Nokia is a leading mobile company that conducts its business globally. As any other prosperous company, Nokia provides its compensation services for either customers or employees. The basic principles of Nokia’s philosophy are to attract, motivate and retain the talented workers. In order to cooperate with experienced staff and get success in rapidly evolving and complex mobile communication industry, Nokia provides the proper mix of capacities and skills on a global basis. According to extremely complex market conditions, Nokia Company has developed an overall compensation strategy that is based on combined pay rates and short- or long-time incentives that give a competitive advantage to the total compensation package.
Brief History and the Key Factors of Nokia’s Compensation Strategy
Nokia Company was formed in 1868 on the basis of paper manufacturing mill in Southern Finland. Fredrik Idestam, the founder of a corporation, launched the huge mill and transformed it later into a world-known stock company. In the 19th century, Nokia was a developing and growing company. Exclusively, in 1960s, the company established the electronics branch that made Nokia a global partner in the mobile industry. Initially, Nokia developed radio telephones and other electronic devices for military purposes. However, the biggest Nokia’s achievement appeared in 1979, when the company created the world’s first international cellular network and launched later the first car phone. The company started a new era that continues impressing users till nowadays. The best example of this fact is that in 1997, Nokia Co. represented the Communicator that was considered to be much ahead of that time. Although the Communicator appeared eleven years earlier than the first iPhone, it supported such functions as fax, e-mail, massive display and a calendar. Some years later, the company started to produce devises that supported advanced web, text messaging, multiple color display, build-in camera and smartphone devices.
These electronic achievements made Nokia a global leader. By 1998, Nokia’s annual turnover has increased by 5 times from $9 billion to $43 billion. In fact, Nokia’s main rivals such as Apple, Siemens and Sony failed in predicting the global demand. However, nothing lasts forever. Indeed, after glorious 1990’s, in 2007, the company’s business began to rapidly go downhill. It depended on the fact that HTC had developed a new smartphone run by advanced Android operating system. In contrast to recent trends, Nokia chose to develop smartphones running on Windows Phone operating system (Satpathy, 2014).
Admittedly, the key points of compensation strategy that Nokia has developed include changes of control clause, the compensation of package consistent with market practices, and further payments expected from NSN. These payouts inherited the purchase the full ownership of NSN (Nokia, 2012). Therefore, Nokia has established the compensation strategy that is consistent with other market practices of similar companies. The major points of compensation strategy are the following:
- The company participates in long-term compensation programs based on quality, and the board of directors determines responding Nokia’s guidelines and policies. It depends on the quality Grand that Nokia has received in 2014;
- An annual workers’ salary constitute EUR 1 million;
- The incentive target comprises 125 percent of annual workers’ base salary. It is current value based on dominant performance against its particular targets;
- Customer’s benefits are in line with company’s policies and are applicable to the top management. Moreover, some of the benefits are applied on the tax basis.
As a matter of fact, the company has also a change in control clause. It defines potential severance advantages in case of change in control of the company. In fact, Nokia Co. busies itself with either compensation strategies or compensation-related challenges. According to the latest media messages, Nokia has made a false statement about a bonus package. Moreover, compensation-related challenges relate to shareholders’ interest and competitive packages needed to retain and attract leaders to the company. The other challenges are to grant stock options and significantly limit the use of restricted shares. Furthermore, the introduction of executive compensation that reflects the scope of company after the sale of business to Microsoft manifested itself as a challenge for the company as well (Atchison, Belcher, & Thomsen, 2013). However, the biggest compensation-based challenge was the change in control arrangement.
Nokia is a world’s known manufacturer of mobile phones and popular electronic devices. It provides many practices that attract customers’ attention and increase company’s profit. The company provides services of motion data collecting and the easy way of enabling them. Moreover, it promotes handy location services and supports necessary features for best user experience. Nokia used checklist, place monitor and check monitor to increase the popularity of its devices. Indeed, the best practice promoted by Nokia Company is the privacy of the system, and this function is strongly supported by privacy section.
