Top 10 compensation trends during difficult times
Companies are basing compensation decisions on role based market ranges rather than the individual's last drawn salary
The companies that manage change well are those that continue to share data and facts with team members
During the India Shining (and sometimes very shin-ing) days, compensation decisions got very direct and focused around the 3 M’s - Me, Myself and More! In fact, it was the conversations around compensation that became more complex while compensation proposals were simply anywhere between 50% to 100% + of the current numbers.
We live in interesting times and it is only in times like these that compensation and trends around benefits and pay get unpredictable and not so ‘boring’!
So what’s Going on?
Let us look at the top 10 trends that we continue to experience and probably will do for some more time to come.
1. Fixed Compensation is still ‘Variable’ and variable pay is ‘Quantum Physics: Over the last 18 months we have seen fixed compensations move southward, while variable pay which was committed and guaranteed and followed all laws of classical physics, is now completely in the domain of Quantum Physics!
2. The future is bright but the smart guys stay focused on the job: New job/new roles are getting harder to fill. Employee concerns on stability and conservation continue to rule. Risk-taking abilities for new jobs, newer roles, and exotic locations (read tier IV & V cities) are non existent. Infact, only if current jobs or roles are getting disbanded or merged, are employees looking to move into unexplored terrain.
3. Delivery, Impact & Accountability are becoming key drivers for compensation: Employees are beginning to realize that compensation is getting linked to delivery, accountability and impact, both at the firm level as well at the individual level. Gates or barriers now exist for both organizational performance as well as individual performance, and in many cases these are simply not negotiable.
4. Clear and discernible shift happening from Individual to Role based Compensation: Market Reference Ranges (also termed as market related pay ranges) that were once shunned by most organizations are making a comeback.Companies are basing compensation decisions on role based market ranges rather than the individual’s last drawn salary.
5. Compensation revisions are being centered around variable pay rather than fixed pay: Organizations are reviewing their compensation philosophy on an annual basis rather than as a once in three year exercise. They are more comfortable in enhancing an employees target variable pay as part of his/her overall revision in total Cost to Company (CTC) rather than enhancing fixed pay. In addition, there is a fine line somewhere in the 20 page document mentioning that target variable pay is subject to annual revision!
6. Rewards to performance linkages are short term and outcome focused: As organizations continue to predict and take charge of their quarter on quarter destinies, there is tremendous focus on short term delivery and performance. Those organizations with well established processes of measurement (or hyper measurement) are in a much better situation to manage change and communicate to employees on performance and ‘run rate’ achievements as compared to those which don’t. Classically, a measurement focused organization is less prone to year end discretion based decisions around compensation vis-à-vis others.
7. Primary drivers for rewards (read fixed and variable pay) are being based around pre-determined goals (absolute numbers):Rather than linking rewards to relative indexes, e.g., growth in market share or market index, there is greater focus on absolute P & L numbers. While relative performance in relation to the market is a great opportunity to celebrate and drive town hall conversations, organizations are unwilling to reward for market based indexes or growth stories around market share numbers, especially when there is under achievement of primary drivers such as PBT or Gross Revenues.
8. Companies are shifting from plain vanilla ESOPs to a portfolio of LTIP Plans: Given the potential ‘underwater‘ nature of stock options, that we notice during downturns, most organizations are beginning to look at a combination of long term incentive plan offerings including phantom stocks, restricted stock options, deferred cash based plans at middle and senior management levels with higher focus on performance than on time measures. Single vanilla plans are being replaced by two or more plans at senior management levels with distinct performance criteria.
9. Companies are willing to deal with retention risks than ever before: Given the fact that discretionary pay or mid year corrections and adjustments are by far and few, organizations are willing to deal with the conflict of losing employees in situations where organization performance gates have not been achieved (adversely impacting payout opportunity). Organizations expect employees to focus on the value proposition of the firm rather than solely basing their decision to continue or attrite, on a specific year’s compensation decision. Clearly loyalty is an attribute which is coming back to roost!
10. Companies are not shying away from communicating reality: Conversations and discussions in town halls have become more forthright around performance expectations and the ‘situation out there’. The companies that manage change well are those that continue to share data and facts with team members. While there are more of rational and logical discussions around achievements, successes and failures of performance, it is the emotional intelligence of employees that is truly being tested today. The emphasis is on employees to receive it constructively.
So what’s in it for me?
Clearly there is evidence that compensation will continue to be range bound, employees will need to look at opportunities to up-skill themselves, and companies will revisit their value propositions, and drive non-financial reward and recognition processes. This is probably the first downturn that India’s Gen Y employee is experiencing and while he/she will have the energy to ride the storm, it is patience and performance that will be the key attributes that will differentiate success from failures.
Over time, the skies will clear and the economy will shine even brighter, in those times I hope some of the principles of compensation that strengthened us during the tough times will not be e-filed & forgotten!