Compensation and Benefits

The compensation and benefits processes belong to most important HR Processes, which are critical for the organization and modern HR organization. The compensation and benefits is about managing the personnel expenses budget, setting the performance standards, setting the transparent compensation policies and introducing the competitive benefits for emplo ees. The organization with effective compensation and benefits drives its personnel costs, manages the performance of emplo ees and rewards the extraordinar performance.

Compensation and Benefits Role

The compensation and benefits processes introduce the transparency into Human Resources and rewarding emplo ees for the achieved performance. The compensation and benefits provides the managers with the compensation tools to build a difference among emplo ees as the high performance corporate culture can be built in the organization. The compensation and benefits department monitors the external !ob mar"et and optimizes the personnel expenses budget of the organization. The compensation and benefits defines the compensation strateg , sets the transparent and simple compensation polic and defines the general rules for the extraordinar pa ments, bonus schemes applied in the organization and introduces general other compensation policies li"e the Relocation Polic , #hort$Term %ssignment Policies, Benefit Car Policies and other.

Compensation and Benefits Responsibilities

The compensation and benefits department is usuall responsible for thetransparency in the compensation practices in the organization and "eeping the internal fairness of the total cash. The compensation and benefits has to supervise the development of new compensation components and "eeping the general rules for the design of the compensation component. The compensation and benefits department is responsible for the personnel expenses budget of the organization. The compensation and benefits department sets the standards for the individual salar increase, the mass salar review and the rules for the

bonus pa out as the organization "eeps the financial stabilit and the planned personnel expenses budget is "ept. The compensation and benefits department has special processes to monitor the external !ob mar"et as it can set the right compensation policy, which is compliant with the approved compensation strateg . The compensation and benefits department is responsible for the extensive monitoring of the mar"et and designing the new compensation components inspired b the HR Best Practices in the compensation area. The compensation and benefits department is alwa s closel attached to the development of the new compensation components, which support the performance and effectivit of the organization. &t co$operates with the different business units and it aligns their re'uests into the general rules for the compensation components, which are transparent and fair. The compensation and benefits designs new ad!ustments to the compensation strategy and the compensation policy as the organization does not lose its competitive advantage on the !ob mar"et.

Compensation and Benefits Content

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Compensation #trateg
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Compensation #trateg (e Content Pa )ar"et #trategic Position #etting Compensation Consultants and Compensation #trateg Compensation #trateg building Competitive %dvantage *h is compensation strateg important+

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Compensation Polic ,xecutive Compensation

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,xecutive Compensation Plans

#alar #urve s

#ales &ncentives Compensation Plans

Compensation #trateg
The compensation strategy is extremel important as the right compensation strateg helps to build the effective and competitive organization and the wrong setting of the compensation strateg , which does not fit with the needs of the organization and with the HR and Business #trategies, can destro the organization within several ears and the organization suffers from decreased performance and not utilizing the full potential of emplo ees.

*hat is compensation strateg +

The compensation strategy is derived from the HR #trateg and it defines theposition of the organization on the job market, the level of the total cash, the main bonus principles in the organization and rules for the base salar setting. The compensation strateg is the strateg , which is approved b the Board of the organization as the owner of the compensation strateg is alwa s the top executive management of the organization. The compensation strateg has a huge impact on the costs of the organization and that is the main reason for the top management approval. The rest of managers are the users of the compensation strategy. The compensation strateg defines the pay market, the organization follows, the desired position on the pa mar"et and the wa , how the desired level and position on the pa mar"et will be achieved. The compensation strateg defines the basic compensation components used in the organization and the standard rules applied to each compensation component. The compensation strateg has to be in line with the business and HR #trategies as the compensation of emplo ees is aligned with the expectation of the top management from them. The compensation strateg does not change often as the compensation principles cannot be changed within few da s.

Compensation #trateg and HR #trateg

The compensation strateg is one of the main supporting document for the HR Strategy. The compensation strateg is closel monitored b the management of the

organization and the as" for the progress of the implementation of compensation strateg on the regular basis. The HR #trateg has to be alwa s designed and developed with having the respect to the situation in the compensation area in the organization. The HR #trateg cannot set the ambition, which is not suitable for the compan . The HR #trateg alwa s defines the basic principles for the compensation scheme in the organization and the compensation strateg defines the details for the components and when and how the will be introduced or redesigned. The compensation strateg should be updated, when Human Resources ma"es significant changes to the HR #trateg or the organization changes its business strateg . The compensation strateg has alwa s support the business and its selling capabilities.

