Business Today

When salaries turn elastic

Manasi Mithel | Print Edition: March 17, 2013

This is the time of year when companies are on the brink of announcing increments and promotions, along with disbursal of the variable component of salaries. The final reviews of employee performance are usually completed in February and the announcements begin from April. Human resource consultancy Aon Hewitt in its recent 2013 Annual Salary Increase Survey has forecast average increments of 10.3 per cent for the year, with key talent getting 14.1 per cent - one of the lowest in a long time.

Not long ago, the concept of 'variable salary' hardly existed in Indian corporate houses. Today, most employees, especially those at managerial levels, find a part of their compensation - which can vary between six and 18 per cent of annual income, depending on the sector - listed as variable pay. Of the 410 companies figuring in a November 2012 survey by global human resource firm Hay Group, 85 per cent said they had introduced a short-term variable pay component in employee salaries.

But on what basis is the percentage of variable pay that an employee gets, disbursed? What are the parameters on which she is judged? Earlier, most company managements remained mum on the matter.

The bulk of employees were never privy to the company's appraisal process. "You got a variable pay and you had no clue why or how you got it," says S.Y. Siddiqui, Chief Operating Officer - Administration (HR, Fin, IT, Company Law & Legal), Maruti Suzuki India.

This, too, has changed. The appraisal process has evolved into a performance management system (PMS) at most corporate houses - including Maruti - and is freely shared with all employees. Companies define key competencies needed for different functions. They also keep employees upto-date on what targets are expected of them through the year, providing them quarterly or mid-yearly feedback and reviews. "There are no longer any surprises at the year-end reviews," says Amogh Deshmukh, Head of Sales and Marketing at talent management consulting firm Development Dimensions International.

Many companies are recent converts to PMS. The Mumbai-based Wadhwa Group, for instance, a leading real estate company, did not have a structured PMS in place until last year. "We conducted an employee engagement survey," says Sunil Dutt, Head-Human Resources, Wadhwa Group. "Our own people told us they wanted things to be more target and performance driven."

Even the Rs 5,000-crore Emami Group, with diverse interests, introduced performance linked variable pay for all its managers only last year. "We didn't have a variable pay option for all our managers before this," says N. Krishna Mohan, CEO (Sales, Supply Chain and Human Capital) at Emami.

This year there is yet another change - companies are putting added emphasis on soft skills and behavioural competencies while judging performance. "All large businesses have realised that it is behavioural competencies which will help them get ahead," says Deshmukh, the talent consultant. "It is not just the tangible KRAs (key result areas) that matter." Dutt of the Wadhwa Group agrees. "In our company, the variable compensation employees get will be based on both performance targets and behavioural targets in the ratio 60:40," he says.

Human resource veterans also maintain that the PMS should be a two-way street, with employees too getting a chance to assess management behaviour. "You can't blame employees for poor business environment. The assessment process should be sensitive to employees and not just be advantageous to the business," says Siddiqui of Maruti Suzuki.

Of course, the variable pay received does not solely depend on individual performance, the company's financial results matter too. The previous year was a tough one for automobiles and Siddiqui, for instance, does not expect Maruti to disburse variable pay at all this time. Employees across sectors are naturally tense about the forthcoming increment announcements.

Saurabh Goenka, a senior executive (Finance), with one of India's largest software services providers, who prefers not to reveal his surname, is more optimistic than the Aon Hewitt survey, but only marginally. Salary hikes will be around 12 to 14 per cent this year, he believes. "Our appraisals will begin in June, but already people have started becoming more visible in the office. Fewer people are going on leave now. I have started checking my targets for the year to ensure I'm on track," he says.

Hikes this year may not even take inflationary pressures into account. "Companies are looking at merit based increments now. This takes individual and company performance into account and could be lower than what people need because of inflation," says Muninder Anand, Information Solutions Business
Leader at Mercer India.

HCL Technologies has a separate review process for high performers. "We ensure we provide them feedback more frequently and consider them for deployment in larger and more complex roles than those they are handling so as to align their career to organisational growth," says a company spokesperson.

This year companies will stick to industry benchmarks on salary increments. "From the assessment of the last three to four months the overall market will be tough with increment lower, modest and a little tight," says Siddiqui about the automobile sector.

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