Report on Compensation Policy in DU

DU Compensation Policy

Research Paper

Manaal Al Hamaadi

29-Nov-14


Contents
Executive Summary 3
Introduction 3
Organization Background 4
Research Findings 5
Primary Research 5
Analysis of Collected Information 7
Summary & Recommendations 10
Recommendation 10
Bibliography 11

Executive Summary

The following project is a detailed study of the compensation policy of an organization. In the initial stage of the project, there is terminology regarding Remuneration. The organization selected for the research is Du which is major telecom company in UAE. The research involved the utilization of both primary and secondary research to generate data for analysis. The interview takes place with the HR head of Du and the received data is subjected to observation and analysis.

The research analysis provides a deeper insight into the policies and its underlying set of rules and regulation and the distinct line of hierarchy where it was predefined in the policy about the pay scale of the senior management. After the data Analysis, the conclusion wraps up and further discusses the role of a compensation policy. There is a brief suggestion regarding the compensation policy of Du.
Introduction

The term remuneration /compensation is a rather modern term as the concept started from the term wages. Wages being paid for rather had basic rules and it began as a work based wage model. As the time passed, on the advent of formation of large organizations with lots of employees at different level of hierarchies performing a variety of jobs; there was a dire need for the formation of policies regarding the remuneration of employees in an organization. (Wilkinson, 2013)
Remuneration can be defined as a compensation for services offered in an organizational perspective. It includes the basic wages, cash/stock bonuses, incentives and other benefits provided to an employee for his services. Every industry and company has their own unique remuneration policies and strategies. A remuneration policy is required for planning and managing compensation issues. The variation of compensation strategies across organizations are based on the nature of work and the position of an employee in the organizational hierarchy. (Summers, 2011)
The periodic compensation received by an employee is predefined by the organization and is considered as the basic pay provided to the employee for his services. The types of pay which are given apart from the basic pay are considered as incentives/merits. They are based on the performance of the employee and it comes in many forms like merit pay, contingent pay and/or commission.
Remuneration policies of an organization are a part of the organization’s corporate governance and this information is provided to its shareholders. There are several factors which are determinants of an organization’s remuneration policy. The most influential factors for likely changes in an organization’s remuneration polices are the retention of key staff, financial results, strategic recommendation, performance standards, and productivity. The cost of compensation is also a factor but it becomes an active factor when the organization is not performing well and not when changes are made to achieve progress. (BUSSIN & HUYSAMEN, 2004)
Organization Background

Du is a leading mobile network provider in the United Arab Emirates which began its journey in 2006 in a market of monopoly and has been on a consistent path of progress. Du has gained almost a 50% market share in UAE with 6.5 million subscribers to their mobile network. They also provide broadband services which have been deemed as the best in the Middle-East. They managed to emerge as highly competitive network providers in a monopoly and managed to take over almost the 50% market share in a short period of time. They have annual revenue which can be marked at above 10 Billion AED. (Du, 2014)
Du states that it has a corporate governance system which is in compliance with ministerial resolutions in the UAE legislation. Their remuneration system suggests that remuneration is a matter residing in the hands of the board members and the remuneration of the board members is decided indirectly the shareholders. The nomination and remuneration committee submits a proposal to the board of directors which is referred to the shareholders in the annual meeting.
Research Findings