Compensation #trateg &mportance

The compensation strateg helps the organization to manage the personnel expenses of the organization and it sets clear limits for the managers and emplo ees. &t provides the top management with the certaint , the personnel expenses are under the control and the costs will not boom. The compensation strateg gives the certaint to the HR emplo ees and HR managers as the can promise the stabilit in the compensation, the stabilit and the managed development of the compensation components and the can explain the basic role of the individual compensation components. The compensation strateg acts as the basic document driving the compensation and benefits processes and defines clear priorities for the development or redesign of the compensation components.

Compensation #trateg &mportance for managers

The managers should be alwa s informed about the existence of the compensation strateg and the should "now the implementation plan. The managers should not be allowed to comment and decide about the strateg as the would tend to ma"e their lives easier and the would ma"e the personnel expenses of the organization to boom.

The managers are the users of the compensation polic and the should understand, it is based on the approved principles from the strateg . The compensation polic can change on the regular -usuall earl . basis, but the strateg is consistent over a longer period of time and the managers can plan the career of the subordinates.

Compensation #trateg &mportance for emplo ees

The compensation strateg is not intended to be read b the emplo ees. The emplo ees are the users of the compensation polic and the should not be informed about the general position of the organization on the pa mar"et and the compensation components to be used to motivate the emplo ees. The emplo ees can read the compensation polic , which describes the details about their compensation as the recalculate the salaries, but the should not read about the strategic compensation components, which help to build the competitive advantage of the organization.

Compensation #trateg (e Content

The compensation strategy is the underl ing strateg for the general HR #trateg and its main role is to support the implementation of the HR #trateg and building the competitive and effective organization with the high performance corporate culture. The compensation strateg does not explain the detail of the compensation scheme and the details of the individual compensation components, but it sets the general guidelines for the compensation components and sets the priorities to be implemented over the period of the HR #trateg implementation The high performance corporate culture and the high performance Human Resources organization have to be supported b the compensation strateg , which is designed to be business driven strateg and with the right compensation tools, which motivate emplo ees to go the extra mile and rewarding the real successes.

)ain Compensation /oals

The compensation strateg has to set the main compensation goals of the organization and the have to be "ept as the main target for Human Resources to be achieved. The compensation goals have to be set in accordance with the business strateg and the have to visible in the HR #trateg . The top management and Human Resources have to decide, what the goals are of the compensation schemes in the organization. The compensation goals should be aligned with the corporate culture and the general long$term expectations of the emplo ees, when the organization does not implement a huge change in the corporate culture. )ain compensation goal is about the role of the compensation in the organization. ,ach organization pa salaries, but the role of the compensation has to be balanced with the other aspects of the overall motivation scheme applied in the organization. The organization has to choose to pa higher salaries and offer less development or career opportunities or it can offer lower salaries and better career opportunities to "eep the motivation s stem balanced. *hen the organization defines its basic compensation goals, it can continue with structuring the main compensation decisions formulated in the compensation strateg .

)ain #trategic Compensation 0ecisions

The compensation strategy allows smooth and efficient operation of other HR Processes li"e the recruitment and staffing, performance management, proper (P& and goal setting process, performance appraisals. %s the other HR Processes can run smoothl and the are not bloc"ed b the wrongl set compensation strateg , the main compensation decisions have to be included in the compensation strateg and the top management and Human Resources have to be aligned in the understanding to the main compensation decisions.

Role of Compensation in Human Resources

The compensation is a part of the complex HR processes, policies and procedures. The top management and Human Resources have to decide, what will be the primar role of compensation in the organization. #ome organizations prefer the supplementar role of

the compensation and other organizations prefer the dominant role of the compensation. This compensation decision is extremel important as it sets the general framewor" for the compensation components, if the will exist in the organization or the will be the part of the other HR polic . The compensation strateg has definitel include the description of the role of the compensation in the organization.

Competitiveness
The competitiveness of the compensation is another important compensation decision. The organization can decide to be aggressive with the compensation strateg and it can set the aggressive position on the pa mar"et, but this strateg is extremel expensive for the organization and it has to balance it with high margin on the products and services. 1n the other hand, the organization can choose to offer the career and development opportunities, it can increase the responsibilities of the individual emplo ees and it can balance aim to the lower level of the compensation on the pa mar"et. The decision about the competitiveness of the compensation strateg is extremel important as it has a huge impact on the costs of the organization and it re'uests the right setting of other HR Processes.