The Impact of Nokia’s Compensation Practices
Nokia’s success is known worldwide. It is proved by its market share and financial performance. Nokia’s compensation program is the major reason why companies are rapidly evolving into mobile industry. The compensation programs were designed and provided to attract and motivate executive officers and stockholders that are driving industry’s leadership and Nokia’s success all over the world.
Nokia’s compensation program comprises competitive base payment rate and long- or short-term incentives that intend to lead to total emulative compensation package. As a matter of fact, the dominant objectives of Nokia’s compensation program are the balancing of stockholders’ and executive officers’ interests through long-term incentives that have got the form of equal rewards as well as the enticement and retention of outstanding partners (Satpathy, 2014). Moreover, the company balances rewards between individual’s and company’s performance. Therefore, Nokia gets variable performance-related compensation in order to achieve either short- or long-term goals.
The competitiveness of Nokia Company and its compensation philosophy are the key factors that determine compensation practices. It goes without saying that the compensation practices are closely connected with HR compensation. Therefore, it is compulsory to pay high attention to HR compensation practices as well. The HR practices significantly impact on corporate financial performance, productivity, and employee turnover (Atchison et al., 2013). For instance, Nokia’s compensation practices played a vital role in promoting the company to reach its 40 percent share of the global mobile market. Accordingly, the industry has profit margins of 25 percent at times of changes and competition.
The impact of policies provided by Nokia has either positive or negative consequences. It is evident that the compensation policies have positive impact on employee performance. The other positive effect of Nokia’s compensation philosophy is the fact that it is directly connected with the company’s performance and is supported by the profit delivered to stockholders. For example, the amount of compensation of Nokia Leadership Team is about 75 percent. Therefore, the compensation is earned only when the company warrants it. Admittedly, the definite compensation practice has its benefits either for executive officers or Nokia Company.
Laws, Labor Unions and Market Factors that Affect Nokia’s Compensation Policies
There are labor unions, laws, and different market factors that affect company’s compensation policies. As a matter of fact, the USA Department of Labor enforces and administers about 200 federal laws that control the compensation policies. These laws are provided in order to protect the health benefits, wages, employment rights, safety, and retirement security of workers. The majority of international companies provide an excellent supplement to these laws because of their status and standards.
Providing its compensation practices, Nokia uses various local, state, and federal tax and employment laws. As Nokia is an international company, it must perform with regard to international governments and their legal frameworks. However, the Fair Labor Standards Act is the most significant piece of legislation in every country. The reason is that this act confirms the five major laws that determine compensation practices. Thus, the act controls the equal payment, child’s labor, overtime payment, and recordkeeping requirements (Satpathy, 2014). Additionally, in the USA, there are implementations of unemployment benefit programs, equal employment insurance, workers comp, social insurance programs and laws proclaimed by the country to protect workers.
The Consumer Credit Protection Act controls wage garnishment in collaboration with the Employee Retirement Income Security Act. Moreover, the ERIS Act regulates the way the pension programs impact on compensation issues. In legal environment, the labor market factors and federal laws are the external factors that impact on compensation philosophy of the company. Thus, the organization factors and policies are expected to be internal factors that directly affect company’s compensation policies. The legal environment of the company is a pledge of usage of fair labor standards and acts, providing the possibility to issue the compensation policies (Arthur, 2012).
Workers’ compensation varies from state to state and from country to country, depending upon the current laws. However, there are international standards for employees working in the international companies such as Nokia. In order to transform the standards into legal issue, they were determined in international compensation laws. The goal of employees’ compensation laws is to provide insurance programs for workers who suffered in the manufacturing industry. Therefore, the benefits are usually based on employees’ wages, maximum and minimum payments, total claims predicted by laws, and time limits for benefit payments.
