The growth story for India started about ten years ago with the technology boom. It was an excellent time as everyone was talking about more. There was a small bump in 2008 with the US realty meltdown, but as an economy we quickly got our act together and have been growing ever since, with the salary increments almost touching pre-2008 levels. The single biggest reason for this being, that the manpower costs in India traditionally have not been a major line item on the balance sheet, especially for non-services related industries. India’s so called “cheap and skilled/educated labor” advantage is considered as one of the biggest reasons for the growth that we have seen over the past decade. But, with the inflation levels and market salary forecasts, we are really cutting it thin on this arbitrage with the salaries in India coming in shooting distance of the global salaries. It is becoming hard for organizations to manage this situation. A simple indicator - an overseas assignment, which used to be considered as a big reward for the company’s top performers is no longer considered as a reward. Companies are struggling to send employees for these overseas assignments, as the cost of living differentials come closer to zero. In summation, there is a cause of concern for any rewards head in India today; the cost of employment is going up by double digits every year, but the employee expectations are certainly not headed in the other direction. We will reach the threshold soon when this cost advantage would cease to exist, so this gap in expectations needs to be bridged at a priority.

When we talk about the current rewards landscape in the country, the buzzword is differentiation in its true sense. 2008 got us thinking about this idea of differentiation. In a country, where typically variable pay/bonus is considered more of an entitlement, than a performance based reward, one needs to work actively towards managing employee expectations and educate them. It is an effort worth putting, because once the employees start understanding the basic concept of “variable” pay and that they would get rewarded only if they/the company performs, implementing “pay-for-performance” in its true sense would become that much easier. The differentiation levels between performers and non-performers are expected to go further up with organizations finding newer ways of creating further differentiation across different employee groups.

A couple of years ago, the buzzword was to look at higher variable pay and work on differentiation. Variable pay has since moved northwards but the differentiation part somewhere needs a little more thought and focus.

Given the context, non- cash element of pay is going to be an important area of opportunity for most employers in India. When we talk about health and other insurance benefits, though one hears that insurance premiums are going up every year, the coverage levels still need to be looked at, especially with the rising costs of healthcare in the country. It is becoming a hard bargain with losses mounting for insurance companies. Even though, the absolute costs are not very high at this point, the increased claim numbers are a cause of concern. It is critical to start aligning employees with these costs before they blow out of proportion. Even a small ‘co-pay’ would do a lot of good in keeping the claim ratios in check.