Article: Managing pay by focusing on performance

Compensation & Benefits

Managing pay by focusing on performance

There will be increased focus on performance and holistic rewards, reveals the Aon Hewitt Salary Increase Survey
Managing pay by focusing on performance

High performers can expect to receive almost 1.6 times the average increment provided to employees meeting expectations


With a stable government and moderating inflation, there is a significant improvement in business confidence across companies. As a result, almost 85 per cent of the organizations participating in the 19th Annual Salary Increase Survey (SIS) conducted by Aon Hewitt have revised their salary budgets.

At an average increase projected at 10.6 per cent for 2015, India Inc. has adopted a positive yet cautious stance. While this is the highest increase in the last three years, organizations have overwhelmingly adopted the ‘Pay for Performance’ mantra while allocating the enhanced budget.

Sectors like life sciences, engineering services, chemicals and media have projected salary increases higher than the national average. The real estate and infrastructure sector has seen the maximum increase and has jumped almost 6 per cent since 2014. On the other hand, services industries like retail, financial institutions and hospitality are at the lower end of salary increase projections.

Focus on performance. These positive sentiments have also resulted in employee expectations rising. Balancing the employee expectations and the conservative budgets is a challenge organization will face this year, since India Inc. has taken a clear stand about driving performance-based differentiation in pay budgets.

High performers are projected to receive almost 1.6 times the average increment provided to employees meeting expectations. The financial services sector is the leading differentiator. Consumer products, life sciences and ITeS, where there is high linkage of pay for performance, are a close second. Hot skills got hotter in 2014. Businesses have created niche skill requirements and many firms have introduced the concept of ‘Skill Premiums’ in their compensation dictionary. Cited as another talent differentiation strategy, this has been a popular trend in 2014 and this promises to continue.

Additionally, in the last five years, the percentage of employees with top performance rating has dropped by close to 30 per cent, implying that organizations are not hesitant in differentiating sharply on the basis of performance and allocating the share of the total increase budget accordingly.

Higher ‘Pay at risk’. Pay for Performance has not only impacted fixed pay increases, but also spending on variable pay and long-term incentives. In 2014–15, almost one-fourth of the total compensation for top management has been delivered through ‘Pay at Risk’ components. This trend of focusing on total rewards as per performance ratings indicates a shift in the pay philosophy. More organizations are linking a greater percentage of employee pay to individual and company performance.

LTI vehicles like ESOPs, historically provided only at senior levels, have seen an increased prevalence across all levels of management. Specifically in the technology sector, more e-commerce firms and startups with niche solutions and technologies are relying on LTI to incentivize as well as retain employees.

Managing total rewards. With the increasing pressures on the salary budgets, firms now focus on other aspects of rewards apart from compensation. They have increasingly started focusing on engagement scores and employee preference surveys to provide solutions for improving employees’ lifestyles, without increasing budgets.

Of the 500+ organizations surveyed, 76 per cent indicated an increase in their overall benefits budget. Changing demographics have forced organizations to drop the ‘one size fits all’ approach. Employee preference is now an additional factor considered when designing benefits program for the workforce. Employee wellness and health benefits are gaining significant momentum.

While salary-linked benefits (retirals) are mandatory, firms are designing bespoke benefits plans to meet different generational needs. Therefore, flex-ben has been taken up quite seriously by many firms. The number of people availing these benefits has also seen an increase from the years before.

In spite of efforts made by organizations to build customized rewards solutions, the perceived value of the rewards is restricted to compensation. Organizations are now trying to develop effective communication programs to enhance employee appreciation of the total rewards paradigm.

About the survey. The ASIS is the most comprehensive survey on rewards and performance. It measures actual and projected salary increases and compensation practices for five job categories: senior management, middle management, junior manager/ supervisor, staff and manual workforce. This year, we surveyed 578 organizations representing 18 primary and 20+ secondary industry sectors. The data for the survey was collected over December 2014-January 2015.

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Topics: Compensation & Benefits, #TotalRewards, #Trends

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