COMPENSATION ISSUES
- 1. PERFORMANCE AND COMPENSATION MANAGEMENT (HRM 751) COMPENSATION ISSUES AIDA AZREENA ROSLI (2012698128) Prepared for: Assoc. Prof. Dr Roshidi Hassan
- 2. OUTLINE 1. Global Compensation Issues Remittances by legal foreign workers Factors of remittances Positive Impact of Remittances Negative Impact of Remittances 2. Competency Based Pay Different between Job based and Competency based Pay Why use competency based pay Productivity linked with system 3. How to Attract and retain Gen Y Job hopping About fresh grad
- 3. Compensation System Design Issues Third-Country Nationals Host-Country Nationals Employees who are not citizens of their home or host countries - for example, a Swedish national employed by a Belgian multinational company and working for that company in Spain. An employee’s host country is the country to which an expatriate or TCN is transferred. Global Compensation Issues Expatriates Employees who are resident outside their country of citizenship (Home Country). Typically employees on a traditional assignment of 1 – 5 years with the expectation of returning to their home country.
- 5. Compensation Issues in Global Relocations Malaysia United Arab Emirates (UAE) China • Work permit categories typical in Malaysia: Professional Visit Pass (PVP), Employment Pass (EP). • Foreign nationals must remain on home payroll while in Malaysia on PVP. • Foreign nationals on an EP may be placed on either local or overseas payroll. • The minimum salary level MSL in Malaysia only applies to EP holders. MSL is RM5,000 per month, and RM 900 and applies to both local hires and international assignees. • A minimum salary of AED4,000 per month (AED3,000 if housing is provided by the employer) is required to sponsor dependent family members for residence in the UAE. • The benchmark for females sponsoring dependent family members is higher. There is no specific written guidance and is discretionary (a minimum of AED10,000 per month is expected at the very least). This applies to both local hires and international assignees. • Foreign nationals placed on the payroll of a Chinese entity require a ‘Z’ Visa and a work and residence permit. • Minimum salary RMB 1,500 for the city of Shenzhen is the highest minimum monthly salary requirement others depends on location • Minimum Salary requirements are the same for local hires and international assignees across China.
- 6. India Japan Canada • The Employment ‘E’ Visa (typically used by ICTs and Local Hires) has an annual minimum salary requirement of USD25,000 • Renewals in many parts of India (the rules vary by local jurisdiction) require proof of compliance with tax withholding requirements • There is a minimum salary requirement of 200,000 JPY per month for both local hires and international assignees. • This is the minimum salary requirement to process a work permit application in Japan. Other minimum salary requirements may apply under relevant Labor • Law regulations. For example, an assignee’s salary must be equal to that of a Japanese worker in the same employment category • There are minimum salary requirements for Canada that may differ depending on the immigration category. • Minimum salary is position specific and must be comparable to what a Canadian national would earn in a similar position Del Rey, Bernsen &Loewy, July 24, 2013
- 7. Remittances by legal foreign workers Workers’ remittances are narrowly defined as current transfers by migrants who are employed in new economies and considered residents there. Workers' remittances is of considerable interest to economists and analysts because it can have a significant impact on poverty reduction and / or can finance economic growth in receiving economies for receiving country. The mail online, 11 November 2013
- 8. Remittances by legal foreign workers doubled from RM10 billion in 2009 to almost RM20 billion 2013, Deputy Finance Minister Datuk Ahmad Maslan. 3.2 million foreign workers of which 1.9 million are legal workers and an estimated 1.3 million are illegal. Total amount remitted by illegal estimated to be more than RM20 billion. Total amount remitted from Malaysia about US$6.24 billion is slightly over 1% of the amount remitted worldwide by 232 million international migrants, which is 3.2% of the world’s population. Top three countries are in Asia and the third largest is a Southeast Asian country shows there is a strong cross-border movement of money in Asia and also shows there is a huge supply of human capital that is available.
