By Victor Ahiuma-Young

“One of the most critical challenge that most employers face today is to find answers to the question -what is the appropriate compensation practice that will attract, motivate and retain good people in a sustainable and cost effective manner?”, this is view expressed by  the Executive Director, Human Resource, Seven-Up Bottling Company Plc, Mr. Femi Mokikan.

Mr. Mokikan who was delivering a paper on “Realities of employee compensation in the workplace: Employers’ perspective”, at two-day seminar on Safety at Work: Issues and Challenges, organised by Labour Writers Association of Nigeria, LAWAN, held at Vichigates Hotels and Suites, Benin city, Edo State,  argued that compensation remains one of the most challenging aspects of Human Resource,  HR,  function.

According to him, “this is because it is dynamic, more or less has a life of its own, and is central to the accomplishment of other organizational objectives. Any investment therefore aimed at discovering better and more effective ways of managing it should not be considered a waste. The only sustainable competitive resource – people. Not just people, but good people.. Challenge is to attract, motivate and retain good people. One of the strategies to achieve this is through an effective employee compensation practice.”

The Executive Director defines    compensation management as “all the management activities that are designed to determine, establish, monitor, evaluate, control and revise what  employees and executives get in return for committing their energy, effort and time to the service of a particular organization.”

He noted that objectives include attracting, recruiting, retaining and motivating the people in the organization and to be effective, a compensation system, he explains, will address: Strategy, Composition, Implementation, Review mechanism and  Such system must motivate and sustainable.

Issues in compensation

Mr. Mokikan stated that “Today employers are concerned about rising cost of doing business, including labour cost. They are concerned with managing union-negotiated compensation increases that bear no relationship with inflation and not performance related. They are concerned with managing long serving employees and their compensation (jamming the bar). They are concerned with the rate of growth in compensation vis-à-vis those of turnover and profitability. Employers are concerned with finding the right people and keeping them. They worry about Executive Compensation: What will keep Top Executives motivated?

How to address the Sales Team and their compensation remains an issues. What about salary structure? They are concerned with both payroll and non-payroll cost. What about the tax burden on employees? They are therefore looking for strategic and tactical compensation planning that will help them survive in an era of globalization, fast-paced changes in technology, intense competition, and restructuring.”

On compensation strategy, he said: “Compensation strategy consists of a company’s philosophy or policy as to how it wants to position itself in the compensation market (economy, sector, industry, competition) together with the basket of rewards/benefits with which to achieve this goal. Implementation is a key component of a compensation strategy and this will include provision for periodic review. Compensation strategy is influenced by internal and external factors, e.g. ability, competition, government policy etc.”

Compensation issues at three levels
According to him, compensation issues are at three levels and named them as “Executive Compensation, Sales Team Compensation and Employee Compensation.”

Executive Compensation
He said “Executive compensation plans are special pay vehicles developed to motivate and reward an organization’s key management employees. The following four executive compensation plans are important: (1) Annual Incentives or Bonus Plans: These are plans in which executives are eligible for awards, in addition to salary, based upon short-term performance, usually annually. The plan is designed to stimulate executives to improve short-term company profitability. (2) Long Term Incentives and Executive Stock plans: These are plans in which executives are eligible for awards based upon level of performance over a multi-year period, typically 3 to 5 years or longer. The purpose of these plans is to motivate and reward executives for company’s long-term growth, profitability and well-being.

They align executive’s interests with those of shareholders, balance the short-term profitability objectives of annual incentives or bonuses, and provide executives with opportunities to build net worth. (3) Deferred Compensation: This is an arrangement under which executives earn (or in some cases voluntarily defer) income that is payable in the future. The purpose is to minimize current taxes and provide a source of retirement income or capital accumulation. (4)    Executive Benefits are Perquisites: These are privileges designed specifically for executives. In many instances they connote status and emolument of rank.”

The Seven Up’s Executive Director explained that “underlying the typical executive compensation plan are a number of concepts, some of which affect all forms of executive compensation; others relate to specific types of pay:  (1) Compensation should be hierarchical -at each successively higher position level, the total pay opportunity should increase. (2) Executive pay should vary with performance in a given year and over time. (3) At successively higher levels of responsibility, more of the executive’s total reward should be at risk. (4) The professional manager should have a proprietary stake in the business, and his or her interests should be aligned directly with those of the shareholders. (5) An executive’s compensation should facilitate the building of personal net worth.(6) The compensation vehicles used by the company should be cost effective.(7) Compensation plans should be used to retain key executives. This concept has led to the development of plans that make the realization of actual gain or pay out contingent on the recipient’s continued employment. (8) Because of their position, executives have unique needs that the company should help them meet in order to spare them concern about personal affairs and free them for company matters.(9) Executive compensation needs to be competitive both in the level of total reward and in the types of plans that are made available.(10)    An executive compensation programme should be designed to reinforce each company’s business strategies in the light of its particular strengths, needs, challenges and objectives. In most cases this will require a strong commitment to performance,  an approach that links compensation with performance standards and measures that facilitate the organization’s business needs and strategic direction, and consistent administration of compensation plans to re-inforce longer term goals while striking a balance with short-term profit objectives.”

Employee compensation: employers’ worries listing what he considered as employee understanding of compensation matters, Mr. Mokikan said; Unionized Vs Non-unionized environment,  ‘Low’ individual compensation and huge total payroll cost,

Taxation, Productivity gains from wage increase, Construction of a salary structure that is fair, equitable and cost effective, What should be the minimum, How many grades?, How many steps?, What should the incremental be?,  What happens when you jam the barr?, Labour Law and salary administration and Outsourcing.