&nternal #tructures
The organization does not have to follow the same pa mar"et and the same level for all the !ob positions. &t is extremel important compensation decision to be included in the compensation strateg . The organization can decide about ma"ing huge pa differences across different units or it can decide about the different pa level for the experts and managers as it protects the "now how.

%dministration
The administration is a tough compensation decision in the compensation strateg as it sets the roles and responsibilities of Human Resources, managers, top managers in the compensation processes. The organization can decide about preferring the decentralized compensation model, when the manager decides most issues and pa increases, but Human Resources is in a danger of not "eeping the total personnel expenses budget. &n the centralized compensation strateg , the HR )anagers are the main decision ma"ers and the emplo ees and managers do not feel the comfort of the free decision.

Pa )ar"et #trategic Position #etting

The right position on the pay market is a "e to successful compensation and benefits function in the organization. #etting the right position enables other HR Processes with value added to wor" and it supports the recruitment, staffing, retention and talent management. The right position on the pa mar"et allows the organization to allocate the personnel costs efficientl and to "eep the organization competitive. *hen the organization sets the strategic position on the pay market, it has to evaluate several basic 'uestions, which help to set the target position correctl . The decision is not formal as it forms other compensation and benefits processes, has a huge impact on the allocation of the personnel costs and limits the potential for 'uic" changes in the compensation schemes used in the organization. The main 'uestions to be answered are2
1. What do we want to achieve by setting the strategic position on the pay market? 2. Who are my competitors? 3. What reactions will we see to follow from the competitors? . How many strategic positions do we need?

!. What are the costs of the setting the strategic position on the pay market?

*h to set the strategic position on the pa mar"et+

The modern organizations and modern and effective Human Resources )anagement are based on setting the competitive advantages. The right and efficient compensation strateg is a definitel the competitive advantage and it cannot wor" without the strategic position on the pa mar"et. The modern organizations are based on the talent management, offering the career opportunities and having other HR Processes to prolong the length of emplo ment of the "e emplo ees and "e !ob positions. The strategic positioning on the pa mar"et allows the other processes to function properl and "eeps the organization health . The recruitment strateg cannot wor" without the ade'uate compensation strateg as it can easil miss the goals. The compan can target the best potentials on the !ob mar"et, but the salar offered has to be ade'uate to the 'ualities of the candidates.

(nowing our competitors on the pa mar"et

The organization alwa s "nows its competitors in products and services. But the organization has to "now and understand the competitors in Human Resources as well. The can be different. But emplo ees can see the competition on the !ob mar"et differentl . (nowing the competitors on the !ob mar"et is extremel important for Human Resources. HR Recruiters have to anal ze, which companies are sourcing the organization and the HR 3ront 1ffice has to monitor, what companies hire new emplo ees from the organization. The compensation strateg has to be set as the organization can compete with the competitors on the pa mar"et and the compensation strateg has to be inspired b their compensation strategies. The emplo ees from the competitors wor"ing for the organization are usuall open to help and the can provide the excellent information, which can save man discussions in determining the right compensation strateg .

Predicting the reaction of the competitors

&t is extremel important to have several scenarios describing the reactions of the competitors. *hen ou are the mar"et ma"er and ou change our compensation strateg , ou can expect all the competitors will react and ou can start costl war on the !ob mar"et. *hen ou are a niche pla er and ou hire several emplo ees per ear from our competitors, the will not react. &n case, ou hire !ust the experts, ou can expect, the initiatives to protect the experts and "e emplo ees will evolve at our competitors and the price of hiring the expert from the competitor will rise.

1ne or more pa mar"et strategic positions

Human Resources has to decide, whether it will use !ust one strategic pay market position for the whole organization or it will identif groups of specific !ob positions, which will be evaluated and positioned on the pa mar"et differentl . The general pa mar"et position is simple, it is eas to explain, the organization uses !ust one, but the organization loses the flexibilit in the setting of the compensation strateg and this can lead to man exceptions in the compensation polic as the "e groups of emplo ees are not protected b the compensation polic in general and the managers will as" for the increased protection b using the exceptions. The general pa mar"et position can be more expensive than more pa mar"et positions as the s stem tends to set the s stem to protect the "e emplo ees and the "e !ob positions and the rest of the populations benefits from it.

