Compensation in Sime Darby Berhad from payroll perspective

1 Introduction Employee compensation is define as all form of pay going to employees which arising from their employment and could be in the form of direct financial payments and indirect financial payment (Dessler, 2013, p. 378)[1].

There are two basic ways to make direct financial payment to employees based on increments of time or based on performance. This concept of payment method is applied by Sime Darby Berhad. Normally, Non-executive employees mostly consist of Blue-collar, operation workers, and clerical workers are paid based on time-based pay method.

Non- Executive workers normally required to work overtime. This is due to cater with the high workload during specific time. For example, normally clerical worker need to work overtime at the end of the year in order to close the account or to finish any unsettled work before they start new task at the beginning of the year. Overtime work is normal in Sime Darby since the workload among Non- Executives workers seem inconsistent throughout the month and year. The workload could be very low at the beginning of the month, but it turn to be so much work to do at the end of the month.

For example, compensation team under Human Resource Department will be at ease at the beginning of the month because all of business units will send all compensation instruction or they called “movement” in the middle of the month. Therefore, started from middle of the month on ward compensation processing team will get busy. During this peak hour, some of compensation processors have to stay back until late night in order to catch the dateline based on schedule which is in accordance to compensation processing procedure.

This additional working hour perform by this office workers need to be paid in the form of overtime payment beside monthly salary. This is one of example related to increments time-based performance as mentioned earlier.

In contrast, sales person especially in Motor Division compensation is paid based on performance. Despite the salary pay to sales person, commission on the volume of cars sales is also taking into account to compensate the sales person in Sime Darby Motors Division. Nature of work between clerical workers and sales person in Sime Darby Motors is almost different. Sales person involve in clerical work is very minimal. The main task of sales person is to sell car as much as possible irregardless of how much time they spend. Some of the sales person has to work in the showroom for more than 8 hours a day and some of them have to come to work on Saturday, but all the additional time they spend in the office will not be counted for their compensation.

However, all executive including middle level management up to top level management of Sime Darby Berhad in general compensation is paid based on their performance but not based on how much time they spend in the office. Some of them have to travel abroad and domestic frequently for business purposes. The scopes of work for top executive are totally different from those we mentioned earlier. Top executive deal with corporate mission and vision which they need to accomplish within their term of employment. Their task and responsibilities very broad encompass organization performance as a whole. Therefore, overtime pay, commission, shift allowance, and other benefit which meant to compensate other ordinary employees is not suitable for top executive level. One method fit all is not applicable for compensation in Sime Darby and we believe in other organization. Without proper policy and methods it will not good enough to retain people in organization and persuade them to perform as expected by the organization.

1.1Company Background The company founded 200 years ago by English planters. First involved in rubber plantations but later on changed to palm oil plantations. The name of Sime Darby is in conjunction of European businessmen William Sime, Henry d’Esterre Darby and Herbert Mitford Darby whom established Sime, Darby & Co. in 1910[2].

Sime Darby is considered as the world largest certified sustainable palm oil. Consist of 5 main core business such as Plantation, Property, Industrial, Motors, Energy and Utilities. Sime Darby is a public listed company with market capitalization of RM57.09 billion as at 7 November 2013[3]. Based on 2013 annual report, Sime Darby Berhad gained revenue approximately RM46 billion and earn profit approximately RM4.7 billion.

The company operate the business around the world from eastern to western which include approximately 20 countries. Sime Darby Berhad employs more than 100,000 people to work in this organization[4]. The cost of employees as stated under operating and expenses is equal to RM4.7 billion.

As a whole Sime Darby Berhad is dealing with huge amount of people in organization which includes local Malaysian workers and other workers around the world. In term of compensation, Sime Darby Berhad has to cope with a variety of term and conditions based on rule and regulations set by different countries. However, we will focus on compensation that involve with Malaysian workers which is more accessible for information and most likely relevant to our context.

2 Compensation in general Employee compensation includes all forms of pay going to employees and arising from their employment (Dessler, 2013, p. 378)[5]. In general employee compensation includes Salary, Wages, Allowances, incentives, and anything related to income received by the employees.