- 10. Factors of remittances Altruistic feelings • Migrant may be a motivation for transfer income to family and relatives left behind. The migrant feel cares about poverty of their family and diversifying the resources of income (Kaijage,2008) Investment for the future • Fixed capital, public assets or to be eligible to other resources in the community. Migrants may have investments that need to be tendered while they are away , in this case they need family members to act on their behalf as trusted agents (Chami et al, 2003) Family contract • Between migrant and those at home relies on the notion of risk diversification. It become convenient strategy for a household member migrates to a noncorrelated labor market to diversify economic risks by entering a type of contract agreement with the household left behind. (Amuedo-Doranates & Pozo,2002)
- 11. Positive impact of remittances Remittances may move countercyclical relative to the economic cycle of the recipient country. Remittances may rise when the recipient economy suffers a downturn in activity or macroeconomic shocks due to financial crisis, natural disaster, or political conflict, because migrants may send more funds during hard times to help their families and friends.(Clarke & Wallsten, 2004) Remittances affect international capital market access is through the use of structured finance techniques. Several banks in Malaysia like CIMB, Maybank and International Monetary Fund (IMF) have been able to raise relatively cheap and long-term financing from international capital markets via securitization of future remittance flows. (Levitt and de la Dehesa, 2003). Large remittance inflows can lead to exchange rate appreciation and lower export competitiveness. (Amuedo Dorantes & Pozo,2004)
- 12. Negative impacts of remittances Remittances can create a moral hazard problem where by a government fails to put in place economic measures to solve deteriorating economy due to trade deficit or higher unemployment as it anticipates receiving money transfers from migrant workers (Kapur & Aldaba, 2004) Kapur (2004) argues that remittances are an important mechanism to fund terrorism, civil wars and liberation struggles. He points out that the support is based on migrant organizations based in different countries such as Sir Lankan Tamil migrants in Canada supporting the militant Liberation Tigers of Tamil Ealam (LTTE)
- 15. 2 Why Use Competency-Based Pay? Competency-Based Pay Supports High-Performance Work Systems Strategic Aims Performance Management
- 16. Competency-Based Pay ‘A payment system that relates salary progression or a cash bonus to the display of “competencies” by individual employees. Systems originate in the identification of competency, understood as the key attributes and behaviours of employees that underlie good performance in a particular organisation or job.’ Heery and Noon (2001)
- 17. Different between Job Based Performance and Competency Based Performance • Job-based pay is a more traditional pay structure in which jobs are slotted into salary schedules • Knowledge-based pay rewards employees who set goals to learn new skills and acquire new knowledge • Each position is assigned a pay range based on job duties and the only variance in pay is based on education and seniority • Ambitious, self-motivated employees typically prefer this approach because it gives them a reason to focus on career development • This offers employees a more predictable method of pay, making it easier to budget and plan for raises each year. • Contribute to a systemic raising of the bar for performance across all jobs. • Employers that use a skill-based pay structure must provide continuing opportunities for employees to gain more skills and training. This allows a company to reduce employee turnover and encourage professional growth • Job-based pay structure may offer opportunities for employee development, but it is not specifically used as a platform for employee growth and wage increases.
- 18. Competency-Based Pay in Practice Introduced competency-based pay because the previous performance-related pay scheme was ambiguous and provided limited incentive to improve Because applying a normal distribution curve to performance means that most staff are rated as average and there is little differentiation in pay awards Their competency-based pay scheme describes the ten critical competencies required for each job family. Staff can be placed on three or four levels of achievement. This means there is a motivation to demonstrate the competencies and these are fully transparent. The system encourages flexibility and breadth, there by helping the company get a broad base of experience.
- 19. Why Use Competency- Based Pay 4 main ways in which employers were making the link between competencies and pay: 76 % of organizations that used competency-based pay used competencies in design of the grading structure 80% used them to determine promotions 88 % used competencies to determine pay rises or pay cuts 56 % used competencies to determine how an overall pay rise should be divided into pay shares. Adams (1999)
- 20. Competency-Based Pay Organization – Related Outcomes Employee-related outcomes Greater workforce flexibility Enhanced employee understanding of organization big picture Increased effectiveness of work teams Fewer bottleneck in workflow Increased worker output per hour Greater employee selfmanagement Improved employee satisfaction Greater employee commitment More career-enhancement opportunities
- 22. WHY IT HAPPEN?? Minimum wage policy takes effect on 1st January 2013, many companies will be facing great issues in restructuring their compensation system in order to stay competitive in the market. Ongoing debates on the impact of the minimum wage policy, a proactive solution should be taken in place. Productivity Linked Wage System (PLWS) establishes the link between wages and productivity WHAT IS PLWS?? PLWS is a system which establishes the link between wages and productivity. The system will ensure that wage increases proportionate with higher productivity, thus enhancing competitiveness at the company. This dynamic compensation system will directly reflect the company and individual performance to ensure organization sustainability and individual motivation.
