Reimagining the salary slip

In his first placement after college, Dhruv Sharma was roped in as a strategy consultant for a leading consultant firm, a job anyone would have died for. But Dhruv never really wanted to be stuck behind a desk for hours; he wanted to travel the world, meet new people and do different things. One day, he called it quits and set off to travel. And now his bio reads somewhat like this “Footloose traveler. Music aficionado. Photography enthusiast…and when I find the time, I write”. Dhruv still consults. However, he takes contract assignments that allow him to pursue other passions while earning money. And yes now he loves his life!

Dhruv is not an exception. Indeed, he represents the outlook of the changing demographics of the workforce. As per the Economic Survey 2011-12, India will be one of the youngest countries in the world with 29 being its average age and the workplace will belong to these millienials, for whom the 9-5 job is a relic and social media freedom, device flexibility and work mobility are important factors while accepting a job offer. What motivates this rising cohort? How can companies keep them engaged, earn their trust and get the most out of them?

Changing demands of employees is just one side of the coin, the Future Work Skills Report 2020 by The Institute For The Future has outlined other factors that are reshaping workplaces like increasing global life spans that is changing the nature of careers and learning, rise of smart machines and systems and new communication tools that requires new media literacy. What it means is that the skills required to succeed in future workplaces will be more specialised resulting in an increasing shortage of required skill sets that will in turn lead to a bigger war for talent in the coming eight to 10 years. While the required skills will give individuals more bargaining power, organisations will have to devise new ways to increase engagement and create a strong employee value proposition and this is where compensation pays an important role.

That “pay” is directly related to the central strategy of an organisation was reflected in NR Narayana Murthy’s first significant move upon returning to Infosys in which he announced an average increment of 8 per cent for all of its 1.5 lakh employees in India. In addition to that, Infosys also announced a structural change in salaries increasing the fixed component across levels. While the extra expenditure is expected to affect the company’s margins by 200 basis points, analysts predict this to be a visionary move by Murthy who has a reputation of being one of the canniest entrepreneurs of India. Murthy’s move is touted to be a retention tool for Infosys that has been losing market share to rivals such as Tata Consultancy Services and Cognizant Technology Solutions and its employee turnover has increased to 16.3 per cent from 14.7 per cent.

The future though distant is approaching rapidly and promises to look very far from that of today particularly in the way people will be sourced, organised and managed. Talent strategies will need to progress significantly to keep pace with this change. While the existing models may still seem to work, the changes underway call for a radical rethink. And of all the various aspects to engage, compensation represents by far the most important and contentious element in the employment relationship and is of equal interest to both the employer and the employee.

It is important to the employer because it represents a significant part of its costs and is increasingly part of employees' performance, productivity, employer brand and so on, to the employee as it is fundamental to his/her standard of living and a measure of the value of his services or performance and to the government because it affects different aspects of macro-economic stability such as employment, inflation, purchasing power, socio-economic development and so on. It is in this context that Total Rewards becomes critical and this story explores the future of Total Rewards and how the salary slips will look like in the coming years...

Money still matters but one size doesn’t fit all

Despite various innovative employee perks and work life initiatives, the basic pay still remains crucial and companies need to offer competitive compensation if they hope to attract and retain top talent. Indeed when Infosys decided to hold back increments last year, employee turnover went up to 16.3 per cent from the existing 14.7 per cent and Infosys started losing market share to its rivals. As per the PwC next gen survey, 44 per cent respondents said competitive wages made an employer more attractive, the second highest proportion for any factor given.

The challenge then is to define a compensation structure that addresses the needs and demands of various generations co-existing in the workplace. As Sandeep Bhalla of Mercer puts it across, “Most organisations in India have employees who span multiple generations. The reality of at least three different generations - the Millennials, Generation X and the Baby Boomers, who simultaneously coexist in organisations today forces employers to examine a variety of reward options. What appeals to each generation of employees is perhaps related to their life stage, and life style. For example, while it is likely that Generation X’ers, may value immediate financial rewards that support their life stage needs for buying a house, or securing their children’s future, the baby boomers may be looking for benefits that give them security and protection. The needs of these three generations are remarkably different and hence employers need to segment the employee pools and provide provisions to customise plans where possible.”

Leena Sahijwani, Director Compensation and Benefits at GE says, “One Size Fits All Approach” may not work in future or may not provide good RoI on Rewards programs. The move will be towards flexible programmes in benefits based on lifestyle needs of the employees vs. employer’s choosing on behalf of employee what he/she may want. There is also an increasing trend of employee participation in benefit costs that have traditionally been borne by organisations.”

