You are holding your revised pay cheque; your feelings alternate elation and dilemma. Your performance has been appreciated but the rewards promised do not seem to reflect in the new salary slip. The basic salary has gone up marginally and so have the house rent and conveyance allowances. The hefty bonus, quartely incentives, special rewards all seem to be missing. Or, are they? Maybe you have not understood the changed structure of the annual increment. The days of one time, once a year hike are fast disappearing.
Salary raise in instalments is becoming the order of the day. It is not that the companies do not want to compensate, it is just that they don’t want to lose you—at least not immediately after giving you the raise. Staggered disbursement of pay hike is being adopted by companies that want to hold on to their talented staff. Thus a major chunk of the performance bonus may come your way six months after the increment letter reaches you. DECODING INCREMENT |
| Performance bonus: A hefty sum for the star performers but could be given in instalments or almost six months later. |
| Variable pay: A promised reward for future performance built into the current hike. You may not get the full amount promised. |
| Non-merit hike: Takes into account your designation, job role and salary structure. A regular monthly hike for all. |
| New pay scale: If a promotion also comes your way, the salary is restructured. |
As the war for retaining talent intensifies rewarding individual effort based on performance is the most potent business tool available with companies today. And each is using a novel way to hold on to the talented employees while keeping a check on their total outgo too. Some heads under which salary hikes are now given to employees are:
Individualised rewards: An increasing share of pay raise happens under this category, which reflects the individual’s performance not the company’s. This is the biggest human resource tool in creating a pay-for-performance culture. Under this category almost 50% of the increment planned for the employee may be part of the annual bonus. Some companies stagger the bonus payment over the months. This may benefit people paying heavy EMIs.
Employee stock options (Esops), though no longer a popular incentive with large multinational companies, is beginning to get quite popular with Indian companies. According to Sandeep Chaudhary, joint leader of Hewitt’s Talent and Organisation Consulting Analytics Practice in India, “Riding on the booming stock market, organisations in India are increasingly using equity-based grants to help deliver increased value to employees. However, fringe benefit tax (FBT) on Esops or any equity-linked incentive will prove a dampener for organisations that were just beginning to use them as a strategic rewards tool to manage compensation and drive retention.”
The non-merit hike: This takes into account your designation, current role, experience, size of the team you lead and your pay scale. This part of the increment will come your way as per the company guidelines and may not be related to your performance directly. This is the minimum amount due to you. The additions under this category are made to your basic, HRA and conveyance and would reflect directly in your taxable income. You will get them every month.
New Pay Scale: If an employee has been promoted then his entire salary structure is revised to include the new pay scale. Add to this the increment that’s come his way. Thus moving from one category to another, e.g. middle management to senior management, impacts the basic pay, HRA and conveyance allowance and changes the pay band completely.
Variable pay: It is as uncertain as it sounds. Variable pay is a promised reward for future performance but built into your current increment letter. What percentage of the promised amount will come your way depends on the performance of your division or group and is open to regular appraisal of pre-set targets. If your group fails to meet the target, the company may accordingly reduce the amount of variable pay to be received by you in that period. As per the 11th annual salary increase survey conducted by Hewitt Associates, the use of variable pay as a strategic lever continues to be an important means of retaining talent by most companies. Variable payout awarded by companies in 2006 was 16.5% of their payroll and is expected to rise to 21.4% in 2007. Almost a third of the pay hike is being allocated to this category, which may be awarded every quarter.
Some companies allow a few employees to be part of their profit-sharing pool. The employees have the same goals and are rewarded equivalently if the company does well under the profit-sharing plan. This also falls under the variable pay plan.
Apart from increments under the cash category, perks can take the form of vehicles, paid family vacations, club memberships, grocery coupons, higher education sponsorships, etc. Some companies let their employees convert these perquisites into cash. If one doesn’t want the vehicle, then a certain sum is added to the monthly salary or a certain percentage of the holiday package can also be converted into cash.
The trend of such innovative increments reflects corporate India’s desire to break the monotony of a fixed percentage increase in the basic pay. They add the tinge of anticipation to an otherwise unexciting pay hike. For instance, employees can be pleasantly surprised if a more sensitive human resources division gifts a new car just when someone was planning a loan to buy one.
More importantly, multiplicity of heads complements the goal-oriented work culture that many industries are eager to implement. This means that a team is assigned a project to be completed within a specific time frame and hikes are structured accordingly. So, it is more convenient to gift wrap a holiday in Hawaii in addition to the variable pay after a particular task is completed successfully. Consequently, the basic, HRA and conveyance elements of the pay slip do not bloat up. An expert in compensation metrics points out that this benefits the employees by reducing their tax burden too.
The bigger picture says that India Inc is moving towards a performance-based reward system. Compensation packages are the most effective medium of communicating the organisation’s expectations and orientation towards increments according to achievement of targets.
However, these policies are applicable only to good performers. If an employee is a drone in the organisation, a staggered increase in pay may not be a possibilty but nonetheless, a minimum raise of 7% over the previous year’s salary is still essential to act as a bulwark against the surging inflation rate or else pay hikes become self-defeating.
However, remember that increments needn’t always come in cash or kind. With better performance, more experience and loyalty, the company might give you far more leeway in such matters as greater creative space to function, more latitude for experimentation, flexible working hours, use of gymnasiums or coffee shops. So don’t forget to consider these intangibles before deciding to switch jobs because of unfulfilled promises in your April-May salary slip.
