As the appraisal season draws near, India Inc is busy reworking compensation packages to increase the variable component at a time when the future is tense.
Most companies see the next few quarters as a period of uncertainty and are trying to shift costs from fixed to variable. The idea is to remain flexible and not get committed too early, especially with costs.
Pharmaceuticals major GlaxoSmithKline says salary is an issue and it has to be linked to the employee’s productivity. “We have streamlined it largely in terms of making it more market-focused and making it more cost-to-company based. We have restructured our variable pay, which focuses on financial measures, value drivers and individual contribution,” says Ronald C Sequeira, executive director, GlaxoSmithKline.
On average, variable pay now forms 20-25 per cent of compensation. That could go up to as much as 50 per cent.
“Companies are trying to identify cover. They are going out of the way to pay people who are critical for the company. The tweaking of variable pay is taking place in favour of top performers, retaining workforce and for critical jobs,” said Ganesh Shermon, management consultant, KPMG Advisory.
Sangeeta Lala, VP, Team Lease, agrees. “In the next cycle, companies are trying to get a fix on the variable pay. Usually, the variable pay is open-ended. But taking into account the market situation, putting a cap on the variable pay is what companies are doing to maintain the budget.” She adds some companies are also looking at including the variable pay component in the cost-to-company (CTC) package.
“Usually, around 70 per cent is fixed in CTC and 30 per cent is dependent on the performance and output. Now, companies are trying to get the fixed component down and get the performance component up, in the new cycle,” says Lala.
Prabir Jha, senior vice-president, human resources, Tata Motors, says the company has tweaked its variable pay programme to align individual compensation better with the larger corporate performance. “We have simplified our compensation architecture across different elements so that people are able to understand it better. We have articulated our compensation philosophy pretty clearly and upfront,” says Jha.
Future Group and Mahindra & Mahindra, however, are in wait and watch mode. Sanjay Jog, chief people officer, Future Group, says, "Though it is too early to react to this situation, I can say cuts in variable pay at Future Group can happen in the near future. We may also follow other companies and reduce the variable pay."
Rajeev Dubey, president, HR, Mahindra & Mahindra, says, "M&M's salaries are a benchmark in the market. On the question of variable pay, we will know by the year-end." HR heads concur the learning from the 2008 economic slowdown is helping them deal with the current economic scenario better. This is visible from the fact that overall salary increases and bonuses have been much more depressed and hiring is done more selectively. The jobs are getting squeezed.
Also, there are a lot of transparent conversations taking place between employers and employees.
“Multinational organisations in the business of broking, investment banking and financial services are getting into clear conversations with people, telling them either to perform or perish. They are making offers to people if they want to fall in line with a long-term plan or a short-term plan. If employees opt for a long-term plan, they retain their jobs but earn a higher income over a longer period of time. If they look for the short term, they earn higher but in the event of a downturn, they will be the first ones to go. Also, employees are being told they are important, but if they think their organisation is equally important for them, they can stay for a longer term,” says an HR consultant.