'Firms giving equal pay to contract staff to lose little'

Study may assume importance for those companies that faced strike in past over issue of contract workers

As companies rely on contract labour to push forward their production numbers, a nationwide study by the Planning Commission has found equitable compensation and benefits to non-permanent staff will not impact the profitability of companies in the manufacturing sector.

However, the study found automobile component companies are an exception.

The Planning Commission study, done in association with Bain & Company, was based on 60 interviews and meetings with key stakeholders in the manufacturing sector, including union leaders. The study uses numerous publicly available data.

The study assumes importance in the backdrop of companies facing strikes over compensation to contract workers. According to the study, providing equal compensation and benefits to non-permanent staff in manufacturing has less than 0.5 per cent impact on a company’s profitability and less than 1.5 per cent impact on its return on capital, because of the relatively low proportion of labour cost to total revenue (typically between five per cent and eight per cent.

However, the study found auto component companies providing equitable salaries and benefits to such employees witnessing their profit after tax growth drop from three per cent to 1.8 per cent.

“This may be due to the relative high employee costs (eight per cent of revenue), high use of non-permanent labour, and high wage disparity between permanent labour (typically a small number with significant tenure) and non-permanent labour,” the report noted.

It said stake holders interviewed for this report, who also included company heads, said equitable compensation to non-permanent staff at par with permanent employees helped in mitigating man days lost due to unrest, labour troubles and helped increase labour productivity.

“The magnitude of improvement varies, with some companies estimating productivity improvements of up to 30 per cent,” the report said.

Overall, the study showed that when companies treat human resources as an asset and focus on equitable compensation along with skill development programmes and good industrial relations, the competitiveness of both individual enterprises and the sector increases.

The study looked at four major industrial zones in India - Gurgaon-Faridabad, Pune (Pimpri, Chinchwad and Chakan), Chennai and Ludhiana.

The companies selected for the nationwide study broadly fell into four categories - automotive (original equipment manufacturers), automotive component, textiles and engineering. All the four categories have a sizeable number of non-permanent staff.