Compensation is bound to law and regulation of the country. Different countries apply different law and regulation on compensation. For example, Malaysian government set RM900 per month as a minimum wage for private sector in Peninsular Malaysia and RM800 per month in East Malaysia[6].

In general Sime Darby Berhad also bound to Malaysian employment law in handling compensation of employees. Since Sime Darby Berhad consists of 5 different business entities, therefore the compensation policy of each entity is slightly different from one to another. For example, the bonus policy of Plantations business might be different from Motors business. Minimum bonus for Plantation business is equivalent to minimum 6 months salary; however, Motors business might set its bonus to employees’ minimum at 3 months salary.

The date of salary payment also varies from one entity to another entity. For example, Plantations business chose to pay on every 25th day of the month, in the other hand the rest might pay salary at the end of the month. As a whole, we found out that in Sime Darby there is no standard policy on compensation apply to all employees. This is due to nature of the company which is large in size and situated in different location around Malaysia both in Peninsular and East Malaysia. This factor affects the company to adjust its compensation policy to suite with local requirement and people in that particular area.

Basic components of Employee compensation [pic] Employee compensation in Sime Darby Berhad in general is not only consisting of basic pay or salary. It include many components depend on policy of each division and even business unit. Basically, despite basic pay, employees also will be compensated with overtime payment, allowances, commission, and other benefits.

All these components are considered as total employees’ gross compensation. Employees will not be paid based on gross compensation amount, but only after all related deductions components are taken into account in order to derive the net employees’ compensation.

Basic component of deductions from employees’ compensation [pic] From gross compensation amount, it is compulsory for the company to deduct from employees’ compensation for statutory payment such as Social Security Fund, Provident Fund (Employee Provident Fund), and Tax Department. However, deduction for loan payment to banking institutions is depending on employees’ decision. Whether they want to deduct from their salary and transfer to the bank or they themselves manually manage for the loan payment.

In Sime Darby Berhad, there are many deductions components beside what we stated in the digram such as Tabung Haji deductions, and Zakat Deductions which is optional to employees.

3 The Compensation process before ERP SAP Normally before the implementation of ERP SAP all business units in Sime Darby will have their own HR Department to handle all related issues such as hiring, payroll, and other related HR works.

For example, employees will fill the OT form and submit it to HR people for further payment process. This process also includes the allowances such as meal allowance, travel allowance, and etc. Normally, all the transaction is manually monitored by the HR Department based on the form submitted by the employees. In some cases all the work from compiling OT, allowances, medical claims, and etc until payroll processing will be handled by one HR person only.

Some business units apply the stand alone software program for payroll processing. Some of other business units which is smaller in term of employees’ headcount will process the payroll by apply the Microsoft excel program to perform payroll calculation. Then use the software provided by the host bank company to generate bank files for the bank to use it for money transfer to employees.

The salary date also varies from business units to other business units. Some will get salary on 20, 25, and end of month i.e. on 28, 30, or 31 of the month. Since the salary date is different among business units, hence the cut off date for the latest information for payroll such as salary increment, new salary for new position, OT, allowances, and etc to be updated for calculation also will vary from one another.

Some will require the cut off date (the last day within the month to accept OT, allowances, claims, and etc to be process for payment) for 1 week before salary date, and some will require 2 weeks before salary date. After salary has been transferred to employees, the next thing to do is printing the pay slip to be distributed to all employees. The pay slip will print by based on the format set by the program for those business units that adopting software program in their work. For those business units that not yet utilizing software, they have to prepare the pay slip manually.

Next, after pay slip has been distributed, HR Department will prepare the tax report to the tax department, Social Security Department, and Provident fund (EPF for private company). The basic information include in the report are the name of employee, amount paid to tax department, amount contributed to SOCSO, and amount contributed to EPF both employee’s and employer’s amount.

