Top Brass Remuneration

Top brass remuneration
Introduction
One of the most vital factors for the motivation, retention and the morale
amongst the employees is the compensation system, policies and review
philosophies of any organization. While the unionized bargainable employees
generally have their unions to negotiate or periodically revise their terms with the
Management - which are governed by the Long Term Settlements - the terms of
the Managerial employees are mostly seen to be at the sweet mercy or the
goodwill of the organization or the top bosses, reviews of which may or may not
be regular or timely, or often do not seem to meet the expectations or logic of
such management staff!
The evolution of the management compensation system for the larger

organizations came mostly from the pre-independence British companies, or from
the Indian government system - which too was initiated by the British, and was
generally paternalistic & protective. The system provided a 20-30 year grade
scale of Basic Salary for each grade or level of employees - generally linked to
age, with other fixed Allowances - differing for each grade. It was felt that with
increasing age & the family size, their needs increased, which required
consideration in the compensation. Annual increments were provided with
increasing steps as one progressed through the Salary scale, even though the
increases were often ad-hoc. Festival, Puja or Annual Bonus was paid to meet the
social needs - usually once a year, and was often linked to the profits of the
Company. To meet the inflationary trends, a Dearness Allowance system was
introduced during the World War II days - in the early forties, but this was
generally not applicable to management staff - Basic Salary remained the main
component of compensation for them. Benefits frequently included housing -
often furnished partially or fully - or an allowance in lieu, annual leave travel
expenses, generally quantum linked to the family size & fares to hometown or
nearest hill station, use of Company transport or cars (from limited use to
extensive, with or without driver - grade related), medical coverage or assistance,
and retiral benefits. To encourage Managers in social & sporting activities, either
Company clubs existed, or financial assistance was given to join or use local clubs
- depending on the level. Overall compensation increased with grade, age &
service, with only very limited linkage to performance, and which was often ad-
hoc at the discretion or pleasure of the boss. The Company was usually quite
actively concerned and involved with the manager's family life & style of living,
and strongly believed that the Company's image demanded this conforming
discipline from the family members as well.
Most multinational Companies operating in India had a fair number of expatriate

staff - even as late as in the sixties - having vastly different terms & conditions of
service as compared to the local staff at the same level. This continued partially
out of necessity to attract them to overseas postings, and also due to past
colonial & historical reasons. Excellent furnished housing was provided to them,
and many other personal or social needs for them and their family members were
mostly taken care of by the Company, including overseas education for their
children, home leave & travel expenses etc., as well as protection of benefits
available at the home country to their compatriots. Class distinctions existed
even amongst the expatriates - they were generally separated as 'blue blood' at
top positions, and 'commoners' at middle management positions! The local
Indian Covenanted cadre managers identified for senior positions were often
higher in hierarchy than the expatriate middle managers in rank, but their gross
terms were generally lower. The junior management local staff were a class
apart, and their terms were substantially lower, but were in line with the above
philosophy, and therefore, while the cash component may have been low, the
benefits of furnished housing, leave travel expenses, use of Company vehicles
etc. enabled the overall living standards during the service period remain at a
good level. With limited opportunities, retention of management staff was not an
issue at all those days. Revisions in overall terms were usually done after 3 to 5
years. The Management salaries were considered to be a highly confidential
topic, and any discussion on this subject was seriously frowned upon by the top
brass. The management style did not inspire openness, and the lower levels were
expected to follow orders obediently. Participative style was not practiced or
encouraged generally. Employee & Managerial costs were a small part of the total
expenses, and profits were easily made by most of these large corporations
having little competition in near monopoly conditions in India.
Top brass remuneration or management remuneration
Management compensation therefore, now plays a very significant part along

with the working style & environment, empowerment etc. in the organization's
success strategy. While individual organizations may have differences in their
methodologies based on factors best suited to their perceived needs, some
general directions are evident, and are discussed below:
Salary, Basic Salary or Consolidated Salary continues to remain as the major

component of compensation, though Salary Scales are often discarded these
days, or used only as guides. Individual Salary is generally decided initially using
the Scale, but thereafter performance, contribution to targets or results
generated determine the revisions periodically - which may vary widely from
individual to individual. 'Salary broad banding' is therefore, getting recognition &
acceptance.
Grade wise flat Allowances are being consolidated generally, except where tax
exemption benefits are still available, when they continue as separate
components. Allowances may be linked to the Salary as a percentage or by slabs,
but preference is for flat amounts, which do not increase automatically, and
therefore increases could be discretionary, and therefore controllable.
Reimbursements of expenses incurred on Company work has become limited,

and in line to conform to the tax laws. Being actuals in most cases, they are not
considered as a part of the compensation, unless it is provided towards personal
benefits.
Annual payments: Bonus or Commission, and Leave Travel are common features -
some tax relief does apply for the latter.
Benefits generally comprise of mostly unfurnished company owned or leased

