Rewards Special: Linking Pay to Performance
The total rewards strategy keeps on evolving and becoming stronger in terms of being linked to performance and higher performance differentiation. That was the case in 2011 and would be more so in 2012. Hiring may be slow but double digit hikes are still a reality. However, subject to specific conditions, caution will be followed in rewards by organizations today and going forward. Rewards will come for higher contribution not only in one’s own area but also in allied areas. They will be strongly linked to more than outstanding performance (with tougher performance targets to meet).
The overall strategy for rewards would be a much more informed one from the organizational side and would not come in easy in 2012. Variable pay change may be higher than fixed pay change in 2012, since focus is on linking pay to performance. As a result, other reward benefits would be under a scanner as the economic conditions slump, so we may expect that overall rewards will come under scrutiny if performance targets are not met or exceeded. Rewards also might only come for the targeted group of employees, whose attrition may cause damage to the organization. Depending upon each sector, the outlook may differ.
Since the interest rates have hardened to all times high, they are bound to come down, giving much needed respite to banking, which should therefore give boost to real estate and automobile and hence, these sectors are likely to see better reward strategies. Likewise, retail, BFSI, hotels and hospitality sectors would pick up pace and would improve in 2012 (such as retail, where FDI changes would impact significantly). FMCG and pharma are relatively insulated from downturns and will remain constant. E-commerce will emerge as a savior and will compensate for a rather dull scenario. As far as compensations are concerned, the average salary increase would increase to at least 12 percent, from 11 percent in 2011 and as a consequence, reward strategies may undergo further changes. The variable percentage keeps on varying each year, depending upon its link to performance. On an average, it may hover around 20 percent of the fixed. Non-cash benefits include largely insurance and the benefits associated with the same, apart from policies that facilitate better tax planning, such as leased car option and a flexible compensation structure under the India taxation bounds.
Benetton engages with various consulting firms on the compensation and rewards strategies. They are largely chosen for their functional competence in the area (extremely important in the area of rewards where quality of data and its interpretation is crucial and sensitive), their credentials in the space and the sector, quality of advice and the quality of manpower deployed to work with us.
Payroll and insurance services are usually outsourced today, as brokerage services are fantastic and should be able to answer most insurance needs of organizations. Edenred is one such example that links rewards effectively to engagement – this is where reward points earned from one’s manager are convertible to gifts.
Review and benchmarking of compensation best practices is a quarterly affair for some organizations, since the rewards strategy keeps on undergoing significant changes as the economic pressures rise and fall. So, effectively all the sub-elements such as compensation and rewards philosophy, positioning, execution, long-term and short-term incentives, or aspects such as profit-sharing and gain-sharing, etc. are elements that get reviewed much more often today. These of course have a strong link to job evaluation that keeps on re-evaluating the impact of a job on the organization.