Compensation Practice: Nokia Corporation - Case Study Example

NOKIA CORPORATION al Affiliation) Nokia Corporation Nokia Corporation is one of the publicly traded listed companies that have been in existence since 1865. It started as Nokia Company which dealt with manufacture of pulp and paper due to its strategic position in Finland; a country that is well endowed with vast forests. Nokia Company became the pioneer of the manufacturing industry as well as a company that introduced the newest methods of production (Hacket, 1999). However, as the manufacturing industry continued to have an increased quest for energy, Nokia Company set up its own power stations. Increases in investment led to the 1915 listing of the company first shares in the Helsinki stock market. Some years after world war 2, trade in Finland boomed and as a result, the company became the leading exporter in Finland. In the late 1960s, the company decided to extend it services beyond the Finnish borders by deciding to get involved in acquisitions. This was because the company was not in the capacity to start a stronger growth within the Finnish borders. Nokia Corporation came into existence after Nokia Company merged with other two Finnish companies that were on the verge of rationalization by the government (Hacket, 1999). These two companies were namely; the Finnish rubber works company and the Finnish cable works company. In 1966, amalgamation of these companies was completed. This amalgamation made Nokia Corporation start new industries that involved manufacturing of electronics, rubber footwear, tires and operating of integrated cables. The growth in its operations led to its shares offer to the public for the first time. After a year, divisions that were to develop and design the abilities to manufacture, process data, communication systems, and automations to for use in industries were established. Later Nokia Corporation concentrated on expanding divisions that were to enhance the development of information systems. The developed divisions included upgrading working stations, computers, mobile phones and digitalizing the communication systems. Division of these developments made Nokia Corporation activities into four business groups that they concentrated on (Philips, 2003). The business divisions are namely multimedia, networks, enterprise solutions and mobile phones. Because of Nokia Corporation specializing in these divisions, it has now become the world’s largest mobile phones manufacturer with a market stretch of more than 130 countries. Nokia corporation has also established 15 centers in nine countries where manufacturing of products is done while it also operates research and development facilities within 12 countries worldwide (Philips, 2003). Nokia values compensation, since, it is the best way to retain, motivate or even attract talented workers. By maintaining workers who have the right skills or capabilities the corporation is able to achieve its organizational goals or objectives in the evolving industry of communication. Moreover, Nokia has established a general structure that shows the incentives and the base rates which may either be long term or short-term. Nokia Corporation uses a strategy of nearly 40% compensation to its board of directors. Compensation is through payment of Nokia shares bought directly from the market directly. This strategy still enforces that any board member who receives this compensation should withhold the shares until his or her term expires. This strategy therefore makes an exception for any shares that are to cover cost relating to taxes or cost of acquiring the shares (Hacket, 1999). In addition, the strategy also indicates that non-executives members do not take part in any equity programs or even receive any shares as compensation for the duties they are supposed to discharge. Executive compensations are always subject to company’s performance and the value that the customers receive. The compensation strategy for executive members consists of incentive awards based on long-term equity and annual cash, which is a Form of a base salary offered in a short term. Nokia also provides for the compensation strategy of the leadership team, including payment of a base salary and cash incentives, which Nokia pays as a percentage of the base salary. This amount will always include incentives earned on annual cash plus an addition of other bonuses earned. Nokia Corporation has also embraced new practices to improve the corporations working and operating conditions. In effect, the corporation is merging E-business and knowledge management. The main reason for this trend is that there is a creation of conversation, sharing knowledge and there is total upgrade of communities (Lawler, 1990). This trend involves technologies that are web based to support E-business and knowledge management making the application important in managing consumer relationships between businesses. E-business involves eliminating the differences or barriers that exist between customers and organizations while knowledge management on the other hand involves the reduction of barriers within the organizations .The use of this applications are engages the consumers in generating and exchanging knowledge that leads to competitive advantages. Nokia Corporation is also moving from limited projects to hostile programs (Philips, 2003). This shift is necessary since knowledge management is maturing from a corporate discipline. The corporation has realized that there is no advantage in boosting solutions technologically if there are existing cultures that limit the sharing of knowledge. As the corporation learnt about implementing the knowledge management program, it also discovered that there is an interdependent capability in the nature of knowledge management practices. Additionally, Nokia is one of the companies that have embraced the change of using existing practices to encouraging innovation in developing product functions. The decision to use knowledge management practices helps the company understand the market trends and familiarize with what the consumer tastes. The familiarization necessitates product developments based on this information to meet customer’s needs. Nokia Company has also advanced to the extent of using tacit knowledge; this is knowledge based on the use of formulas, rules, and equations, which are easier to work with. This method proves to be more advantageous since the insights can be stored and recorded for easier transportation (Hacket, 1999). When a company is able to manage its tacit knowledge and make effective use of it, the organization will always experience huge returns. This increment is evident as shown by the huge difference between the good and best performer. The reasons for such disparity being that, there is