter C, for chief, as in chief executive officer, chief operating officer and chief information officer.)

What Are the Components of Executive Compensation?

• Base salary
• Incentive pay, with a short-term focus, usually in the form of a bonus
• Incentive pay, with a long-term focus, usually in some combination of stock awards, option awards, non-equity incentive plan compensation
• Enhanced benefits package that usually includes a Supplemental Executive Retirement Plan (SERP)
• Extra benefits and perquisites, such as cars and club memberships
• Deferred compensation earnings

Executive Compensation

Many organizations, especially large ones, administer executive compensation somewhat differently than compensation for lower-level employees. An executive typically is someone in the top two levels of an organization, such as Chief Executive Officer (CEO), President, or Senior Vice-President. As Figure shows, the common components of executive compensation are salaries, annual bonuses, long-term incentives, supplemental benefits, and perquisites.

Apple CEO Tim Cook's salary doubled in 2014

Apple CEO Tim Cook got a fat cash bonus that brought his total compensation to $9.2 million in 2013. That's more than double what he received in the previous year (2013), as the company enjoyed a upsurge in sales and profit fueled by the popularity of its new, over-sized iPhone 6 models.

Cook's pay for fiscal 2014 included $1.7 million in salary and $6.7 million in incentive pay that was awarded by Apple's board after he beat the performance goals that directors had set for him, according to a regulatory filing. He also received $774,176 in other compensation, including a 401k contribution, company-paid insurance premiums and security expenses.

Apple reported $182.8 billion in revenue for the fiscal year that ended September 27 of 2014 and $39.5 billion in profit, after seeing record sales last fall. Sales of iPhones rose 21% in the company's fourth quarter, which made up for a decline in sales of iPads.

IndianTop executive pay chart in Indian corporate sector: 2012
-------------------------------------------------------------------------------------------------------------------------------- 2012-Sep: Naveen  chairman and managing director of Jindal Steel and Power (JSPL)  has topped the executive pay charts for listed companies in the country with a package of Rs 73.4 crore for the fiscal 2011-12, which grew by over Rs 6 crore from previous year. Jindal. He was followed by Sun TV Network's Kalanithi and Kavery Maran (Rs 57 crore each), Hero MotoCorp's Pawan Munjal (Rs 34.5 crore) and Brijmohan Lall Munjal (Rs 34.4 crore) among the five top-paid executives. These pay packages include 

Top 10 highest paid CEOs of 2013

Here are the 10 highest paid CEOs of 2013, as calculated by The Associated Press and Equilar, an executive pay research firm:

1.Anthony Petrello, Nabors Industries, $68.2 million, up 246 percent

2.Leslie Moonves, CBS, $65.6 million, up 9 percent

3.Richard Adkerson, Freeport-McMoRan Copper & Gold, $55.3 million, up 294 percent

4.Stephen Kaufer, TripAdvisor, $39 million, up 510 percent

5.Philippe Dauman, Viacom, $37.2 million, up 11 percent

6.Leonard Schleifer, Regeneron Pharmaceuticals, $36.3 million, up 21 percent

7.Robert Iger, Walt Disney, $34.3 million, down 7 percent

8.David Zaslav, Discovery Communications, $33.3 million, down 33 percent

9.Jeffrey Bewkes, Time Warner, $32.5 million, up 27 percent

10.Brian Roberts, Comcast, $31.4 million, up 8 percent

• salary, 
• perquisites, 
• profit-linked incentives or commissions and 
• other benefits.

Jindal remained the top-paid executive for the second consecutive year after he dislodged Kalanithi Maran from the top slot in the year 2010-11. The collective pay of the 10 top-paid executives rose by Rs 43 crore (over 12%) to Rs 387 crore in FY12, according to the data companies have so far published their annual reports. The pay packages declined for only two - Kalanithi and Kavery Maran - among these 10 in 2011-12.

• Madras Cements' P R R Rajha was ranked sixth (Rs 29.3 crore), followed by 
• Maruti Suzuki's Shinzo Nakanishi (Rs 28.1 crore), 
• BGR Energy's BG Raghupaty (Rs 26 crore), 
• Tata Motors' former chief Carl-Peter Forster (Rs 24 crore) and 
• Divi's Labs' Murali K Divi (Rs 23.2 crore).