Finally, the last job for HR Department for payroll process is to submit the yearly report to those three governmental bodies as mentioned earlier. This time the report will be the summary of amount paid to those bodies for 12 months period ended at 31 December every year. Next thing to do is to provide yearly income tax report to employees that summarized the amount of income received by the employees and amount contributed to those government bodies which we call EA form in Malaysia. Note: all the payroll process related to document and numbers which require delicacy in term of record keeping and reporting. Without delicacy or accurateness in payroll processing will cause a lot problem to HR Department and also organization as a whole. When the number or amount appear in the report not accurate, normally the report will be rejected by the governmental bodies and in some cases later on it will lead to fine and penalty. Secondly, if the number is not tallying it also leads to the delay of report submission to employees and government bodies. This situation considered as normal before the implementation of ERP SAP. However, after implementation of ERP SAP the level of accuracy is increase and less stress to payroll processors (error still happen but mostly human error not system error) The basic flow of payroll processing

4 The process of compensation by implementing SAP
[pic]
There are three main group of people in Sime Darby Berhad involve in compensation processing which include Payroll processor, Data and Benefit team, and Information technology team. Logically why compensation processing is not allowed to be done by one team is because of security matters. Just imagine if payroll processor is solely authorized to perform all tasks. There is high probability that person will mistakably keying in wrong amount of compensation. Or he or she will key in higher amount of their own salary.

4.1Payroll processor
Based on the process flow as given above, payroll processor is responsible to check the headcounts by processing payroll for that particular month for the purpose of finding any discrepancy or some unusual result. If there is a discrepancy of employee headcount, then payroll processor needs to inform data & benefit team to update or correct the data in SAP in order to payroll processor to proceed for further process.

If there is no discrepancy, payroll processor will run the system to calculate all related compensation and will generate the report. After checking and confirm the result is correct payroll processor will execute the bank transfer transaction; provide the report to finance department; and generate pay slip to distribute to employees.

If payroll result is incorrect, payroll processor needs to identify what type of errors is happening. If error is related to data, then payroll processor needs to inform data & benefit team to amend it in the SAP system. If payroll processor identifies that the error occurs due to system. Then this problem needs to be informed to IT team to fix the system.

4.2 Data & Benefit team
In term of compensation in Sime Darby Berhad, data and benefit team is very vital in determining the reliability and accuracy of compensation among employees in this company. They are responsible to key in right number of salary, overtime, bonus, medical claim, date of hiring, date of separation, family detail, and etc. All these information are very important in order to make payroll accurate and make employees happy with compensation that they receive. Normally, wrong date of hiring will affect the amount of salary pay to employees. If date of hiring is late one day, this will reduce amount of employees’ salary and vise versa.

4.3 Information Technology Team
Since Sime Darby Berhad apply technological product both software and hardware in assisting the company to achieve reliable compensation processing system. IT people seem to be necessary to help people in organization regarding IT issue. Normally, when the system breakdown IT team has better understanding on the system problem than other team to explain what is the problem about in IT language. All the process of compensation is related to software and hardware technology now. Once the system down without IT people compensation will take longer time to be solved since the rest are unable to diagnose the problem as good as IT people.

4.4 Post Payroll activities
[pic]
The work of Human Resource Department does not stop until crediting financial compensation to employees’ account or providing payroll check, but the works of Human Resource Department still continue with post payroll activities. Compulsory report in detail based on specific format need to be prepared in order to submit to statutory bodies such as SOCSO, EPF, and Tax department.

Human Resource Department also responsible for pay slips printing and distribute to the right employee at specific date which vary from division to another division. As a whole, in term of employees’ compensation involve with many activities which is not simple as we might expected. It involve with a lot of administrative works encompass both softcopy document and hardcopy document. It also involves with many parties both external and internal parties as we described in the above diagram.