- 23. WHEN IT START?? PLWS was introduced in 1996 following an agreement between the National Labor Advisory Council (NLAC) and the Human Resources Ministry on the need for wage reform but has only been sluggishly adopted since ELEMENTS IN PLWS The Fixed Component comprises basic wage, plus an annual increment. It provides for income stability, acts as an indicator of the job value, reflects the cost of living and is adjusted accordingly through the annual increment. However, the annual increments should only form a small portion of the wage bill to meet the rising cost of living. The Variable Components wage incentive, based on productivity or profit sharing formula. It determines the take home pay of an employee
- 25. ISSUES ON PLWS COUNTRIES USD Thousand % Hong Kong 65174 2.7 Singapore 55702 2.1 Taiwan 43 827 1.9 Malaysia 14 217 4.55 Thailand 4801 -1.1 China 4443 8.7 Philippine 3341 0.5 Indonesia 3040 5.0 India 2827 4.8 PRODUCTIVITY LEVEL AND GROWTH OF MALAYSIAN AND SELECTED ASIAN COUNTRIES BY MPC PRODUCTICITY REPORT 2011/2012
- 26. In the Asian region, Hong Kong, Singapore and Taiwan productivity levels are much higher than Malaysia ranging from USD 65,000 to USD44,000 compared to Malaysia only USD14,000 In the OECD countries, 9 countries having highest productivity levels ranging between USD97,000 and USD35,000, with Ireland the highest and New Zealand the lowest levels. Malaysia’s productivity growth is increasing but productivity level is low. Factors for low level of productivity: - Dependent on large number highly unskilled labor (70%) - Contribution of services sector to GDP as per cent of GDP is only 54% - Low level of technological development - Lack of R & D activities and innovation (Full time work equivalent per 1,000 people)
- 27. To achieve productivity improvements by: Enhancing business environment to be more conducive is among the factors that can improve productivity. The need to ease in the public delivery system and facilitate business investment Computers and related equipment are now the fastest growing segment of tangible investment At the same time, a polarization in Malaysia labor markets is taking place as skilled labor is in demand whereas demand for low-skilled workers is declining
- 28. BENEFITS OF PLWS Improve competitiveness Provide recognition for improved performance Creates openness and commitment Provides for equitable sharing Provides job security and stability in difficult times Improves the standard of living Enhances skills and knowledge Provides the drive for innovation
- 29. CONCLUSION OF PLWS ISSUE • Going for higher income economy and to be competitive, Malaysia must sustained its GDP growth of at least 6 per cent continuously by 2020 • Productivity growth must grow persistently at 5 per cent and productivity level will also rise higher • Employment rate must be maintained at full employment level • Human capital must be upgraded through training and the number of unskilled workers must be reduced • Provide conducive environment to encourage FDI • Encourage industries to invest in new technology and encourage innovation that will increase productivity • Promote R & D activities • Encourage industry to implement productivity linked wage system (PLWS)
- 33. 3 HOW TO ATTRACT AND RETAIN GEN Y IN COMPANIES? 76 % of employers surveyed said an employee who works less than a year is considered to be a job hopper. 84% employer would not hire someone with a job hopping tendency. At the ages of 25 and 34 surveyed think job hopping is a healthy trend as they could get more experience from the different jobs. Over 65 % of employees surveyed said they have worked less than two years at their jobs, but most of them are already on the lookout for a new job. From the survey, it also showed that these young workers have switched jobs twice in the past 5 years. Jobstreet and Kelly services survey, May 2013
- 35. Ms. Chook Yuh Yng, country manager of JobStreet.com said, “If employees job hop too often, nothing is substantial. Employers are highly unlikely to hire someone with a job hopping reputation, which will reflect in their resume. Companies are also incurring huge recruitment and training costs as they race to meet their talent needs in a market dominated by job-hopping generation Y workers. High turnover in employees also has a direct impact on a company’s productivity. Aspects contributing to this include lost time in rehiring, interviewing and training, lost sales or a lost customer base. According to Kelly Services marketing director for Singapore and Malaysia Jeannie Khoo, this trend is predominantly seen in Gen Y, and no, it's not always just about the money.
- 37. EMPLOYERS EMPLOYEES GAP It’s unhealthy Gen-Y employees tend to quit their jobs more easily (84%) Will not hire someone with job hopping tendency (83%) No career development (75%) Provide training, better working environment and compensation (68%) Job Hopping Trend Job Hopping Mindset Reason for Job Hopping How to Retain It's healthy to get more experiences from the different jobs (75%) Intend to switch job within 1-2 years(49%) Require more reward and compensation(81%) Provide competitive rewards based on performance(36%)
- 39. What employers think is lacking among unemployed graduates • Expectations – 64% – Should ask not what the company will do for them but what they can do for the company first – Should know the market value (do research) • Attitude – 60% – Should demonstrate continuous learning/self learning – Should demonstrate ownership/commitment etc. • Good communication skills (English) – 56% & 52% – Should be able to communicate & articulate well in the business language – Should be able to work as part of a team – Should show confidence • Choosy – 38% – Should know the market outlook – Should be realistic about the ideal first job/ company
- 40. General Expectations from Companies of a Good Graduate/ Hire • Good values – (e.g. honest, confident yet humble, innovative and creative) • Positive attitudes – (e.g. proactive, hardworking, high motivation and curiosity driven) • Work-related skills – (e.g. communication, entrepreneurship and leadership skills) • Preparedness to work – (e.g. industry-ready skills and ability to perform well in a working environment). Source: Unesco Report
- 42. OVERCOME ISSUES It is important that the education program offered are able to equip graduates with the necessary skills to join the workforce including both intellectual and practical skills – (e.g. Technical or domain specific knowledge & skills) – (e.g. Other important skills including Communications, Logical thinking, Project Management, interpersonal skills, General Knowledge etc.) • It is also important to align to the needs of the Work Place, so that Graduates have the right “preparedness to enter the workforce” – Internships is key – Projects/ Coursework – Involvement of industry in curriculum review, guest lecturing, providing career talks etc.
- 44. INTRESTING FACTS!!!! Malaysia’s top 10 richest people for 2013
- 45. "Give a man a fish, and you feed him for a day. Teach him to fish, and you feed him for a lifetime," is explored as Trump and Kiyosaki teach you what they believe you need to know to be rich.