Don't sweat over salaries

When Amit Mitra, Ficci's secretary-general, told this newspaper earlier this week that the CEO's pay will be determined by the market and if you pay lower than the market standard, the fellow will just take a walk, he was merely articulating the hard reality that Indian companies face. As companies worldwide rush in to India, there is an unprecedented demand for people with the right leadership and technical skills. Recruitment consultants say the talent shortage in India is so severe now that only one in three vacant top-level slots can be filled. The time taken to fill senior positions has doubled, to 120 days.

HR consultants say the main reason why the Prime Minister shouldn't fret too much about soaring salaries is that, compared to global averages, top management in Indian companies still has some ground to cover. While an Indian CEO's salary and perquisites might account for some 2 per cent of his company's net profit, his counterparts in other parts of the world take home as much as 11-15 per cent of net profits. Also, Indian engineers typically earn one-eighth of the salaries of their counterparts in the US and Europe. The average pay of an Indian IT professional, for instance, is $700 a month, compared to more than $5,000 in the US. Even after adjusting for purchasing power parity, there is a large gap.

In any case, salary hikes are inevitable considering the huge demand for talent and the relative short supply. The information technology sector, for example, recruits an average of 80 senior executives a day, and the shortfall has spread beyond technology. Take engineering giant Larsen & Toubro, for example. Despite increasing salaries by over 25 per cent, L&T is losing people to multinational competitors in India and rivals in the Persian Gulf that pay twice its current rate. With attrition rates hovering at 30 to 40 per cent and newer sectors like retail coming up fast, many Indian companies simply have no option but to be liberal with their pay packages, which now could include golden hellos that translate into sumptuous sign-on bonuses. Take Cairn India, for instance. The company was desperately looking for somebody to take charge of its India operations for quite some time. Finally, when it managed to rope in Rahul Dhir, a top-notch investment banker based in London, the golden hello of Rs 100 crore stock options "" two-thirds of which come without any performance conditions attached "" didn't seem too high a price.

The huge shortage of talent obviously is not limited to the corner office alone. McKinsey estimates India's factories will need 73 million workers by 2015, which is 50 per cent more than today's stock. India's airlines will add 440 new planes by 2010, which means 3,200 additional jobs for pilots alone, and many times that for cabin crew, ground staff and airport handling. About 40,000 vacancies are expected in the next three to four years, just for cabin crew jobs. There is a demand for 8,000-10,000 engineers in the embedded software and chip design space, but the supply is just a third of that number. Services like retail and telecom are expected to create 2.5 million jobs in India by 2010.

A McKinsey Quarterly survey also showed that as many as 81 per cent of top Indian executives feel that the cost and availability of talent will be a significant constraint on business over the next five years. It is no wonder that the latest salary increase survey by global HR consulting firm Hewitt Associates has forecast an average wage hike of 14.5 per cent for India this year "" the highest in Asia-Pacific for the fourth year running. But even that doesn't seem to be enough. Consider this: a Watson Wyatt Work India survey across 53 companies found that a whopping 78 per cent of employees are still unhappy with their compensation and feel that rewards are not in line with performance.