Tech Ventures is an IT Company providing Software Solutions, established five years ago in Hyderabad. It follows the Strategic Business Unit (SBU) structure and has 3 SBUs. One is an office in U.S.A (SBU1) for on-site services, the 2nd is the "Business Solutions Division" (SBU2) also offering services in ERP, and the third is a development centre for WAP related technologies (SBU3), the last two units located in Hyderabad. It has a fairly flat organisation structure, headed by the CEO, with the heads of - SBU2, SBU3, Finance and HR directly reporting to him.

Operating in the fast changing and expanding I.T industry, the company has had to cope with high employee turnover. Therefore, it has experimented with various incentive schemes like stock options in order to attract and retain talent.

The CEO has a Management Committee meeting with the functional and SBU heads every Thursday morning at coffee break, to discuss various company related issues.

As the head of the Business Solutions Division, you have decided to launch a unique HRIS, after gauging that there is a huge market in this segment. The CEO suggested that you draw upon HR department's support in building the specifications of this product and for preparing a manual of the 'Input & Output' processes for each item of the HR policies to enable programming. However, the HR department's job did not match up to your expectations, both in terms of the quality and timeliness. The HR executives seem to be not very mature and do not keep to the time schedules, as this is not their primary task. You had to rely on the HR Department because the Head of HR and the CEO felt it was best.

You now feel that it would serve your (company's) interests better, if outside experts are hired and contract out this part of the development process. The Head of HR department does not agree with this and insists that they will do this work. This attitude of the HR department is delaying the project, and may prove costly in terms of a missed opportunity for the company, if a competitor comes out with the product first. You plan to raise the issue of delay in the project at the upcoming meeting with the CEO and other business and functional heads.

You are heading the finance function of Tech Ventures and would like to raise two specific issues concerning the company policy on Performance Management and the recently announced Stock Option Scheme.

The HR department has introduced a new Performance Pay System, which you feel differentiates between employees who directly contribute to the company's profits and those who do so indirectly. You would like to highlight that support departments are being given only 40% of the norm for direct employees, whose efforts in contributing to profits are measurable. You strongly feel that this system is discriminatory. Also, your subordinates have voiced concern over this and have been asking whether support functions are unimportant.

Part of the performance pay, in the new system is in the form of Stock Options. You feel that incentive payments in the form of stock options are not a better alternative to cash payment. The reason being a stiff 3 year lock-in, which several people have informally complained to you. You would like to suggest to the HR head and the CEO that cash payments are better at this point in the company as most people want cash-in-hand but not delayed and indeterminate benefits. This is particularly so as there is no up-front concession in the grant price and the market is very volatile. Moreover, it would be better if stock options are issued as an add-on, but not on the basis of performance.

In order to gain a head start in this emerging and potentially rewarding technology, you have decided to aggressively expand the scale of development. Therefore, your SBU has recently recruited a number of people at the Project Leader level. Taking into account the market demand for this particular skill-set, the HR department has suitably fixed their salaries. Pay levels are substantially higher for the new recruits as compared to already existing employees who joined the company early and developed themselves well in this line.

Understandably this has caused resentment among employees having lower pay levels and you have received several complaints in this regard. Several have indicated that they will leave soon and you can see this developing into a major crisis situation, for all the projects on hand. There is cut-throat competition and any delay in development will result in huge loss of opportunity.

As a solution to this problem, you have suggested to the HR department that every time new recruitments are made at high salaries due to market demands, there should be a revision in pay for the existing employees. This would bring them on par with the new recruits in terms of pay levels. However, the HR department has dismissed it saying that it is illogical and cumbersome, as it is an unending spin. You have decided to raise this issue at the management committee meeting.

Your are the CEO and co-founder of Tech Ventures, being associated with the company since its inception. You have the practice of holding weekly meetings with the SBU and functional heads as Management Committee.

Among several operational issues there are likely to be some HR related issues. When individual Head of the Departments raised some of these issues, you had suggested that these be brought up in the Management Committee.

• Support functions like the Finance department are not happy with the recently introduced Performance pay system, alleging discrimination between those who directly contribute to company's profits and those who do so indirectly. Support functions (HR & Finance) get only 40% of the value for a similar technical person.
• Majority of the employees feel that the 3 year service lock-in, in the recently announced stock option scheme is too stringent and would prefer cash payments as an incentive. Finance head feels that stock options should be given as an add-on instead, and not in lieu of cash payment.
• The HR head and the Business Solutions Division Head are in disagreement on - who is most competent to develop the specifications of the HRIS product, being planned by the SBU (the HR department or an outside expert). This is delaying the project.
• The recent recruitment of some people at higher salaries as compared to their colleagues at the same level has caused resentment among the older recruits. The head of SBU - WAP Technologies, is suggesting a pay revision for the earlier employees, every time there is such a high-cost recruitment. However, the HR department does not find this a practical solution but is open to any better solution, than the yearly overall review that is now taking place.

You are heading the HR function at Tech Ventures and will be attending the coming weekly meeting. Other functional heads could raise the following issues. The SBU Head of Business Solutions Division wants to hire an outside expert for building the specifications of an HRIS product and render guidance, as he was not satisfied with the initial work done by your department. While this may be true, you feel your people have the potential to do a good job, if the concerned person from this SBU took some time to explain their needs closely. The operating executives in the SBU appear to have "ego" problems and are not liaisoning with your executives as required for the development of the product.

SBU Head of WAP Technologies has suggested revisions in pay for all the employees in the unit, every time new recruitments are made, and if their salaries are high. This is to correct imbalances in the pay among employees at the same level and similar experience. However, this suggestion does not seem very practical to you.

Recruitment will be an ongoing activity and if some employees are joining from very good companies you have to necessarily offer appropriate package. Sometimes this may be more than what an earlier recruit gets, but mostly it is perceptional difference than real. Also, you have periodic wage revisions which should even such issues. Any case, let someone give a better and lasting solution and you will be open to it.

You have recently introduced a Performance Pay System which ensures that those contributing to the profits of the company, are suitably rewarded as per an internal formula. This has met with resistance from some support functions including some in your own department. The Finance Head has been most vocal, alleging discrimination between support functions and others. You may like to clarify that in an effective Performance Pay System it is not always possible to appear equitable in the eyes of all. The system you have demonstrates Performance Pay by grades, (5 grades); levels of contribution to profits (A to E) and whether direct or indirect employee.

If the norm for grade I, rating A for a direct employee this year is Rs.10,000/-, the corresponding amount for an indirect employee would be Rs. 4000/-. You gather that this principle of direct and indirect employees is an age-old practice in all incentive schemes. You cannot understand as to what is so inequitable in this?

Further, in your current system, 50% of this amount is given in stock options at the grant price. In the above case, the direct employee will be eligible for 100 options @Rs.100/- which is now the grant price. These will vest with him on completing 3 years of service.

You have received a suggestion form the Finance Head, saying that stock options should be given as an add - on to the pay, but not as part of an incentive payment. His reasoning is that people expect immediate rewards for their performance - preferably cash, rather than wait for 3 years, as the service lock-in will force them to. Reducing the lock-in period may be considered. You feel that giving cash payments, would defeat the stock option scheme's implicit objective - to reduce cash outflows. Moreover, employees will have to pay lower tax this way.