accommodation, use of company owned or leased vehicle, medical coverage,
retiral benefits covering Provident Fund, Pension or Superannuation and Gratuity,
post-retiral medical assistance, easy loan schemes at low or zero interest rates
for house building, cars or vehicles, furniture or utility items etc., renting
employee owned housing, club entrance fee reimbursement etc. Minor benefits
could be provision of security, driver or gardening assistance, sale of products or
assets at a concessional rate, relocation & transfer expenses including admission
etc fees for children, credit card fees, phones etc.
Employee stock option schemes - which have been popular in IT industry - is not
extensively used yet, not being tax advantageous to other industries, nor seen as
being very attractive with lesser growth trends for their share values, especially
in the well established older companies.
The "Total cost to the Company" concept is used as basis by most companies, as
against earlier "visible costs". Cost of the benefits are averaged or computed on
actual basis, and included in the above. Greater openness is practiced, and some
permit individual flexibility within the system of the overall cost, but with greater
compliance to tax laws, this 'basket concept' is on the wane.
As mentioned earlier, Retiral benefits are important to many, whilst the younger
generation & specially IT professionals, do not consider it as an advantage,
unless the benefit value is available to them on moving to a new job. This is a
complex issue, and may require attention. Periodic improvement in pensions or a
guaranteed grade minimum pension is practiced by some in recognition of the
past external experience of pensioners, and to partly offset the inflation post
retirement. A separate article about Defined Benefit & Defined Contribution types
of Pension schemes as a Case Study describes them in greater detail.
Against the past practice of modest gradual increases applicable to all, with only
marginal additional to the good performer, the differential in performance is now
being recognized through very substantial and varying increases during the
review to the very good performer, and often a Salary freeze or loss of job is
being used for poor performers! This strategy often manages the rewards within
the same total cost, and has become a very dynamic and motivating way
adopted by most good organizations of repute. While the Salary increases in the
past resulted in benefits continuing during the rest of the service period, now
large amounts in once off (annual) Performance Bonus that do not increase future
liability, is being given more and more in recognition of results generated.
Emphasis on Variable Performance Pay or Bonus as a reward is getting to be an
important & growing component of the compensation system. It requires
transparent, balanced and fair systems & benchmarks, and also agreed targets
by the managers in advance during planning & review discussions. A separate
article on "Performance Based Award Scheme" explains the above in considerable
detail, along with a practical working example developing a simple basic scheme
for the above.
From the earlier grade oriented compensation system within reasonable

boundaries, compensation often has to be somewhat tailor made for specialists
or key contributors to retain them in the very volatile job market. This has many
repercussions, and therefore policies for such compensation need to be carefully
built in to the system in an open manner to avoid loss of credibility.
Compensation review periods have become annual generally and sometimes

oftener, as compared to every three to five years earlier, in the fast changing
market situation. The quantum of increases has jumped of late, and successful
organizations need to not only keep pace, but have to be seen and reputed to be
amongst the best to attract talent. The employee cost increases have to be set
off through productivity and greater contribution from the resources. This
requires constant market data on compensation practices & benchmarks, and
very pragmatic analysis for determining strategy.
Retention strategies employed are generally the attractive interest free or at low
rates for loans, on which market rate of interest may apply on early exit, renting
employee owned property to set off repayment of loans, qualifying periods or
attractive service benefits added to the retiral benefits or post retirement
benefits etc., besides the terms, compensation & any special deals. Managers
and teams having commitment require empowerment, lean and supportive
structure, a healthy organizational climate - which are all great retention
motivators, and also end up as a 'puller' from the external environment or the
competition!
To conclude, the need to regularly carry out detailed compensation reviews both
within and without, and with full support & commitment from the top is essential.
The specific needs of the organization must be identified and addressed during
such reviews. Openness and transparency are important to the managers in the
very sensitive and personal issue of management remuneration, and therefore
policies and practices should match the rhetoric. The remuneration & the
rewarding systems have to be, and seen to be, fair and just, non bureaucratic &
dynamic, and which are dealt with human feelings and necessary speed, and still
remain competitively attractive - quite a management challenge in today's tough
& highly aggressive scenario!

Top Brass Remuneration

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Top brass remuneration

The evolution of the management compensation system for the larger

Most multinational Companies operating in India had a fair number of expatriate

Top brass remuneration or management remuneration

Management compensation therefore, now plays a very significant part along

Salary, Basic Salary or Consolidated Salary continues to remain as the major

Reimbursements of expenses incurred on Company work has become limited,

Benefits generally comprise of mostly unfurnished company owned or leased

From the earlier grade oriented compensation system within reasonable

Compensation review periods have become annual generally and sometimes

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