more valuable knowledge used and there is development of better and more reliable business software’s. However, compensation strategies are faced with a number of challenges; first, there is the challenge of developing effective strategies that cover different cultures since people view their roles and responsibilities differently from that of the company’s policies. In addition, this company faces the challenge of developing strategies that will always guide the long-term and short-term compensation plan (Philips, 2003). Finally, some working business conditions will practically influence the compensation strategies. When a business operates in an environment that is not stable with issues such as disinvestments, merger, and acquisitions, then the compensation strategy is at stake. Organizations policies will significantly affect stakeholder’s entities, products, services and the ability on which the company will be able to achieve its goals. The compensation strategies will always strengthen accountability and trust between the company and the stakeholders. Subsequently, the compensation strategy should always provide the organization’s performance on the context of sustainability (Hacket, 1999). Nokia Corporation uses this concept of compensation to articulate the environmental constraints that affects the company. These environmental constraints are in terms of the resource use by the company and the global limits that influence the company operations. This concept determines the distinctions between the trends range versus the performance contextualizing location. The compensation strategy should always reflect on the positive and negative impacts of the organization’s overall performance .This practices should avoid omissions and selections that may influence the judgment or interpretation of the company’s achievements by the stakeholders. Nokia corporation compensation strategies provide a platform at which the stakeholders are able to have a comparison in the levels of competence and performance. Stakeholders are in a position to compare the environmental, social, and economic performance of the company (Philips, 2003). Different legislations in recent past require that stakeholders vote on the restrictions, additional disclosures, and compensation practices of the company’s executives. Up until now, certain laws are in place to approve the financial reforms and legislations, which include the laws affecting compensation and co-operate governance by the executive’s .These laws include the Dodd-frank Wall Street reform and consumer protection Act. This law dictates that there should be voting by non-binding shareholders on compensation for the executives, compensation committee, and the independent advisor. It also provides for additional executive compensation disclosures. At Nokia Corporation, the shareholders voting during the annual general meetings decide the compensation of an executive annually. It is the duty of the corporate governance and nomination committee to compare and review compensation in regard with the business’ net sales and complexity in comparison with other companies at its levels (Hacket, 1999). The competitive compensation practice helps in motivating the board members to meet the company’s targets. Nokia follows some codes of conduct that fundamentally center on the United Nations declaration of human rights as well as the international labor organizational conventions. Nokia Corporation verifies that every dealer they are involved with does comply with the code of conduct. This is through thorough scrutiny and audit of the records and facilities, hence, if one violates the code of conduct, which warrants for an automatic disqualification of business relationship with them. The primary codes of conduct include ethics, health and safety, environment and management systems. The trade unions act and labor relations act , issues code of practice and practical guidance for services thought to be better in promoting and improving companies relations. Labor unions frequently increase the wages and compensations that companies offer to employees. At time’s compensation in wages may be way above the initial market rate (Philips, 2003). Nokia Corporation adheres to collective bargaining agreement, which is most important to workers who do not bother to increase their productivity, yet they still earn higher wages Marketing factors have been a cause of frustrations for many organizations; however, these factors always make the company not realize the expected returns on investment. Some companies may have dual and conflicting compensation practices while the company is still trying to curb the escalating cost that come together with the compensation strategies. The traditional base system uses the base wage or the salary, cost of living, labor markets evenly distributed among employees and individual performance bases for modern payment systems correlated with seniority. Traditional pay base systems establish the levels of pay on a narrow span with a regular increase annually. It may advocate for 3-4 % of pay increase annually usually meant for promotion cost of living and merit (Lawler, 1990). The tradition base pay is familiar to most of the people because it often a specified salary, a set of benefit package, with a specified schedule for increased merit. Traditional base of pay proves effective since it offers consistency and it is fair. However, this model can result to unintended or counterproductive results. Effectiveness of this system includes the provision of a base salary or wage and that the practice success influences pay. Nokia Corporation enjoys a number of advantages in using the traditional pay base. This model combines variable bonus payments with base salary depending on how the practice performs. Traditional base pay helps the corporation in controlling the operating costs and rewarding the best behaviors thus building unity among the stakeholders. In addition, this model suits a variety of payment structures. Traditional base pay allows self-management and innovations and it helps in breaking down of bureaucracy (Lawler, 1990). Moreover, the model facilitates centralized control in organizations, it is a useful tool for evaluating internal pay equity, it also facilitates the testing of pay scale competitiveness, and it has the appearance of objectivity. Work cited Hackett, T. J., & Dermott, D. G. (1999). Integrating Compensation Strategies: A Holistic Approach to Compensation Design. Compensation & Benefits Review, 31(5), 36-43. Lawler, E. E. (1990). Strategic pay: aligning organizational strategies and pay systems. San Francisco: Jossey-Bass Publishers. Phillips, L., & Fox, M. A. (2003). Compensation strategy in transnational corporations. Management Decision, 41(5), 465-476. Read More