The costs of setting the strategic pa mar"et position

)one is driving the compensation strategy. ,ach proposal for setting the strategic pa mar"et position has to be carefull calculated, anal zed and Human Resources has to prepare the predictions and forecasts of the future development.

#etting the strategic pa mar"et position without the proper anal sis and calculation is !ust a hazard with the future of Human Resources in the organization as the top management can be amazed, how expensive the strategic pa mar"et position is.

Compensation Consultants and Compensation #trateg

The compensation strategy design and development is too difficult to accomplish purel internall . The compensation and benefits team is usuall as"ed for the external benchmar"s and the common practice on the mar"et and thecompensation consultants can be a huge help, when the HR team is able to manage their deliverables. The compensation consultants are expensive and HR has to have a clear goal for the compensation consultant to be achieved. The compensation consultant is alwa s able to bring the creative and innovative compensation solution, when the goal is not given. The organization has to pa for the services, which are not utilized. *ith the clear goal, the compensation consultant has a clear navigation tool and forces the effort to reach the defined vision.

Compensation Consultants Benefits or 4alue %dded

The compensation consultants bring the huge external "now how in the compensation and benefits area, the previous experience and the experience with different solutions of the issues in the compensation schemes. The compensation consultant should provide the advice on the strategic position of the compensation strateg on the pa mar"et and to provide the information about the best practices in the compensation and benefits area. The compensation consultant should never decide about the final compensation strateg , but can provide the useful feedbac" and advice in the process of designing the compensation strateg .

The excellent compensation consultant alwa s as"s the clients about the feedbac" and how the solutions wor" in practice to have the experience to build on. The compensation consultant can see a new creative solution in one compan , which can help to build the HR competitive advantage in another organization. The compensation consultant can help to design the state-of-the-art compensation strategy and can save huge costs to the organization in the future.

How to use Compensation Consultants

The organization should invite the external compensation consultant at the right moment. The organization cannot leave the compensation consultant to set the whole compensation strateg . The organization has to set the clear goals for the compensation consultant and it should use the deliverables of the compensation consultant in the following decision process. *ithout strict goals, the organization cannot manage the compensation consultant and it cannot use the best "now how of the compensation consultant. The consultant has a deep "nowledge of the compensation pa mar"et and has "now how about the compensation best practices and these should be used for building the competitive advantage, but the organization has to "eep the final decision about the design of the compensation strateg .

Compensation Consultants 0eliverables

The organization has to define the deliverables, which support the organization in its decision process. The deliverable of the compensation consultant can be easil the content of the discussions with the executive top management as the consultant has a broad "nowledge of the pa mar"et and the top executives li"es the discussions about the general mar"et and the best pa practices in the industr . The common deliverables of the compensation consultant are about the comparison of the proposal from Human Resources with the best practices available and the comparison with the real pa data. The consultant usuall has the access to the detailed salar data and is able to ma"e a comparison and to point out the "e components and "e !obs to be included in the compensation strateg as the !obs building the competitive advantage.

Compensation #trateg building Competitive %dvantage

The competitive advantage is a necessar component for the modern organization. The competitive advantage has to be in products, services, internal and external processes and in Human Resources )anagement. The emplo ees are the assets of the organization and the competitive advantage in Human Resources Policies can generate a huge impact into the net profits and overall performance and profitabilit of the organization. The competitive advantage in compensationarea usuall generates a huge portion of the overall competitive advantage in HR )anagement.

*hat is competitive advantage in compensation+

The competitive advantage in the compensation area is not about beating the pa mar"et b pa ing higher salaries and bonuses to all emplo ees. The managers tend to thin", the better the pa of emplo ees, the more competitive the organization is. &t is not true, the organization has to carr the higher personnel expenses and during the crisis or the recession, it can be a huge competitive disadvantage in the compensation and the compensation strateg has to be redesigned 'uic"l as the organization can continue in its operation and it has a destro ing influence on the overall emplo ee satisfaction. The competitive advantage can be built b using two general approaches2
1. "eneral competitive position on the pay market 2. #ompetitive pay market position for key $ob positions

/eneral competitive position on the pa mar"et

#etting the higher position than the median on the pa mar"et is 'uite common competitive advantage setting in smaller companies, who have to fight for the best talents with the big organizations in the same industr .