Reliance India Ltd chief Mukesh Ambani, once the country's highest-paid executive, was not in the top-10 and was ranked 15th with a remuneration of Rs 15 crore, which has remained unchanged for four consecutive years now. Those ranked higher than Ambani include 

• Bharti Airtel's Sunil Mittal (Rs 21.3 crore), 
• Hindalco's D Bhattacharya (Rs 19.5 crore), 
• JSW Steel's Sajjan Jindal (Rs 18.18 crore) and 
• Amara Raja Batteries' Jayadev Galla (Rs 17.23 crore). 
• Among these, Mittal and Sajjan Jindal saw their packages decline during the year 2011-12.

The collective remuneration of 15 highest-paid executives rose by about Rs 38 crore to Rs 478 crore. Interestingly, there are only four sensex companies whose top executives figure among the ten top-paid persons.

Two objectives influence executive compensation:

1. Ensuring that the total compensation packages for executives are competitive with the compensation packages in other firms that might employ them, and 
2. Tying the overall performance of the organization over a period of time to the compensation that is paid to executives. It is the second objective that critics of executive compensation believe is not being met. In many organizations, it appears that the levels of executive compensation may be unreasonable and not linked closely to organizational performance.

Elements of Executive Compensation

At the heart of most executive compensation plans is the idea that executives should be rewarded if the organization grows in profitability and value over a period of years. Because many executives are in high tax brackets, their compensation often is provided in ways that offer significant tax savings. Therefore, their total compensation packages are more significant than their base pay. Especially when the base salary is $1 million or more, the executive often is interested in the mix of items in the total package, including current and deferred compensation.

EXECUTIVE SALARIES
Salaries of executives vary by type of job, size of organization, region of the country, and industry. On average, salaries make up about 40-60% of the typical top executive's annual compensation total. At times publicly traded company to hike or reduce the salary of executive based on performance, approval may be needed from  directors and shareholders .

EXECUTIVE BONUS PLANS
Because executive performance may be difficult to determine, bonus compensation must reflect some kind of performance measure if it is to be meaningful. As an example, a retail chain with over 250 stores ties annual bonuses for managers to store profitability. The bonuses have amounted to as much as 35% of a store manager's base salary.

Bonuses for executives can be determined in several ways. A discretionary system whereby bonuses are awarded based on the judgments of the chief executive officer and the board of directors is one way. However, the absence of formal, measurable targets is a major drawback of this approach. Also, as noted, bonuses can be tied to specific measures, such as return on investment, earnings per share, or net profits before taxes. More complex systems create bonus pools and thresholds above which bonuses are computed. Whatever method is used, it is important to describe it so that executives trying to earn bonuses understand the plan; otherwise, the incentive effect will be diminished.

PERFORMANCE INCENTIVES-LONG TERM VS. SHORT TERM
Performance-based incentives attempt to tie executive compensation to the long-term growth and success of the organization. However, whether the emphasis is really on the long term or merely represents a series of short-term rewards is controversial. Short-term rewards based on quarterly or annual performance may not result in the kind of long-run-oriented decisions necessary for the company to continue to do well.

A stock option gives an individual the right to buy stock in a company, usually at an advantageous price. Different types of stock options have been used depending on the tax laws in effect. Stock options have increased in use as a component of executive compensation during the past 10 years, and employers may use a variety of very specialized and technical approaches to them, which are beyond the scope of this discussion. However, the overall trend is toward using stock options as performance-based long-term incentives.

Where stock is closely held, firms may grant "stock equivalencies" in the form of phantom stock or share appreciation rights. These plans pay recipients the increased value of the stock in the future, determined by a base valuation made at the time the phantom stock or share appreciation rights are given. Depending on how these plans are established, the executives may be able to defer taxes or be taxed at lower capital-gains tax rates.

BENEFITS FOR EXECUTIVES
As with benefits for non-executive employees, executive benefits may take several forms, including traditional retirement, health insurance, vacations, and others. However, executive benefits may include some items that other employees do not receive. For example, executive health plans with no co-payments and with no limitations on deductibles or physician choice are popular among small and middle-sized businesses. Corporate-owned life insurance on the life of the executive is popular and pays both the executive's estate and the company in the event of death. Trusts of various kinds may be designed by the company to help the executive deal with estate issues. Deferred compensation is another possible means used to help executives with tax liabilities caused by incentive compensation plans.

EXECUTIVE PERQUISITES
In addition to the regular benefits received by all employees, executives often receive benefits called perquisites. Perquisites (perks) are special executive benefits—usually noncash items. Perks are useful in tying executives to organizations and in demonstrating their importance to the companies. It is the status enhancement value of perks that is important to many executives. Visible symbols of status allow executives to be seen as "very important people (VIPs)" both inside and outside their organizations. In addition, perks can offer substantial tax savings because many perks are not taxed as income.