Job-Based vs. Person-Based Pay

People, not jobs, are what make organisations work. A job doesn’t do anything good or bad, people do, yet most pay and rewards solutions are traditionally defined for a particular job by looking at comparable jobs in the same industry. With disruptive changes that are taking place in the workplace, the lifespan of a job is unpredictable and may become obsolete even before we realise and so will the skills required to perform those jobs.

Future organisations will need people who are agile and nimble and can change as per the changing requirements. This calls for a shift in the way pay is determined from a methodology that is focused on jobs to one that is focused on people. Technological advances have eliminated routine jobs that require minimal skills and are billed on the number of hours worked. Organisations need people with specialised skills and intellectual capital rather than mere head count and therefore an individual’s talents dictate what he or she is worth rather than their job.

Proponents of person-based pay site a number of advantages associated with the methodology, most notably that it promotes continuous employee development and team collaboration. While it seems valid it doesn’t necessarily work across the board. Experts suggest that person-based pay is best suited for dynamic, high-performing environments that wish to remain flexible in the deployment of their human capital. However, in more staid organisations where there is consistent and routine work activity, traditional job-based pay continues to work well.

Flexi-work options that cater to all

Just a few months back, Marissa Mayer’s policy change about flexi work in Yahoo generated a global debate and the concerns were being raised by men and women alike. The PwC next gen study and a Cisco survey revealed that work life balance and flexi work are among the top priorities for the younger generation for which they are even ready to compromise pay. Future compensation plans need to be structured in a way that flexi work options can be created without impacting productivity.

Among the various options available to organisations are short-term assignments lasting one year or less, project-based jobs, contingent work, virtual work teams and option to take sabbaticals to pursue other interests. These options appeal to younger employees who want to have diverse experiences and don’t want to get stuck to one job while they also help employers control costs.

Vikram Arora, Director Finance, Eli Lilly and Company (India) cites an example of his organisation, he says, “The key is to balance reward attractiveness with cost effectiveness. We aim at including elements which have a high value for employees but a low cost for the organization – little things that make their life easier and better every day but don’t need a huge investment.” Flexible work options if used smartly can be an effective tool for employee engagement for organisations without a big dent on budgets.

The productivity puzzle

As the economic logic has changed, global trade and technology have made it all but impossible for any industry to make profit in mass production of any sort and the real value is in creative ideas that can transform simple products far beyond their generic, creative value and progressive companies like GE, Apple, Google etc learned this early on. As outsourcing shifted jobs from the developing countries to the developed countries in the 1990s, in the coming years technology will replace all routine, manual jobs creating more room for nuanced jobs, the ones that require more intellect, skills and proficiencies. And people who have the skills to give organisations that edge are no longer willing to be treated as interchangeable containers of finite, measurable units that could be traded for money. Perhaps the biggest problem with existing reward structures are that they incentivise long projects rather than those that require specialised, valuable insight that cannot and should not be measured in time and paradoxically encourages people to spend more time on routine, quantifiable work rather than ones that need more thought.

Organisations that want to stay ahead of the competition and be an employer that the best want to work for need to radically change their reward structures to ones that encourages creativity and innovation instead of hours spent at work. Certain insights are far more valuable than the time it takes to conjure them. For example Google has an 80-20 principle where 20 per cent of the employee working hours are not accounted for and they can do whatever they want to in that time. As per the data driven HR team of Google, this helps them keep the culture of innovation alive. Measuring productivity is central to an organisation’s profitability and even to the economic policy of a country, but we are increasingly flying blind. It’s relatively easy to figure out the number of bills that an accountant has cleared in a day and measure his or her efficiency or productivity, but there still needs to be devised a way to measure the financial value of ideas and the people who come up with them.

Rewards that lead the way

At a time when organisations are working under tremendous pressures created by market conditions, these emerging trends make it increasingly complicated for them to arrive at a competitive Total Rewards Strategy that helps them drive engagement, productivity and build a strong employer brand. So what are high performing companies doing differently?

As per the Aon Hewitt Total Rewards Survey, 2012 “high performing organisations” that were defined as those that achieve the highest levels of revenue against objectives, innovation and employees engagement align their Total Rewards strategy to business objectives, connect it to employee value and measure the success of their Total Rewards Strategy through a balance between employee value and RoI in addition to budget, cost and management.

It may seem utopian to be able to create employee value in a workplace that is as diverse as the number of people and their requirements. There is neither a one-size-fits-all proposition nor are the set formulas and financial spreadsheets compatible with this new approach to work. The permutation and combinations are endless. Now that we know that the fundamental nature of work is changing and workplaces will be transformed, it is fitting to create a Total Rewards strategy that is nimble enough to change as per business needs.