Primary Research

The research regarding the intricate knowledge of the compensation strategies of Du will require extensive primary research in the initial stages to extract the required data for the research. We will be conducting an interview with the head of Human Resources department of Du. The interview is to be conducted with the head of the HR department due to the fact that the data regarding the salaries of the employees and the compensation strategies can be obtained from the HR head and he will also have an idea regarding the problems arising in the organization related to remuneration and incentives.
The following questions were asked to the HR head and the important data has been noted down and described below:
1) Do you as the head of the HR department, have an involvement in the formation and changes in the Compensation policies in Du?
The compensation policies are of two different natures. The compensation policy regarding the remuneration of the top level management is stated clearly in the published material and changes in the policies are suggested by the board of directors and the nomination and remuneration committee together and the approval is to be received from the share holders. I as the HR head don’t have an involvement in the policy regarding the remuneration of top level management. I have an involvement in the compensation policies regarding the remuneration of employees of the organization. The changes are carried forward by me and from time to time changes are suggested by me to alleviate problems and optimize the process.
2) What kind of incentives does Du offer to the employees?
The basic types of incentives are provided to all the employees. These incentives include free data usage for the employee and an extra sim-card for the employee’s family to use data as heavily discounted rates. There is a gym facility which can be used by all the employees for free. 30 days of annual working leave is also provided in addition to the public holidays. Other basic amenities provided are free parking and free water.
Basic incentives like gratuity plans and pension schemes are also available to employees but there are certain rules are regulations associated with those facilities which differ according to factors like department and duration of work. The permanent staff is provided with incentives of free medical insurance for himself and the family of the employees.
3) What are the facts associated with the basic salary of the employees?
To delve into the pay scale of the employees of all the departments and levels will be an arduous task but there is a provision in the compensation policy regarding basic pay. The provision suggests that the pay-scale of the employees is constantly reviewed and upgraded on the basis of industry standards so that employees remain satisfied with their salaries.
4) What are the determining factors for the remuneration of the employees?
The remuneration of the top level management is dependant of factors like company revenue, level of growth, performance and economic conditions. The remuneration of the employees depends on factors like performance, duration of work and company growth. The remuneration policy suggests strict observation of a performance based compensation framework which promotes better performance and a competitive work environment.
5) What kind of problems would arise in case of the compensation and its related incentives?
Even despite clear rules and regulations described in the compensation policy, there are problems sometimes regarding certain incentives. There was a problem recently regarding the medical insurance policy in which the employee failed to produce certain documents necessary in the process for the provision of the amount required. The policies suggest that certain documents are required in such procedure due to the possibility that the incentive may be misused and that is why the rules required to be followed.
There are also problems regarding the leave policies where there is a contingency that during month endings employees are give some extra work usually (which they are compensated for) and it is mandatory to attend work for the suggested time span. If an employee takes a leave at that time then it does not get included in the assigned leaves.
Analysis of Collected Information

Comprehensive data was obtained by the primary research conducted with the help of the human resources head of Du. The data obtained will be analyzed and compared with the secondary research materials found on the internet. These secondary research materials include the latest corporate governance report of Du, the details provided in their website, and the terms of reference regarding the nomination and remuneration committee.
It was observed that the involvement of the HR department in the determination of pay scale is present but it is limited to the employees other that the top level management in which his role is to suggest changes and carry it forward to the board of directors. The HR head has complete autonomy in case of the incentives provided to the employees in which he can influence change in policies depending on the factors that influence remuneration.
The incentives offered to the employees are attractive due to the availability of lots of perks provided even to the freshly joined employees. Du always focuses on enhancing the performance of the employees and upgrades the salary according to the market conditions. (DU, 2012)Du has been on a state of constant growth since its beginning and it has resulted in increased employments and positive upgrades in the salary. The incentives provided to the employee are not extra-ordinary but they are comparatively better than other companies according the industry benchmarks
The basic salary of the employee is performance oriented but the starting pay scale of the employees has not been declared in documents by Du and the interviewee didn’t disclose the complete details. The fact that the framework of the salary is performance oriented proves that the initial management off Du took good decisions in forming the compensation framework in this manner is commendable. (Bebchuk & Fried, 2003)The matter of compensation of the top level management is the prime concern of the study due to the fact that the inclusion of the individual pay-scales of employees would include a huge number of variables for analysis clouding the focus of the research. The remuneration policy of the top level management has a myriad of factors which induce discussions.
The compensation policy of Du is formed by their nomination and remuneration committee for the board of directors and other employees. The committee is in charge of developing remuneration policies regarding salary, benefits, and bonuses. They also recognize the needs of the top level management and formulate a criterion accordingly. The committee determines the remuneration guidelines of the CEO and Chairman due to the fact that if it remains in the hands of top level management then they would be in the possession of influential power. (SHEEHAN, 2009) The remuneration committee is also required to take legal requirements and latest ministerial resolutions into consideration.
The design of performance related pay is also set by the remuneration committee but it involves additional factors of consideration like employee performance and productivity of the work area. The design of the pension plans are also planned by the committee. The HR head is involved in the formulation but the final say lies with the chairman of the nomination and remuneration committee. The pensions of the senior management group are given in a manner decided by the committee but they can be given either in a regular basis or all at once in the form of an award.
Looking into the determining factors concerned with the change in the remuneration of the employees and keeping things very close to the popular trend, one of the factors that determines changes in the pay scale was benchmarking and surveying as mentioned by the HR head. According to (BUSSIN & HUYSAMEN, 2004), benchmarking is an influential factor because the retention rate of the employees is a factor of consideration for the companies and to retain the current employees, every organization has to keep updating their pay scale by running a survey involving the competitors and to keep a reasonable pay scale accordingly. The remuneration committee itself can also be considered as a factor influencing changes in the pay scale but it is not one of the top five reasons of changes in pay scale.
Observing the situation of the problems seen in the case of Du related to the remuneration policies, it can be said that it has a traditional structure of rules regarding the incentives but it is necessary due to the fact that these rules and regulations are determined according to the regulations set by the ministry and as mentioned in the labor law. Taking that fact into account, the scope of changes narrows down; but the array of incentives provided by Du on top of the above benchmark pay scale is a fair outcome of the remuneration policies.
Summary & Recommendations

