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8/3/2019 EVA & Compensation Mgnt
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K.C. COLLEGE OF
MANAGEMENT STUDIES
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SUBJECT : PERSONNEL MANAGEMENT
Topic : eva & compensation
management
FACULTY : P.M. RAO
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INTRODUCTION
COMPENSATION MANAGEMENT
ECONOMIC VALUE ADDED MODEL (EVA)
IDENTIFICATION OF NON-PERFORMERS
PERFORMANCE APPRAISAL
ANNUAL RESULTS OF THE COMPANY
STRATEGIC INITIATIVES
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Topics to be discussed
Various compensation management system.
Performance measurement tool.
(EVA and HR accounting)
Factors leading to compensation packages.
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Tata Business Excellence
Model
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FACTS OF EVA EVA is a registered trademark of Stern Stewart & Co.
It is an estimate of a firm’s economic profit. In simple words EVA is the profit earned by the firm less the cost
of financing the firm’s capital.
The idea is that value is created when the return on the firm's
economic capital employed is greater than the cost of that capital. This amount can be determined by making adjustments to
GAAP accounting.
There are potentially over 160 adjustments that could be made
but in practice only five or seven key ones are made, depending on
the company and the industry it competes in.
One of the first companies in India to look hard at the EVA model
was Tata Consultancy Services (TCS), which did so in early 1999.
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FACTS OF COMPENSATION MANAGEMENT Compensation is the remuneration received by an employee in return
for his/her contribution to the organization. Compensation is an integral part of human resource management
which helps in motivating the employees and improving organizational
effectiveness.
It is an organized practice that involves balancing the work-employee
relation by providing monetary and non monetary benefits toemployees.
Compensation does not include only salary but it is the sum total of all
rewards and allowances provided to the employees in return for their
services. If the compensation offered is effectively managed, it
contributes to high organizational productivity. Compensation systems are designed keeping in minds the strategic goals
and business objectives. Compensation system is designed on the basis
of certain factors after analyzing the job work and responsibilities.
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Q1)various compensation management
systems in an organization :
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Q2) EVA AND COMPENSATION MANAGEMENT AT
TATA CONSULTANCY SERVICES
EVA MODEL IN TCS One of the first companies in India to look hard at the EVA model
was Tata Consultancy Services (TCS), which did so in early 1999.
For TCS, which at that time boasted some 15,000 professionalsworking globally.
Explains S. Mahalingam, Executive Vice President, TCS, thecompany's point man for the EVA exercise: ''We wanted toconstruct a defined incentive system, which would reward on thebasis of profitability. And our individual performance appraisalsystem had to have a much stronger linkage to value creation. Wewanted to focus both on team and individual performance.'‘
One major objective was to make each consultancy practice groupfocus on value-creation and maximizing project profitability evenas it expended efforts to create competencies for the future.
EVA gave TCS a unified framework to identify drivers for value-creation and, more significant, to link the incentive system to theextent of value being created.
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The first task was to define clear targets for EVA, not just forrevenues or profits.
The continuous improvement of EVA from one year to the nexthad to be ensured-at both the corporate level and at the business
unit level (there are 100 business units at TCS). Today, all of TCS' consultancy personnel are covered by EVA.
With employee incentives now being linked to EVAenhancement, much of the new initiatives at TCS today isdecentralized. The performance rewards are based not just onindividual performances (as was the case earlier). They are doledout keeping in mind the corporate EVA created, the business unitEVA created and individual performance and value creation hasimproved.
There is a greater appreciation of, and involvement with, theEVA concept at TCS these days.
Verdicts on major capital expenditure invite the curiosity of employees, who are more than interested in knowing the impactthe spend will have on income-generation.
That's a welcome ripple-effect of the EVA exercise: transparency in management.
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Definition:
This broad socioeconomic shift underscores a growing need for measuring and analyzing
human capital when making managerial and financial decisions.
Yet important human resource decisions involving hiring, training, compensation,
productivity and other matters are often made in the absence of specific information about
the different costs and benefits of these particular choices.
ferent costs and benefits of these particular choices.
Human resource accounting is a managerial tool that can be used to gain this valuable
information by measuring the costs of recruiting, hiring, compensating and training
employees. It can be used to evaluate employee training programs, increase productivity,
and improve managerial decision-making regarding promotions, transfers, layoffs,
replacement and turnover.
EXAMPLE:
How an insurance company evaluated a training program for claims adjusters and found
that it would return two dollars for every one dollar spent. How a human resources
accounting study revealed that an electronics firm's losses from employee turnoverequalled one year's new income, and how the company initiated a program to reduce
FACTS OF HR ACCOUNTING.:
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Q3) FACTORS LEADING TO VARIOUS
COMPENSATION PACKAGES
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The exact factors of a compensation package will vary from
one employer to another.
Revenue, Size, Industry, Location and Profitabiilty.
Child care services.
Goods and Services such as Home Textile.
Guarantee for Reimbursement. Education.
Work Experience, Skills and Domain knowledge.
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