&t is 'uite dangerous to set the pa mar"et position too high as the organization has to carr the increased costs and eats more from the margins on the products and services. The organization cannot ma"e 'uic" changes and the recession can be deadl dangerous for the organization as it carries higher costs to "eep the processes operating and functional. The competitors have a better and bigger space to decrease the personnel costs in bad times. The higher competitive position on the pa mar"et can be used in the time, the organization grows dramaticall and it needs the best talents from the !ob mar"et and there is no time to decide about the "e !ob positions in the organization and all emplo ees are treated to be of the same importance. (eeping the long term higher pa mar"et position is suitable !ust for the companies in the modern industries, with high margins and the companies with the excellent brand name being "nown for emplo ing the best of the best.

Competitive advance through strategic pa mar"et position for "e !ob positions
The competitive advantage in compensation can be set !ust for the key job positions in the organization. This solution is cheaper as the rest of the population can be "ept in line with the median of the pa mar"et or it can be below the median as the whole organization "eeps the median in general. But, the organization has to be able to reach the consensus about the "e !ob positions in the organization. #etting the "e !ob positions is the painful procedure for Human Resources getting the consensus from the top management is a bit mission impossible, but HR has to accomplish this procedure successfull as the "e !ob positions are identified and Human Resources can set the right compensation strateg for the "e !ob positions. The differentiation in the compensation strateg and setting the different pa level for the "e !ob positions is 'uite usual for the larger organizations as the save the personnel expenses and the are able to protect the "e emplo ees. &t does not protect the "e emplo ees automaticall , but it support the managers and other HR Processes as the emplo ees feel prett satisfied with their salaries.

The competitive advantage for the "e !ob positions is usuall the best pa strateg for the mature organizations, which does not grow aggressivel and are purel focused on the product innovations. The "e emplo ees bring the innovations and the rest is paid fair enough for their !ob content.

*h is compensation strateg important+

The current competitive conditions in the business world ma"e it difficult to ac'uire and retain the top talents. 1nce the organization is able to identif , it can be unable to offer the right pa and to manage the pa increases to retain top talents. The compensation strategy is the extremel important piece of the overall HR #trateg to "eep the compan competitive and successful. 1n the other hand, the compensation strateg is important to "eep the personnel budget under the control and to manage the !obs in the right salar -pa . brac"ets. The compensation strateg differentiates the organization on the !ob mar"et and builds the attractiveness of the company for the top talents. The love to be hired b the attractive organization, the do not li"e to be hired b the average compan offering the same conditions as an other average organization in the industr .

Competitive %dvantage and Compensation #trateg

Toda , the products are similar. &t is difficult to distinguish the cars from different car ma"ers. The emplo ees are in the same situation as the consumers. The have the problem to distinguish the employers and the are not able to recognize the excellent organization, when it is not different from the rest. The competitive advantage is the essential part of the mix for the success. The organization has to present itself differentl , not !ust b the presentation, but it should differentiate itself b the different approach toward its emplo ees. The compensation strateg is one of the most successful differentiators. The excellent compensation strateg does not !ust differentiate the organization from the other organizations on the !ob mar"et, it brings the differentiation into the

organization as well as the successful emplo ees and top talents feel the success in their poc"ets. The effective compensation strateg ma"es people feel the success and the spea" about their successes with their friends. &t build the extremel excellent competitive advantage among the competitors as the people feel, the organization reall values the success and it can pa the successful emplo ees. The effective compensation strateg manages the personnel expenses of the organization, but it supports the performance management and differentiates the emplo ees as the successful ones are not motivated to search for a new !ob opportunit . The good compensation strateg does not provo"e emplo ees to search the web !ob boards during the wor"ing hours, it ma"es them to focus on delivering the results as the can be highlighted and the feel the highlight in their salaries. The successful compensation strateg gains the competitive advantage and can speed up the innovation processes and improve the performance management practices in the organization.

3or what HR Processes is Compensation #trateg important+

The compensation strateg is not important !ust for the competitive advantage, but it supports the other HR Processes and helps them to become highl efficient HR Processes and being on the top in the industr -when measured and benchmar"ed.. The compensation strateg has a strong influence on the performance of the whole Human Resources, which is a good vehicle to manage the performance of Human Resources, but has to be managed carefull as it does not destro the performance of the whole organization. #mart compensation strateg supports the HR Processes and helps to bring the top talents from the !ob mar"et to the organization and helps to retain the best talents in the organization as the do not feel the need to find a new !ob opportunit elsewhere.