5 Overtime in Sime Darby Berhad
There is no standard way of calculating overtime in Sime Darby Berhad. For example, overtime calculation is calculated differently between operation department, maintenance and administration department in one of its business unit. Overtime will be paid to Non-Executive employees only based on different rates as shown by below matrix table:
Operation Department OT Matrix
|Conditions for Operation Department |OT 1.5 |OT 2.0 |OT 3.0 |OT Meal Allowance |Traveling Reimbursement|
| |Unit:hour |Unit:hour |Unit:hour | |Actual mileage or taxi |
| | | | | |fare with receipts |
| | | | | | |
| |Normal working|OT |Actual OT hours | | |
| |day | |@ 1.5 rate | | |
| |Unit:hour |Unit:hour |Unit:hour | |Actual mileage or taxi fare|
| | | | | |with receipts |
| | | | | | |

|Working day |5:30pm-12:00am |Actual OT hours @ 1.5 hourly rate | | |RM6 for OT performed for 4 hours above | | | | |12:00am-8:30am | |Actual OT hrs @ 2.0 hourly rate | | | | | |Saturday |8:30am-12:00am |Actual OT hours @ 1.5 hourly rate | | |RM 6 for OT performed for 5 hours above |Actual mileage from residence to office up to maximum of 30km or taxi fare with receipt up to maximum of RM25.00. Only eligible for on call non executive employee. | | | |12:00am-8:30am | |Actual OT hrs @ 2.0 hourly rate | | | | | |Public Holiday |First 8 hrs | |Actual OT hrs @ 2.0 hourly rate | | | | | | |Exceed 8 hrs | | |Remaining OT hrs (total OT hrs - 8) @ 3.0 hourly rate | | | |
These two departments are different in term of overtime calculation due to the different of operating hour of each department. Operation department work based on shift in order to cater with 24 hours operation requirement. Where as maintenance and administration department work from 8.30 in the morning till 5.30 in the evening and overtime work will be take into account after this normal working hour.

Sime Sirim overtime Matrix
Condition |OT 1.5 |OT 2.0 |OT 3.0 |OT 3.0 |OT 4.5 |Shift Allowances | | |Unit:hour |Unit:hour |Unit:hour |Unit:hour |Unit:hour |RM 4.50 per time | |Normal Working day |OT |Actual OT hours @ 1.5 rate | | | | |Only shift 04.00 to 12.00mid night eligible for Shift allowance= RM4.50 | |Rest Day |8 hrs or less | |Actual Ot hrs @ 2.0 rate | | | | | | |Exceed 8 hrs | | |Remaining OT hrs (total OT hrs - 8) @ 3.0 Hourly Rate | | | | |Public Holiday |8 hrs or less | | | |Actual Ot hrs @ 3.0 rate | | | | |Exceed 8 hrs | | | | |Remaining OT hrs (total OT hrs - 8) @ 4.5 Hourly Rate | | |
In Sime Sirim one of Sime Darby business unit also has different rule of calculating overtime payment to employees. As compared to previous two types of overtime matrix, Sime Sirim offer higher overtime rate on public holiday which is at rate 4.5 as compared to rate of 3.0 as stated in operation, maintenance and administration department.

As a whole in term of overtime payment, Sime Darby Berhad is applying different term and condition for overtime matters. This is due the nature of each business units and their departments are different in term of working hour, location, and type of product or services. For example in term of public holiday; if location of the company is in state of Selangor the company need to calculate overtime based on public holiday in this state which is different from other states. For example the birthdays of Sultan for each state are different from one another. Therefore, overtime calculation is bound to this factor otherwise it will violate term and condition set by company and local employment law.

5.1 Overtime processing flow
Firstly, employee needs to complete the overtime form provided by the company. All detail such as time of overtime started and ended. Employee also must identify whether overtime occurred on Normal working day, Rest day, or Public holiday. Most importantly all the overtime claim form must be submitted to authorized supervisor or manager for approval in the form of signature at the provided section of overtime form. Next thing that employee needs to do is submit this form to division human resource. The cut off date or dateline to submit overtime form is normally by 7th of every month.

