Designing of Executive Compensation Plans - That Actually Drives the Performance?

Designing of Executive Compensation Plans - That Actually Drives the Performance?

  July 30, 2021    Nadun Abeywickrama

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Image from https://blog.v-comply.com/executive-pay-linked-performance/

Designing of Executive Compensation Plans - That actually drives the Performance?

Executive compensation can have a big impact on an organization. When compensation is managed carefully, it lines up people’s conduct with the company’s plan and creates better performance. If it’s achieved poorly, the effects can be shocking, the loss of key talent, demotivation, misaligned purposes.

As organizations work their way through the Covid 19-related economic crisis, many companies, for instance, have cut pay for senior executives. Extra pressing will be how to think about the goals implanted within incentive plans. Numerous targets won’t be attainable given the new financial realities and thus will no longer serve as effective incentives.

The relationship between executive compensation and firm performance, is yet to be completely understood (Mehran, 1995). Jensen and Murphy (1990) claimed that equity-based rather than cash compensation presents managers with the correct incentive to maximize firm value.

As per the FW Cook, 83% of the 250 major S&P 500 companies use a prescribed annual incentive plan, A good compensation system always begins with an organization’s strategic goals. Misaligned compensation is with them, worry ensues.

Figure from https://slideplayer.com/slide/6845883/

HR's Role

Designing and managing an executive compensation program is diverse. The most basic role an HR professional plays is being in a position to inform management of the benefits, costs and range of options in launching or improving an executive compensation plan.

HR professionals are key in determining what in-house and outside expertise is necessary and sufficient to handle an executive compensation program. Every organization needs some sort of outside proficiency for the design and management of an effective executive compensation program.

The failure of various executive compensation programs can be linked to

• Failure to obtain staff input in plans that will essentially incentivize executive performance.
• Failure to clearly express performance goals up front.
• Failure to state performance goals that are within the scope of influence of the target employee.
• Measuring staff performance according to values that were not stated in written documentation.
• Provided that job descriptions that do not implied the objectives set forth in the executive compensation plan

                                     (Source: Shampine, 2016 available in www.youtube.com)

Plan Design

Making an effective executive compensation plan requires organizations to balance stockholder alignment, performance-based pay, hiring and retaining, and the calculation of cost versus perceived value. A long-term reward plan with performance-based incentive vehicles can help accomplish that equilibrium.

Present trends in executive compensation:

• A higher percentage of executive pay is linked to performance.
• Pay incentives are more intensive on long-term outcomes.
• Companies have reduced on privileges for executives.

References

Bennett, B., et al (2015). Compensation goals and firm performance. Retrieved from Available at <http://apps.olin.wustl.edu/faculty/Gopalan/15_Compensation%20Goals%20Firm%20Performance.pdf>  (Accessed on 30 July 2021)  

Center on Executive Compensation. (n.d.) Basics of executive compensation. Available at <http://www.execcomp.org/Basics/Basic/What-Is-Executive-Compensation>  (Accessed on 30 July 2021)

Groysberg, B., et al (2021) Principles for designing executive pay     Available at <https://hbr.org/topic/compensation> (Accessed on 30 July 2021)

Jensen, M., and Murphy, K., (1990). Performance pays and top management incentives. Journal of Political Economy, (98): 225-264.  Available at <https://leeds-faculty.colorado.edu/bhagat/Jensen-Murphy.pdf> (Accessed on 30 July 2021)

Lytle, T. (2013). Agenda: Compensation linking executive pay to performance. HR Magazine. Available at from <https://www.shrm.org/hr-today/news/hr-magazine/pages/0913-say-on-pay.aspx> (Accessed on 30 July 2021) 

Mehran, H., (1995). Executive compensation, ownership, and firm performance. Journal of Financial Economics, (38): 163-184. Available at <https://www.sciencedirect.com/science/article/abs/pii/0304405X9400809F>  (Accessed on 30 July 2021)

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The effects of job rotation on performance

  July 24, 2021    Nadun Abeywickrama

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Figure 1. https://www.tlnt.com/why-job-rotation-can-drive-engagement-and-improve-your-workplace/

The effects of job rotation on performance

Job rotation is considered as an effective mechanism for effective implementation of HR strategy. It is about settling staff at the right place where they can give the maximum results. This can be proved as the best strategy to find the immediate replacement of a skilled employee within the company itself. Searching the most appropriate employee and shifting them to take on the responsibilities of a higher level is a hard job. Rotation of job helps employer decide who can be replaced by whom and create a suitable and beneficial. A well-planned job rotation process plays a vital role in establishing the position of a firm.

