Employee compensation primarily

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Employee Compensation

Employee compensation primarily refers to the direct and indirect monetary and non-monetary rewards, which is given to employees based on the value of the job performed, personal contributions, and the performance in the work place (Dowling & Welch, 2004). The fundamental aspects that underpin Management Frontiers' compensation policy are as follows:

  • Our compensation policy supports the overall business objective of establishing our position as a reputed consultancy service provider in the Chinese market.
  • We offer competitive compensation packages to attract motivate and retain the best HCNs and PCNs so that we could deliver sustained high levels of performance.
  • We have a consistent approach to compensation, but allow flexibility in the features of the compensation package to recognise the complexity of the Chinese market.
  • We will be in total compliance with China's statutory regulations.
  • Our compensation packages are simple so that employees understand them and their administration is easy

Our Approach

Our approach to compensation management is as follows:

  • We will be following the host-country payment approach which assigns the expatriate pay according to host country basic salary structure, delivering pay in local currency, so that PCNs and HCNs who do similar work receive comparable salaries. This approach simplifies administration and pays all nationalities under the same program.
  • We will ensure competitiveness by maintaining compensation levels that reflect market pay levels of China. Market will be surveyed once a year using external service providers (salary survey conductors). We will compare ourselves with the major management consulting companies who are competitors in our types of business; multinationals and other companies who are competing for the type of skills we need. We aim to benchmark our compensation levels at the median of our key comparators.

Compensation Components

Basic Salary and Cash Allowances

These constitute the rate of pay for the job and reflect market pay levels.


Two types of bonuses are adopted:

  • Guaranteed Bonus - In order to address the strong uncertainty avoidance that prevails in China, a guaranteed bonus of a month salary is paid to all employees. It is common practice in china that a bonus of 1 month salary is paid to employees annually.
  • Performance Bonus - As a tool in reinforcing our performance culture, a performance bonus is paid to high performers. Those with highest performance ratings can earn up to four months salary as performance bonus.

Team Incentives

As China is a collective society with high emphasis on groups and our business is mostly driven by teams, we will introduce team incentives which reward groups of employees who display excellence in performance. Team incentive is shared equally amongst the team members.

Social Security Payments

Employers are obligated to pay social security payments to employees and the rates will be varied depending on the location of employment (Sy, 2008). Employee and employer jointly contribute to basic old age insurance, unemployment insurance and medical insurance whereas the employer contributes alone to maternity insurance and work related injury insurance.

PCN Compensation

The following allowances apply only to the PCNs:

  • Foreign service inducement/hardship premium - this is an inducement for foreign assignments and compensates the hardships caused by the transfer
  • Housing allowance - this covers housing as well as utility bills to ensure PCN receives home country living standards
  • Home leave allowance - this covers the expense of trips back to Sri Lanka such as a return air ticket, to visit family and friends once a year.
  • Children's education allowance - this covers items such as tuition, language class tuition, enrolment fees, books and supplies, transportation and uniforms (Dowling & Welch, 2005).


A person who lives and works in China for more than 183 days will be liable to pay Chinese taxes on all income received whilst residing in the country. Personal Income Tax is charged on a sliding scale, ranging from 5 to 45%. If a person also receives income from overseas, he will be taxed in China on his worldwide income, with a tax credit given against any tax already paid in other countries.

Taxable pay is calculated by reducing monthly income by the permitted tax free earnings of 4800 RMB per month for foreigners and 1600 RMB for the Chinese.

Performance Management

"Performance management, in its broadest context, is a managerial process that links corporate objectives, performance standards and evaluation, to which the performance review often applied" (Pickett, 2003). As Management Frontiers consultants expand its operations to China, performance appraisal of the employees is a vital aspect to address since performance appraisal determines how efficient employees are performing their jobs.

"Performance appraisal techniques vary from relatively simple techniques, such as ranking and traits rating, to the more complex method of behaviourally anchored scales" (Tyson & York, 2000). These techniques also vary with regard to temporal emphasis, either focusing on the past through rating and ranking, or using management by objectives to provide a future focus.

Western organisations has used performance appraisal to determine employee compensation, merit pay and other organisational rewards (Armstrong, 2001) where the process can equally facilitate other human resource management functions (Torrington, 1994) as well. Performance appraisal can, for example, provide information on the effectiveness of the organisation's selection and placement programmes, or help identify training and development needs.

Out of different types of performance appraisal techniques that an organization can use Management Frontiers consultants will be using the Management by Objectives (MBO) method where objectives based on standards will be set company across each layer where motivated employees require high level of effectiveness and efficiency to fulfil the expected objectives of the firm.

The main reason for selecting this method is the fact that it is an unbiased method which aligns with HR objectives of the organization with employee's motivational level to improve their effectiveness. Moreover, the Chinese culture is such that the level of turn over rate is high if the appraisal system existing in the organization does not provide the employee with opportunities for further development. It is apparent that within the nature of Chinese culture, appraisee's perception supports to a positive relationship between fairness and satisfaction with the performance appraisal process. That is, the higher an appraisees rates the process as fair, the more satisfied they are with the performance appraisal.

As key factor in China's developing economy, effective workforce provides a strong source of competitive advantage (Barney, 1995). Unfair of treatment of employees can impact on job performance (Vigoda, 2000) and affect employee satisfaction (Taylor et al, 1995), so it is important that satisfaction with performance appraisal systems remains high. The MBO method will align the employee's carrier goals with the organizational goals and would eliminate the problems such as high turn over rate in the Chinese work environment. Therefore HR plans to appraise performance of its employees annually by top management. The results will be used to make bonuses, salary increments promotions and transfer of the employees.

Performance appraisal for the PCN's

The management by objectives (MBO) method is used as performance appraisal of the PCN's as Management Frontiers consultants aims to enhance organizational performance by aligning goals and subordinate objectives throughout the organization. Therefore, employees could gain high level of motivation to increase they capacity to operate effectively while identifying their objectives and time lines for completion of tasks. MBO includes ongoing tracking and feedback in the process to reach objectives. The top management of the organization will determine the overall objectives of the company, and then distribute these objectives to teams and individuals. After that evaluate the performance of how well teams and individuals achieve these objectives.

Performance appraisal for the HCN's

Cultural dilemmas plays a vital role when appraising the performance for the HCN's, Culture of China is more towards collectivism and high in power distant country. Since performance appraisal process can affect the individual performance the organization will focus their attention more towards MBO to cultivate a equal employee opportunity attitude to enhance cohesiveness among work groups. Regardless PCN's or the HCN's, the feedback from top level is essential to enhance better performance of the firm since Management Frontiers consultants will be appraising the performance by team appraisals and supervisor evaluation. So that employees would know their faults, limitations and improve themselves to overcome their drawbacks.


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