A compensation policy of an organization is a significant aspect of an organization which is constantly scrutinized by management crowd and the shareholders of the company who have a role to play in the determination of remuneration of the senior management. This compensation policy is published for the shareholders to use but the limitation is that it exclusively states the policies regarding the pay scale of the senior management. The policies regarding the pay scales aren’t shared due to internal regulations. By putting the compensation policies of Du under the microscope, a lot of information was extracted.
A proper analysis led to the comparison of the outcomes of the primary research and the data obtained through secondary research which was reliable and relative due to the fact that it was published by Du itself. The retrospection including insight from other resources were useful to determine the reason of changes in pay scale of the employees and the relevance of the intricacies mentioned inside the policy in retrospection with the answers provided by the HR head of Du.
Recommendation

The compensation policy mentioned the duties of the committee in relation with the regulations of the ministry which leaves much less scope for changes but there is possibility for change in the area of pay scale measurement optimization which would include benchmarking and performance measurement both as a factor in determining basic wages of the employees. The incentive system also requires changes in the policies where the minute requirements regarding the incentives which are based on the insurance policies which will require employees to produce documents when needed.
Bibliography
Bebchuk, L. A., & Fried, J. M. (2003). Executive Compensation as an Agency Problem. Journal of Economic Perspectives , 71-92.
BUSSIN, M., & HUYSAMEN, D. (2004). FACTORS DRIVING CHANGES TO REMUNERATION POLICY AND OUTCOMES. SA Journal of Human Resource Management , 45-54.
DU. (2012). Corporate Governance Report. DU.
Du. (2014). Who we are. Retrieved 11 28, 2014, from www.du.ae: http://www.du.ae/about/messages/who-we-are
SHEEHAN, K. (2009). The Regulatory Framework for Executive Remuneration in Australia. Sydney Law Review , 273-308.
Summers, B. (2011). Strategic Remuneration – What is It? Retrieved 11 28, 2014, from www.hrinz.org.nz: http://www.hrinz.org.nz/Site/Resources/Knowledge_Base/Q-Z/Strategic_Remuneration_What_is_It.aspx
Wilkinson, J. (2013, 7 24). Remuneration Definition. Retrieved 11 28, 2014, from strategiccfo.com: http://strategiccfo.com/wikicfo/remuneration-definition/

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March 7, 2018

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