Figure 2. https://kalkinemedia.com/definition/j/job-rotation

The research performed by Eriksson, T and Ortega, J (2006) shown that application of job rotation helps both employee and the employer. Employee learnt how to work by doing themselves with the working in more than one department or section, it makes easier to get the knowledge and skills related to many areas of the company (Bennett, 2003 as cited Kaymaz, K. 2010). Job rotation makes individuals in different functional areas more associated. This also offers people with a better idea on the other section of the business. Therefore, the more job rotation, the greater harmony is created between workers, which effects the clarification of information and provides a drive for organizational learning. (Weerd-NederHof et al, 2002 as cited Kaymaz, K. 2010). 

Benefits of Job Rotation

• Motivates employees to face new challenges
• To explore the hidden talent of the employees
• Helps employee to explore their interests
• Identifies knowledge, skills and attitudes
• Increases satisfaction and decreases attrition rate
• Helps to Line up Competencies with Requirements

How it works at Deloitte 

figure 3. https://www.ft.com/content/

As a world largest accounting firm, Deloitte has clients based in approximately 150 companies around the world. And the lucky employees who work for them may have the opportunity to spend time in those diverse locations on a short-term, project-based or long-term basis, or even as an international transfer (Moore E, 2017).  Within 2 years, employees can apply for job openings they are interested at any time through Global Deloitte Mobility website.  

References

Eriksson, T and Ortega, J (2006) The adoption of job rotation: testing the theories Available at <https://e-archivo.uc3m.es/handle/10016/7627#preview> (Accessed on 23 July 2021)

https://www.managementstudyguide.com/benefits-of-job-rotation.htm

Kaymaz, K. (2010). The Effects of Job Rotation Practices on Motivation: A Research on Managers in the Automotive Organizations. Business and Economics Research Journal. Available at <https://www.acarindex.com/dosyalar/makale/acarindex-1423873804.pdf> (Accessed on 24 July 2021)

 

Moore E, 2017).  7 Companies with Amazing Office Rotation Options

Available at <https://www.glassdoor.com/blog/companies-with-office-rotation-options/> (Accessed on 24 July 2021)

 

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Does Green HRM Really Used?

  July 21, 2021    Nadun Abeywickrama

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Does Green HRM Really Used?

What is Green HRM?

Green HRM has become more important in current business field and its significance is growing diverse with the time. GHRM is a hot topic since the awareness on sustainable development and environmental management has been gradually increased.

GHRM is engaging of forming green workforce that understands, appreciates, and practices green initiative and maintains its green objectives all throughout the HRM process of recruiting, hiring, training, compensating, developing, and evolving the organizations human capital (Mathapati, 2013).

In present world it seems that a significant number of organizations practice green human resource management. Determining and making about these green HRM practices which are being practiced and are to be practiced by the organization will contribute meaningfully to the HRM field (Arulrajah, A.A. et al, 2015).

Need for GHRM

It is imprecise that need of the realistic environmental management drive all round the world. This is due to damage to the environment by the industrial pollutants and impairment of natural resources drastically.  The first United Nation’s Conference on Human Environment held in1972 in Stockholm decided that to protect and improve the human environment for present and future generation.

Green HRM functions future direction

GHRM helps to create green workforce that can accept green culture that can maintain its green objectives all throughout the HRM process of recruiting, hiring and training, compensating, developing, and advancing the firm’s human capital (Dutta, 2012).

Image from https://www.icommercecentral.com

Green recruitment

The process of recruiting people with knowledge, skills, approaches, and behaviors that identify with environmental management systems within an organization and passionate to serving for an environment friendly “green” company.

Green performance management

The process by which employees are encouraged to improve their professional skills that help to accomplish the organizational goals and objectives in a well way with green wave.

Green training and development

Green training and development teach employees about the value of environment, train them in working methods that save energy, reduce waste within the organization, and offer chance to involve employees in environmental problem-solving (Zoogah, 2011).

Green compensation

Modern organizations are developing reward systems to encourage eco-friendly initiatives to get on their employees.

Green employee relations

Employees give their own ideas at workplace and help to make environment that beneficial to green management practices and systems.