Respectively to the location of the business, Nokia provides reforms that respond current federal laws in the definite country. For example, Nokia’s corporate compensative practices are based on governmental regulations and are proclaimed in Nokia’s Articles of Association, Corporate Governance Code, and some other mandatory corporate rules of the stock exchange. It is evident through the fact that Nokia’s corporate governance regulations are mandatory for foreign private sectors supported by New York stock exchange. In fact, this is the main principle of stockholders’ compensation policy. Accordingly to Health Care and Affordable Care Acts signed by President Obama in 2010, Nokia provides a compulsory health insurance program for each worker. Moreover, the company provides free education services for its employees all over the world.
The labor unions are legal representative institutions that support workers’ interests. Nokia Company satisfies the employee labor rights and provides the Code of Conduct for their realization. The code is supported by international laws and regulations such as International Labor Organization Convention and United Nations Declaration of Human Rights. According to the Code of Conduct, Nokia do not use child labor, provides the employees with adequate time off, compensations and benefits, treats workers with dignity and respect and allows freedom of associations and labor unions. It means that employees may join or refuse to join to associations and labor unions and bargain collectively as it is permitted by law. For instance, in India, about 4000 Nokia employees were protesting against tax claim. In April 2014, Indian Nokia employees were demanding their salaries were devoid of this tax.
The major market factor that impacts the compensation policy is the annual company’s income and general profit. The market factor is considered to be an external factor; thus, its impact is rather unpredictable than forecasted. For example, in 2005, Nokia Company was a sales leader in the mobile industry, and each employee has got the 5% bonus of their annual income.
Value of Traditional Bases for Pay at Nokia Company
According to Fair Labor Standards Act, the job is divided into nonexempt and exempt. Nokia Company uses this distinction in order to establish different human resource policies. The Department of Labor released some new regulations that simplify the process of testing and determining employee’s exempt status. According to such Nokia standards, the employees have to pass the salary basis, salary level, and duties tests. Consequently, the analysis of these tests displays employee’s sale skills, computer, creative, and learned professionalism, administrative and executive attainments (Satpathy, 2014).
While counting the compensation amount, Nokia Company handles a variety of different elements that form the final result. These factors are overtime hours, workweeks, wage rate, compensatory time, and record keeping.
The effectiveness of traditional legal basis in Nokia Company is exemplary. The company further examines employees with the help of different tests and interviewing. The HR professionals determine abilities and skills that the definite person obtains. On the one hand, it seems to be a waste of time. However, on the other hand, these efforts prove their professionalism. Such investigating process helps the management save company’s efforts, time and money in the future choice and education of the definite worker (Arthur, 2012). Therefore, Nokia Company complies with Equal Pay Act of 1963, Equal Employment Opportunity, Affirmative Action, Comparable Worth, and tax laws when it hires the workers.
The traditional base pay in the Nokia Company is dependent on few significant elements. Before one starts to observe traditional payout process in Nokia, one must take into account the company’s credo is ‘we pay for performance’ (Nokia, 2012). Despite regular set salary, each employee gets bonuses, compensation or penalties, depending on their performance. Labor and social issues in Nokia Company are dependent on the employees. Therefore, the key issues of successful business management include company values, employee satisfaction, inclusion and diversity, development and training, performance and rewarding, safety, health and well-being, human rights and ethics, and labor conditions. Admittedly, the success in these areas offers opportunities and mitigates company’s risks. The employee motivation and satisfaction are equally important components of payment constructing process.
Nokia’s compensation framework was designed to enable the company to effectively perform previous advanced strategies. Moreover, the main goals of the company’s compensation principles are to foster the company’s culture and promote the long-term incentives and sustainability of either executive officers or stockholders. The compensation philosophy of the company mainly aims to balance the amount of rewards between company’s and individual’s performance. However, the principles of Nokia compensation incentives are considered to be the incorporate measure that is directly dependent on the execution of the compensation strategy. The compensation levels and practices provided by Nokia Company determine the competitiveness of executive compensation. Admittedly, the major principle of Nokia’s compensations is that the philosophy of compensation program manifests itself as an important part of executive’s compensation package and is directly tied to the company’s performance. Moreover, this principle is connected with the value delivered to stockholders. Nokia’s compensation program is considered to be successful all over the world. Many global advanced companies invite Nokia’s compensation strategy developers to share their experience.