Article: Budgets force firms to think beyond pay

Compensation & Benefits

Budgets force firms to think beyond pay

Muted business sentiments are affecting compensation globally and hence the focus on Total Rewards will be more holistic
Budgets force firms to think beyond pay

Companies will have to increase emphasis on offering structured career paths and skill-building opportunities


The average salary increase projected by a group of 700 plus companies who participated in a Mercer survey released in February 2014 was 11 per cent. However, the actual increase was 10.6 per cent. Likewise, sales and performance incentives paid out in 2014 fell way short of the targets that organizations had expected to payout based on 2013 performance. Business performance in many organizations was below expectation, therefore impacting their ability to pay as forecasted. However, the year saw organizations struggle even more acutely with balancing compensation costs and the continuing challenge of attracting and retaining the best. Organizations that came out on top innovated or made the most of a holistic rewards proposition that went beyond cash compensation.

Prominent trends in rewards this year

2014 saw a more segmented approach to rewards distribution. Hot skilled and high potential talent got treated differently, with hot skills attracting pay premiums, while employees identified as the future of the organization were exposed to enhanced career opportunities.

Another big trend was the resurgence of Employee Stock Option programs across all levels of employees, especially among technology and E-commerce start-ups. Post the global financial crisis of 2008, stock options had lost their sheen. However, the emergence of new technology start-up companies in the last two years has led to these programs regaining popularity. Cash-strapped compared to more established talent competitors, these organizations are positioning stock options as a reward that will provide a huge upside sometime in the future. The success of these organizations and by deduction their stock programs seems to be further endorsed by investor confidence that these organizations have enjoyed in recent months.

Many organizations also made some smart trade-offs particularly in the areas of employee health and wellness. Rising health coverage costs have led to a change in focus from “health insurance” to “health assurance” resulting in many more organizations investing in gym memberships, health check-ups, health talks, and work-life balance programs. In addition to being more cost effective and reducing claims related health insurance premiums, these rewards programs communicate that the company cares for the employees and their families and increases the bond between the two.

The last and most interesting development we have seen is for organizations to enhance work place facilities and offer a trendy and attractive work place as a reward in itself. Brightly lit workplaces, physical and virtual spaces for collaboration between employees, gourmet food are some examples.

At Mercer, this year we worked on reinforcing our recognition schemes in which employees are nominated on a quarterly basis for role modeling the company’s values. In addition, a monthly sales recognition program has been introduced giving consulting employees a chance to compete with global colleagues to win global recognition and a cash award.

Focus on full spectrum of rewards in 2015

In the coming year, we believe that companies will continue to build and compete on the full spectrum of Total Rewards. Initiatives to offer structured careers and skill-building opportunities will emerge as a key rewards component. A Mercer study of employee engagement ranked Career Growth and Training as the number one and number three drivers of employee engagement in India, with fixed compensation being ranked in the middle. We expect to see a lot of organizations appeal to the 20-something employee by committing to provide avenues for developing critical skills that will enhance the employee’s market value. We also see companies doing much more in clearly defining and articulating career paths for employees, and putting in place mechanisms to enhance employee mobility.

Mercer’s recent survey of organizations across industries indicates that the salary increase forecast for 2015 is again at 11 per cent. Is this driven by positive economic sentiment or the reality of each company’s improved results? The next few months will confirm whether this sentiment leads to the anticipated action. Regardless, it is clear that the rewards initiatives each organization implements will go beyond cash, be dynamic, and closely follow the organization’s business context and its ability to compete effectively in the talent market.

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Topics: Compensation & Benefits, #TotalRewards, #Trends

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