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Offshoring Secrets: Compensation

Created on 16 May 2008 Written by Utkarsh Rai
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The compensation philosophy differs from company to company, consisting of two components: Salary & Stock options. It is better to have a philosophy statement and to review it annually. Implementing this for a global organization is possible in many ways. Two commonly used options are:

1) Some companies follow the same positioning worldwide. For example, Salary: Will be positioned at 75th percentile in India compared to the India market and the 75th percentile in the US compared to the US market. Stock: Normally, employees receive the same amount of stock in the same band or level or grade irrespective of the location. For example a person in engineering grade 7, will receive 500 stock whether in the US or India.

2) On local market conditions, some companies place salary at a higher percentile specifically in countries where the job market is hot. For example: Salary: The Company might position the India team at 90th percentile in comparison with the India industry, while positioned at 70th percentile in the US in comparison with the US industry. Stock options: Normally they lower the stock options where the salary is at higher percentile. For example, a person in engineering grade 7 will receive 500 stock options in the US, and the employee in the same grade in India will receive 400 stock options.

The lack of a compensation philosophy will lead to issues not only for the people who move from one geographical location to another in the same company but also erode confidence in regards to fairness.

Performance Appraisal

It is a good practice to apply the same performance appraisal policy across all locations. The Indian office should have the same yardstick used in ranking and distribution. Many companies do a 360-degree feedback session at the end of the appraisal cycle. In addition to it, one should provide and receive feedback at regular intervals of 3-4 times a year. People do appreciate receiving feedback with specific examples. If there is some important feedback, then one should give it immediately rather than waiting for a future date when dialog is scheduled. Realize that people always welcome honest and candid feedback.

Salary Revision

Many companies acquire a salary survey against the set of companies with whom they would like to get the information. These are collected against various bands linked with roles and responsibilities. However, some of these bands may not be applicable to the organization. The company also determines its compensation philosophy of positioning the organization at a certain percentile. Once the company performs these two activities and develops a new salary range on per-band-basis, then the employees receive a new salary range based on their performance. Some organizations use the base salary and provide percentages for hikes, while a few companies set the target salary range, irrespective of the existing salary.

For example, a company states the new salary band should be between USD 24K to USD 26K. A person is getting USD 20K and the company determines that the overall raise will be in the range 13-18% for the particular band. In this case, in spite of giving an 18% raise, they will not be able to come to the target range. Therefore, a few companies do away with percentage increase and pull the people to the new band in spite of their existing salary. This also helps in people management where a historically low salary is discontinued as a base salary year after year.

In a job market, companies may give semi-annual salary hikes. Some of the companies have separate cycles for delivering salary raises and stocks grants, making employees feel rewarded frequently.

One needs to take time in carefully drafting the policies to make sure that every word has clear meaning. This will help in removing any misinterpretation. Policies should not be set to solve the problem at hand, or with the attitude that this will be good for now. The policies should be set, keeping in mind that one is building an institution and that longevity and stability are key. To create an atmosphere of fair treatment, implement immunity to the policy only in exceptional cases.

About the author:
 Utkarsh Rai

  Mr. Utkarsh Rai is the Author of "Offshoring secrets" and the Head of India operations of Infinera (NASDAQ: INFN) for over 5 years by building and successfully running the operation in Bangalore, India. His leadership style is "Lead by example", "build and retain a highly performing team", and "flawless execution". This has always helped him in achieving the right goals by building products from V1.0 onwards.

Click here to buy his book from Amazon "Offshoring Secrets: Building and Running a Successful India Operation"

Click here to see his profile on LinkedIn.

Last Updated on Tuesday, 31 July 2012 23:20
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