Recruitment and Compensation #trateg

The effective Recruitment and #taffing cannot exist without the effective Compensation #trateg . The recruitment can be based on the excellent HR Marketing Policies, but the HR Recruiters have to be able to offer the competitive salar pac"ages, which are competitive externall and full aligned with the policies and the compensation strateg internall . The recruitment of the best top talents from the !ob mar"et cannot be based on exceptions from the compensation polic . The recruitment and staffing processes have to be supported and bac"ed b the excellent compensation strateg as the HR Recruiters can offer the competitive conditions to the right talents from the !ob mar"et and the are able to identif the "e !ob positions, where the compensation strateg allows to be more aggressive against the pa mar"et. The !ob candidates are extremel sensitive to the salar pac"age offered in the 5ob 1ffer letter and the compensation and benefits department should measure the number of failures in the !ob offer acceptations. &t is the extremel important sign of the wrongl set compensation strateg , when the !ob candidates do not accept the !ob offers made b the organization.

)otivation and Compensation #trateg

The salaries or bonuses are extremel important for the motivation of emplo ees and managers. /enerall , the motivation is not about the compensations, but the compensation should support the general motivation framewor" in the organization. ,ven the best managers in the world are not able to "eep highl motivated teams, when the compensation strateg is not in line with the !ob mar"et. The emplo ees usuall "now the common levels of salaries in the industr and when the organization is below the median or the average, it has to compensate the difference in other area. But, when the difference is too high, the compensation b a different motivation tool does not wor" and the emplo ees start to feel demotivated as the receive no e'ual value for their effort.

Talent 0evelopment and Compensation #trateg

The compensation strateg provides the key support to the talent management processes in the organization. The talents have to be clearl supported b the compensation strateg as the talents usuall expect higher salar increases than the average emplo ees and the compensation strateg has to allow the limited freedom to managers to do so. The successful top talents management cannot survive without the ade'uate support from the compensation and benefits side. The talents have to feel the different approach of the organization and the compensation is extremel important in this. The top talents cannot live on the promises for a long time. The have to see the real improvements and advances. The deliver, the expect the organization the same. The compensation specialists have to co$operate closel with the career advisors and career development specialist to introduce the right mix of the career opportunities and the compensation strategies for the top talents.

Compensation Polic
The compensation policy is the basic document, which drives the detail of the compensation practices in the organization. %s the compensation strateg sets the high level compensation goals of the organization, the compensation polic describes the details of the individual compensation components, their behavior and their role in the compensation scheme of the organization.

*hat is the compensation polic +

The compensation policy describes the details of the compensation componentsin the organization, how the are used and the conditions for the emplo ees as the compensation component can be applied in their specific situation. ,ach organization uses man compensation components and the have to be described. The compensation polic provides the basic explanation of the compensation component, how it is calculated, who is eligible for the usage and the approval procedure.

The compensation polic belongs to most read and discussed internal policies of the organization as it drives the salaries of the individual emplo ees. ,ach emplo ee is interested in the structure of the salar and the potential total cash achievable in the organization. The compensation polic is the main tool to find out the details about the compensation components and the wa , how to achieve the highest total cash. The compensation polic drives the effort and performance of emplo ees as the emplo ees will find the smart and easiest wa how to achieve the highest possible income with the smallest possible individual performance. The compensation polic has to be set the smart wa as it avoids the potential wor"$around and abuse.

*hat is important in the compensation polic +

The compensation polic has to be transparent and it has to provide !ust the onl wa of the interpretation. &t is extremel important, the emplo ees and managers are not unsure about the compensation component and the understand clearl , what conditions are applied for the approval of the specific compensation component. The transparent compensation polic supports the high performance corporate culture organization as the emplo ees understand, what behavior and performance levels are expected to be eligible for the specific compensation component and it drives the behavior and performance specificall the right wa for the organization. The polic has to cover all the compensation components, which are used in the organization and affects large populations. The exceptional managerial component tools can be referenced from the general compensation polic , but the should not sta hidden. The emplo ees cannot trust the compensation polic , which does not mention all the compensation components.