Division HR will scan this overtime form and the scanning output will be send to central human resource office know as Global Services Centre(GSC) Human Resource (HR) for further process. From this point Data and Benefit team in GSC HR will update the overtime data in the SAP system. If there is no discrepancy, payroll processor will further the process for payment on salary date which normally set on every 25th of each month. All the process can be referred to below diagram:
[pic]

6 Compensation Policies
Nomination and Remuneration Committee (NRC) is considered as the main people in Sime Darby Berhad whom determine compensation matter as a whole in Sime Darby Berhad. NRC proposed three main factors in determining employees’ salary which includes[7]: 1. Performance of employees. 2. Consumer price index. 3. Benchmarking.
In term of bonus payment, based on two main factors depending on employee’s performance and the companies performance as a whole. Beside monetary compensation, Sime Darby Berhad also offered indirect financial compensation such as[8]: 1. Employer’s provident fund at 16 percent for Malaysian operation; 2. Outpatient medical and hospitalization coverage for employees and family members; 3. Interest subsidy on housing loans; 4. Financial assistance in furthering your education; 5. Motor Vehicle Loans; 6. Annual Leave averaging 22 days per year.
Compensation in reality is much more than salary or monthly allowances granted in monetary form to employees, but also benefit in term of health care benefit, retirement options, flexible schedule, paid time off, comfortable working environment, and etc which subjective as compared to monetary compensation[9]. Compensation in Sime Darby Berhad seems to apply non-monetary and monetary compensation to compensate employees. We believe that other organization also might have the same policy by applying both monetary and non-monetary compensation in order to make organization attractive and worth to work for.

7 Conclusions
Sime Darby Berhad employed approximately 100, 000 numbers of people worldwide. Consist of variety of positions encompass from low level employee to top level executive. All of them bound to different pay scheme based on their qualification and their responsibilities. People in organization will perceive on their compensation differently based on their expectation.

Non –Executive employees may expect company to pay them based on time that they spend in order to make the work accomplish. Executive may expect company to pay them based on skill of management that bring about department achieve target performance. C.E.O might expect company to pay them based on his or her charismatic and ideas that bring about success to the company as a whole. The price to pay for their effort is varying from one to another.

Compensation is not about paying the money to employees alone, but a lot of factors need to be considered in order to make compensation worthwhile to them. Compensation should not be compensated lower than other company which involve in similar industry, with similar size, and similar performance. Otherwise, this will lead to turnover, lack of motivation, underperformed, and other negative consequences which lead to failure in achieving overall performance goals.

Compensation involve with huge amount of money. Billion of dollars spend to pay for employees’ compensation. What we discovered here is that cost of compensation is not only to pay for employees’ compensation, but also cost of having an efficient technology and people to process a reliable, consistent, and accurate related compensation matters. ERP SAP has been adopted to help Human Resource people to produce accurate compensation result and consultants have been hired to assist for this system implementation. Many training has been conducted to make HR people ready for this system. Compensation is not only considered as an expense, but in this case it considered as an investment to achieve better image by having a better system to serve its employees.
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[1] Dessler, G.(2013). Human Resource Management. United States Of America: Pearson Education Limited.
[2] Simedarby.(2013). The Sime Darby of today is founded on centuries of heritage. Retrieved from http://www.simedarby.com/History.aspx
[3] Simedarby.(2013). Corporate Structure & Information .Retrieved from http://www.simedarby.com/Corporate_Structure_and_Information.aspx

[4] Simedarby annual report 2013 page 93.
[5] Dessler, G.(2013). Human Resource Management. United States Of America: Pearson Education Limited.
[6] Meikeng, Y.,& Sukumaran, T.(2012). Minimum wage to be gazetted July 1; effective Jan, 2013. Retrieved from http://www.thestar.com.my/News/Nation/2012/06/13/Minimum-wage-to-be-gazetted-July-1-effective-Jan-2013.aspx

[7] Sime Darby Berhad. Annual Report 2013. p 72.
[8] Our Reward and Benefits.(2013). Retrieved from http://www.simedarby.com/Our_Rewards_and_Benefits.aspx
[9] Total Compensation (Salaries & Benefits).(2012). Retrieved from http://www.dop.wa.gov/COMPCLASS/JOBCLASSESSALARIES/Pages/TotalCompensation.aspx

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Approved movement • Bonus • Salary incremental • Allowances • Claims & etc • OT & etc

HR Department • Payroll processing

Request by
Marketing
Finance
Operation
HR
IT

Report to Finance

Submit statutory report • Tax • SOCSO • EPF

Payment to employees and distribute pay slip

Approved by the authorized person on the figure