INSTRUCTION: ANSWER ALL QUESTIONS. (25 MARKS)

Sanctuary Tech. Sdn Bhd is a new technology start-up with one of the highest stock valuation on Bursa Malaysia last year. Its current pool of employees are highly motivated and are mostly between the ages of 25 and 35 years old. In order to attract these high-performing employees, the company currently pays higher salary than the market rate. Moreover, incentives and stock ownership make up a greater percentage of total compensation. However, paying more than its competitors has eaten into the companys profits. As such, its investors have complained about the high labour costs and advised the company to pay an overall lower salary to drastically reduce the labour costs. The company has agreed to this and adopts a lag-level pay policy but is worried that the policy may affect employee productivity.

1. Based on the above scenario, what should be the objectives of external competitiveness for the new compensation system at Sanctuary Tech. Sdn. Bhd.? (2 points @ 4 marks)

2. Besides advices from investors, what factors shape the external competitiveness of Sanctuary Tech. Sdn. Bhd.? (3 points @ 6 marks)

3. What are the consequences of the new pay level policy at Sanctuary Tech. Sdn. Bhd.? (4 points @ 8 marks)

4. How could the company improve its ability to increase productivity among its employees with the new (lag-level policy) compensation system? (4 marks)