,xecutive Compensation
The top executive compensation is a special and specific area of compensation and benefits, which is usuall confidential and it is not open to all emplo ees in the organization. The top executives hold the responsibilit for the organization, the lead the development of the organization and the have a tremendous impact on the results of the organization. The compensation scheme of top executives has to

reflect the responsibilit and it has to provide the securit to the top executives to use the personal responsibilit and to ta"e courageous decisions. The executive pay is about the focus on the short$term performance and the long$ term sustainabilit of the organizational development. The top executives are motivated to search for the cost$cutting potential and focusing on the sales and performance growth in the long$term perspective as the shareholders can realize the benefits of being involved in the organization.

,xecutive Compensation Principles

The executive pa has to reflect the role of the executive top management in the organization. The executive management drives the development of the organization and the executive compensation has to be aligned. The executive compensation changed dramaticall over the last two ears as the financial crisis showed several issues with the executive pa , which was too focused on the growth of the organization while ignoring the sustainabilit of the organization. The executive compensation consists usuall from two main parts2
o o

Short %erm &ay 'ong %erm &ay

The short term pa of the executives is about the base salar and short term bonuses, which are paid on the basis of the immediate performance of the organization. The bonuses are usuall deferred over a period of time. The short term pa is usuall full cash based executive compensation component. The long term pa is about the stoc" options, shares, restricted stoc"s and pa based on the performance against the index. The shareholders use these long term compensation components to protect the value of the organization and betting of the top executives on the growing value of the organization on the mar"et. The long term compensation components can be realized !ust in case, the stoc" price of the organization grows. The long term pa component is usuall non$cash based.

&n the modern organizations the short term pa is !ust a small part of the total cash of the top executives.

,xecutive Compensation Ris"s

The executive compensation is sensitive to the right setting as the short term and long term components of the pa have to be in balance as the organization does not suffer from the imbalances in the managerial decisions. The organization should alwa s focus to balance the short term remuneration -which is valued more. with the potential to get more in the future. &t is alwa s difficult to find the right balance and the shareholders have to be in the agreement with the top management.

,xcessive compensation
The excessive compensation is alwa s more the issue of trust and confidence of emplo ees and shareholders. The executive compensation scheme has to include the holdbac"s and claw$bac"s and safet bra"es for the case, the organization outperforms hugel the mar"et. ,ach executive compensation scheme needs caps and floor as it is manageable in all situations, which can happen on the mar"et

,xecutive Compensation Plans

Top management needs an outstanding compensation plan. The executive management is responsible for the deliver of the business results to shareholders. The represent the compan to the outside world. The handle the strategic initiatives. The are in a ris" position. Their !ob contract can be cancelled within minutes. The want the protection. The executive compensation plan has a highl motivating component, and it guarantees the income protection in case of the !ob cancellation.

,xecutive Compensation Plan Principles

The shareholders bu the shares of the compan to "eep the value of mone . The expect even more. The expect to earn the extra from the increased value of shares. The top management is paid for the constant increases in the valuation of the company. &t is an absolute rule of the business. The shareholders define the executive compensation plan. The usuall cooperate with the C,1, who engages Human Resources in the process of designing the executive compensation. The shareholders define targets6 shareholders expect the executive management to reach targets. The executive managers are not paid for developing the warm and friendl environment in the organization. The are not paid for the s mpathetic and people oriented corporate culture, when it does not bring benefits of increased profits for shareholders. The compan exists to ma"e profits, it does not exist to emplo satisfied emplo ees. The principles of the executive compensation are2
o o o o

#lear foc(s on profits generation 'ong)term orientation of the compensation scheme *otivation of manager by high bon(ses +on)cash foc(s of the compensation ,stock options- shares- share phantom schemes.

o o

Risk *anagement /alanced Scorecard implemented into the #ompensation Scheme

The executive compensation scheme has to support goals given b shareholders. The executives ta"e ris"s of failing. The have to be over$compensated for meeting goals. The should receive an enormous extra bonus for exceeding the expectations -goals given b shareholders.. The balance in the compensation has to be in favor of exceeding goals. The HR Professionals have to support the C,1 in setting the executive compensation scheme, which support the top management in pushing the organization. The top

managers have to ma"e tough decisions. The have to be compensated for overcoming the stress, the pressure of the line management and emplo ees7 complaints about constant changes in the business operation. Human Resources has to understand the main business goals. HR has to help in setting the executive compensation and alignment with the performance based compensation for the rest of the organization.

