Both these cases explain about the compensation philosophy followed by Citi and KPMG and what are
the key
areas they focus on while making any compensation plan or structure.
CITI’S COMPENSATION PHILOSOPHY
Compensation is an important tool to bring and attract top talent candidates in the organization which
helps to successfully achieve corporate goals. It also focusses on maintaining balance between
incentives and achievement of financial and performance objectives.
The Personnel and Compensation Committee of Citi’s Board of Directors (the “Committee”) is setup
which takes care of formation and operation/application of Citi’s compensation plans.
Committee regularly reviews and revises the compensation plans as per the changing environment and
market. Maintain balance between risk taking and risk mitigating incentives.
Citi follows some principal objectives for its compensation plan
o Making incentive plans which does not affects interest of shareholders and stake holders.
o Make a strong business culture and ensuring to maintain highest ethical and control standards
through leadership principals.
o Encourage talented individuals and group decision making which aligns with Citi’s mission
and values.
o Act as a tool to attract and retain best talent and giving rewards to them for putting efforts in
fulfilment of goals.
o Encourage behaviours that are in the best interests of our customers, shareholders and the
goals of the organization, including environmental and social principles
o Align and maintain a balance between realistic pay an achievement of important risk and
control and financial based objectives.
To compensate executives, senior managers and to make a link between pay to performance, Citi uses a
scorecard approach based on matrix of financial and non-financial objectives including the focus on
environmental and social responsibilities Provide incentives to executives and senior manages in the
form of equity which helps to build the culture of ownership and maintain balance between employee’s
interest and shareholders.
For executive officers, it is important to maintain ownership of 75% of the net share’s granter through
incentive compensation program. Require that executive officers hold a substantial amount of Citi
stock for at least one year after the end of their service as executive officers.
Along with financial aspects, it is also highly focused on achievement of ethical and cultural
environment. Focuses on to develop a culture that does not support unethical conducts through
appropriate compensation and employment decision.
Ensures the equality of compensation across the workforce. Promote culture and conduct through
performance assessments, incentive compensation programs and, where appropriate, disciplinary
actions
Design incentives that reward a thoughtful balance of risk and return and penalize undue risk-taking.
Follows incentives schemes based on risk taking and mitigating decisions. It clearly communicates to
all employees that poor risk control management can adversely impact the incentive decisions and
compensation. Develops competitive compensation programmes to attract and retain best talent to
successfully execute company’s strategy.
Clearly and consistently communicate Citi’s approach to compensation throughout the year. It
encourages best behaviours and align pay with performance. Key areas of accountability focused by
Citi are
o Risk and Controls performance
o Financial performance
o Client / Franchise performance
o Leadership performance
KPMG Compensation Philosophy
It believes that Pay philosophy must be well articulated and communicated to employees in order to
maintain transparency between employer and employee. The process must be fair and equitable to all.
It helps to build a culture of trust and openness.
To design an effective Pay Philosophy, KPMG takes certain factors into consideration such as
o Business strategy: Compensation plan is a mixture of HR Strategy’s and organizational
goals. There must be a proper fit between company’s rewards, goals and HR strategies.
o Single versus multiple Pay Philosophies: Though smalls firms follow single and equal pay
philosophy for all. However, there are MNCs who operates from different subsidiaries and
countries, for them it difficult to maintain single pay philosophy for all. It cannot make
philosophies based on local markets. MNC adopts harmonized philosophy which aligns with
Global business and HR Strategy. It also keeps flexible provisions for exceptions.
o Reward Focus: The reward focus should be clearly defined in the compensation philosophy.
It must be based on business and HR Strategy.
In order to design a compensation philosophy forms a comparator group based on
o Companies with similar or comparable businesses.
o Companies to which an organisation is more likely to lose talent as well as attract talents from.
o Companies operating within the same geographical spread or jurisdictions
o Companies of similar size in terms of business, staff strength etc.
o Companies of similar structure and complexity e.g., holding companies
Approach followed by more objective based organization to define compensation philosophy
o Market Practices: To define a pay philosophy it focuses on what other organization of similar
operation and size is following. This method is usually used with combination of other
analysis.
o Financial Size and efficiency analysis (FS&E): Other analysis which are used in combination
with market practice is Financial Size and Efficiency Analysis. This analysis is moreover
based on general assumption that bigger or more efficient companies are able to pay higher
than smaller and less efficient companies. It helps to carefully select the comparator group and
indicates the ability to pay.
Given the relationship between pay and financial performance, if a company is ranked at the 65th
percentile based on the results of a FS&E analysis, this could be an indication that the company can
afford to anchor pay within the third quartile (i.e., between the 51st and 75th Percentiles).
A company’s Compensation Philosophy statement should be precise and provide answers to the
following:
o Desired market position
o Comparator Group
o Compensation mix
o Reward focus
o Pay review process
Follows a flexible compensation philosophy to reflect continuously changing business environment and
focus. Howe never there must not be too much flexibility which question on relevance of compensation
plan. A balance between rigidity and flexibility of compensation plan must be maintained.
