Article: A decade story: Changing trends of Compensation & Benefits

Compensation & Benefits

A decade story: Changing trends of Compensation & Benefits

People Matters presents changing nature of Compensation and Benefits trends, observed throughout the last decade.
A decade story:  Changing trends of Compensation & Benefits

Drastic changing patterns in compensation and benefits trends have kept HR professionals on toes in the last decade. Every organization aims at attracting and retaining highly talented, engaged professional to enhance productivity, and to achieve so, they use every tool at their disposal. Here is the curated lowdown of best prevalent practices under compensation and benefits that gained ground during that particular phase and cracked new codes for the future. Have a look.

2010 - Pay for Performance

In 2010, primarily the dilemma for every Human Resource professional was whether to consider compensation as cost or an investment?  Performance acted as the new mantra. Merit-based increases became vital for organizations that began to see compensation as an investment, recognizing past performances and driving the future performance in tandem. Variable pay became one of the critical levers for driving performance and engaging employees in organizational goals. Apart from incentives and bonuses, differentiated reward structures for high performers and critical roles were identified, making use of limited budgets effectively.

2011- The Emergence of Total Rewards

A focus on total rewards that is closely tied to performance began to play a crucial role in allowing organizations to compete in this new environment. Rewards form a strong tool for organizations as they ensure performance excellence by addressing unique and customized needs of high and critical performers. Slowly, the focus was changing from being transactional to strategic. Rewards evolved to strategic enabler fulfilling organizational needs rather than just focusing on annual remuneration.  Monetary benefits alone cannot help engage the workforce. A total rewards approach to talent retention could serve as a unique differentiator from your competitors. Traditionally, the only cost considered as spend within the organization was the budget for the merit increases. Benefits, allowances, long-term incentives, were being identified to become the major part of the total rewards cost in the organization. 

2012 –EVP and emergence of short-term & long-term variable pay

The year witnessed a paradigm shift in the Total Rewards landscape. With the influx of diverse demographic groups joining the workplace, the need for revised approach towards work-life balance and its related benefits became the need of the hour. More and more organizations allocated the rewards basket to non-cash components as a part of their benefits program.  

Employee Value Proposition (EVP):   Compensation and benefits were seen as part of a broader framework of the Employee Value Proposition (EVP) and had to be nailed to the talent strategy of the company, which in turn was linked to performance ultimately.

Short-term & Long-term variable pay: One way to dissect reward landscape is to separate the elements and to identify players that specialize in them. Any total reward structure would have a cash or compensation component. This would include near-cash allowances included for tax purposes; benefits like life insurance, mediclaim, cars on lease and others; some element of Short-Term Variable Pay (STVP), like incentives, commissions and bonus, all payable in the same appraisal cycle; Secondly, there could be long-term variable incentives, like ESOPs, or deferred cash; thirdly, recognition and non-monetary rewards and finally, extrinsic rewards like any benefit derived from corporate wellness plans, childcare, concierge service, office pickup and drop services, and access to discounts derived from grouping.

2014 – The rise of non- cash benefits 

In a majority of the companies cash payout was largely used to capture employees’ attention. Then, nominally funded non-cash perquisites turned out to be a great tool for attracting employees. Non- cash benefits included merchandise coupons, gift cards, meal vouchers etc. Apart from the material options, some companies also began to offer ESOPs (Employee Stock Ownership Plans). Studies show that non-cash perquisites have greater effect on employee performance because of recognition associated with them. They have great trophy-value and are more promotable; unlike cash rewards, employees find it easier to celebrate non-cash rewards and thus give desired outcome to organizations.

2016-17 – Existing compensation and benefits trends 

Flexible rewards program & customized compensation: There has been a clear and a visible shift in the way businesses woo consumers with a high degree of customization for products and services. Similar approach was used towards employees by organizations.  An effective rewards program was adopted to steer employee behavior towards desired outcomes. Also, measuring the outcomes of reward programs helped organizations to improve and offer relevant components in the right quantum. The information also helped organizations to design appropriate communication for target segments. In addition, cash-in-hand is the most preferred component of the salary and to fulfill unique attributes and aspirations of the different workforce, organizations are now tailoring their compensation structure for employees. To effectively manage a multi-generational workforce, the employers are taking effort to understand their expectations. Holistic total rewards program:  As companies move ahead in the current financial year, barriers like lack of a holistic awareness of the total rewards program, budget constraints, and missing leadership support will become the some of the key issues for HR professionals to overcome in order to make such programs truly successful. The implementation of the correct mix of reward and recognition strategies, contextual to the workforce, is necessary for any Total Rewards programs to be successful in obtaining the desired results.

Holistic total rewards program:  As companies move ahead in the current financial year, barriers like lack of a holistic awareness of the total rewards program, budget constraints, and missing leadership support will become the some of the key issues for HR professionals to overcome in order to make such programs truly successful. The implementation of the correct mix of reward and recognition strategies, contextual to the workforce, is necessary for any Total Rewards programs to be successful in obtaining the desired results.

Focus on tangibles: Total rewards are no longer about the articulated needs. It is about intangibles. Employees have evolved from being yet another factor of production to being viewed as talent where each individual’s contribution is unique and critical. The individual’s personal brand matters as much as the organization’s. The enterprise and talent have a symbiotic relationship which results in the evolution of the spectrum from compensation and benefits to total rewards. The tangible elements of total rewards like compensation and benefits are easy to benchmark and copy.

The year that went by projected evolving compensation and benefits scenario as companies redefined and relooked at their strategies for this domain holistically. There was emergence of reward trends such ESOPs, health and wellness programs, maternity benefits and rise of flexible benefits in companies, maternity-related benefits that were introduced by organizations in view of the Maternity Benefit (Amendment) Bill 2016 that was passed by the parliament.

The compensation & benefits space has evolved into a specialized field in the last decade with companies focusing on not only the cost of business but also ensuring that they get the best value from various employee related costs. The whole conversation is now moving to creating the right experience for employees and Total rewards play a major role in creating that experience. We have also seen increased role of technology in enabling companies to design & deliver the total reward solutions especially the customization of compensation & benefits for individuals. We reckon the next decade will continue to push companies to innovate on the total reward front while automating & even robotizing the administrative part of the process.

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Topics: Compensation & Benefits

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