Conclusion

Though the Green HR is still in the early stages, growing awareness within organizations of the significance of green issues, environment-friendly HR practices with a focus on waste management, recycling, reduction of carbon footprint, and consuming and making green products. Most employees feel powerfully about the environment and, show bigger obligation and job satisfaction toward an organization that is ready to go “Green”.

 

(Source: Wickramaratne, 2021 available in www.youtube.com)

References

Arulrajah, A.A. et al (2015). Green Human Resource Management Practices: Available at <https://journals.sjp.ac.lk/index.php/sljhrm/article/view/2130>        (Accessed on 20 July 2021)

Dutta, S. (2012). Greening people: A strategic dimension. ZENITH: International Journal of Business Economics & Management Research, 2, 143–148. Available at <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2382034> (Accessed on 21 July 2021)

Mathapati, C. M. (2013). Green HRM: A strategic facet. Tactful Management Research Journal, 2(2), 1 Available at <https://www.indianjournals.com/ijor.aspx?target=ijor:sajmmr&volume=3&issue=9&article=007> (Accessed on 20 July 2021)
 
Shoeb Ahmad | Tahir Nisar (Reviewing Editor) (2015) Green Human Resource Management: Policies and practices, Cogent Business & Management  Available at <https://www.tandfonline.com/doi/full/10.1080/23311975.2015.1030817> (Accessed on 20 July 2021)

Zoogah, D. (2011). The dynamics of Green HRM behaviors: A cognitive social information processing approach. Zeitschrift fur Personalforschung, 25, 117–139 <https://journals.sagepub.com/doi/abs/10.1177/239700221102500204> (Accessed on 21 July 2021)

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Why orientation is important?

Why orientation is important?

  July 18, 2021    Nadun Abeywickrama

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Why orientation is important?

Orientation is the procedure of conveying to a new staff the responsibilities of the job and how to achieve them. Training on the other hand is the method of building precise skills needed to conduct the job duties explained in the orientation

Orientation process is highly important for the new employee to clench the company processes and job roles. Orientation helps legal purposes through Human Resources departments and it also generates a more effective worker.

Clearly Defined Roles

Orientation makes clearly job requirements, defined roles and expectations. It answers questions before they arise and anticipates struggle based on historical issues. Conflict reducing and resolve are main elements of the orientation procedure.

Additional benefits include a increase in employee confidence by reducing uncertainty. A clear set of expectations are set along with a system for communications among the employee, human resources departments and managers. After the orientation, the staff knows precisely who to talk to about diverse issues and job necessities.

Orientation is important because it:

·         Delivers the new employee with brief and precise information to make him/her calmer in the job;

·         Inspires employee self-confidence and support the new employee familiarize faster to the job;

·         Contributes to a more active, productive employees;

·         Advances employee retention; and

·         Encourages communication between the manager and the new staff member.

 

Purposes of Orientation

Employers have to understand that orientation isn't just a nice signal put on by the organization. It helps as a vital component of the hiring and retention process. Some key purposes are:

• To Decrease Setup Costs: Correct orientation can help the employee get "up to speed" much more rapidly, thus dropping the costs related with learning the job.

• To Cut Nervousness: Any employee, when put into a new, odd condition, will experience nervousness that can impede his or her ability to learn to do the job. Good orientation helps to reduce nervousness that results from entering into a strange situation, and helps provide guidelines for actions and manner, so the employee doesn't have to practice the pressure of guessing.

• To Decrease Staff Turnover: Employee turnover rises as employees feel they are not valued, or are put in spots where they can't possibly do their jobs. Orientation displays that the company appreciated the employee, and helps offer the tools needed for succeeding in the job.

• To Time saving for the Manager: The better the early orientation, the less chance of managers and co-workers will have to employ time training the staff.

(Source: GreggU,2019 available in www.youtube.com)

References

Brown J, Employee Orientation: Keeping New Employees on Board Available at <https://cdn2.hubspot.net/hub/59176/file-15741175-pdf/docs/employee_orientation.pdf> (Accessed on 19 July 2021)

Lazzari Z, Updated May 24, 2019 Why Is Orientation Important to the Employees?   Available at <https://smallbusiness.chron.com/orientation-important-employees-11562.html> (Accessed on 19 July 2021)

Oregon state university (2021) web site, Why is Orientation Important? Available at <https://hr.oregonstate.edu/employees/administrators-supervisors/onboarding-process/why-orientation-important> (Accessed on 19 July 2021)

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