#alar #urve s
The salary surveys are extremel powerful compensation and benefits benchmarking tool. The are important for the setting right compensation strateg and for following and monitoring the desired pa mar"et. The salar surve is provided b the external compensation consultant, who gather the compensation information and salar details about the individuals, match the information and provides feedbac" about the pa mar"et and pa structures bac" to the participating organizations. The salar surve s are alwa s based on the proper job evaluation methodology, which is standardized across the industr as the compensation consultant can compare the !obs with the same !ob size as the !ob titles are not the suitable for the salar comparisons. The compan has to choose the right and suitable !ob evaluation methodolog and this "now how is usuall provided b the compensation consultants for free.

#alar #urve s Benefits

The salar surve measures the competitiveness of the organization on the pa mar"et and provides the benchmar" information about the salaries on the general pa mar"et and the specific industr pa mar"ets, when the organization operates on several pa mar"ets. The salar surve helps to set the internal compensation policy and to set the right optimal salaries for each !ob and to "eep the desired position on the pa mar"et as defined b the compensation strateg . The salar surve s provide the information about the average salar review percentage and the allocation of the growth of the salaries into specific !ob positions across the

participating organizations. The salar surve can act as a tool to identif the "e !ob positions in the organization as the competitors can protect the "e !ob positions and it is usuall visible in the salar surve s. The salar surve s provide the information about the new trends in the compensation and benefits area and man surve s bring the additional information li"e the average number of emplo ees per manager, the average length of service for the compan , the number of promotions and man other.

*hat is important to "now about #alar #urve s+

The participation in salar surve s is a difficult decision as the organization has to choose the right compensation consultant. The salar surve needs a standardized approach to the !ob position creation and the !ob position evaluations as the results of the salar surve are credible and useful. Human Resources has to have a clear plan for the usage of the salary survey results and the presentation including the action plan has to be prepared for the top management. The salar surve is about strictl confidential data and the compensation consultant has to be widel recognized for the data privac practices and has to present the large population of the participating organizations in the salar surve .

How to participate in #alar #urve s+

The organization has to select the right compensation consultant, who brings the methodolog for the !ob evaluation and determining the !ob size. The organization has to evaluate all !ob positions and prepare the salar data in the predefined structure as the compensation consultant compares the right data. The good compensation consultant will prepare a detailed implementation plan and will act as the pro!ect manager for the first initial salar surve and will provide the help, when Human Resources prepares the salar surve results presentation.

#ales &ncentives Compensation Plans

8o business compan can survive without the sales. The sales brings the blood of the organization. The organization needs the sales to grow and to successfull compete with other organizations on the mar"et. The sales incentives compensation plans are the compensation tools to support and motivate the sales function to compete and to increase the sales volumes of the organization.

The art of #ales &ncentives Compensation Plans

The sales incentives compensation plan can reall motivate the salesman to sell more products and services. 1r, the can easil destro the compan , when the design of the sales incentive plan is not good and it does not support the business goals. The sales incentive plans should be alwa s focused on increasing the profitability of the company or gaining the additional market share . That is the theor behind the sales incentives plans. %s the incentive plans are usuall introduced purel b the business function, the fail and the do not support the goals of the organization, the !ust allow the emplo ees to earn more. The art of developing the sales incentives plans ta"es several ears of learning and measuring the results achieved. The senior manager of the #ales function usuall "nows, what has to be achieved, but does not "now, how to achieve that b using the incentive plans, which are cost$efficient and not hurting the future of the organization. The sales incentive plan has to be fair to the whole organization. The emplo ees in the Bac" 1ffice and the support functions should not feel the internal unfairness. The understand, that the sales representatives have to be motivated b the additional compensation component, but it should be aligned with the overall compensation scheme and the compensation strateg applied in the whole organization.

#ales &ncentives 0evelopment

The development of the sales incentive scheme has to be a joint initiative of Human Resources and the business function . HR has to define the general principles, which have to be applied in each incentive scheme as it follows the compensation strateg and does not brea" the internal e'uit in the organization. The effective sales incentive plan does not evolve on its own. The development process is creative and full of the conflicts between HR and the business. The good incentive plan is alwa s tested on several emplo ees to see the real results from the field as the !oint team can do the ad!ustments into the incentive scheme and can ma"e it more realistic. The sales incentive scheme can be developed in the co$operation with the external compensation consultant and it is recommended for the first incentive scheme in the organization, but the compensation consultants should not be invited later in the process as the can set a generic incentive scheme, which does not full support the goals of the organization. The organization should develop its internal "now$how for the development of the incentive schemes.