In the last 10 years, the trend has changed to moving compensation to “Cost to Company”. Employees can decide to either use their perks in cash or in kind. This trend is specifically true in IT/ITeS and service industries. In manufacturing, for example, perks are still kept as perks and if employees do not use them, then they lose the value of the perk.
The second trend that is catching up across industries is that the focus has shifted to increasing variability in compensation, which is directly linked to employee performance and to the company’s performance to some extent, depending on the role and level of the employee in the organization. The amount that is variable has also increased. At senior levels, 50 percent of the compensation is linked to company performance, whereas at the middle management level, it is anywhere around 20-30 percent. Non-cash components were not an attractive option last year. For example, ESOP plans and deferred compensation schemes related to stock were not very interesting for employees, as the market dipped. This year, as most stocks are at rock bottom prices, stock options will be attractive options again.
Looking at what will happen in 2012 in terms of salary revisions, fixed compensation increases will be small, and in some cases they might not happen at all; some companies might even cut salaries to take care of the impact they are facing from the global recession. Most companies are directly or indirectly dependant on USA and Europe. If they catch a cold, we sneeze!
With regards to vendors, the challenge is to get the best out of the vendors so that they create value proposition in the company. Insurance costs have been increasing for companies. The biggest expense in the Total Rewards basket that is outsourced is the medical insurance. Medical inflation has been high and the challenge is to ensure that we get the right insurance policy without increasing the premium, because as employers, this is becoming a challenge. Most companies have an insurance broker, which is the real partner. These brokers help them with the policies and advise them while keeping the cost constant. We have partnered with Medimanage - they bring extra value addition, negotiate on our behalf and support our employees by giving health tips on their website along with taking care of international insurance policies. For us, insurance is the real big cost.
Other vendors are hired on a need basis. We have done salary surveys in the past, but if we did one last year, we do not necessarily have to do one again this year, as we understand our position and the market position and we can extrapolate. As far as salary surveys are concerned, there are only few players that have the reach and relevance to do these services, so companies are dependent on them. We have also partnered with companies like Fragomen to understand international labor laws. Laws keep changing in different countries that we operate in. It is important to have good labor vendors in each country we operate in, so that if any compensation related law changes happen, we can quickly react.
We do not outsource our transactional work in the compensation team. We have setup an internal compensation shared services, where we are centralizing all transactional activities and we do around 1.3 lakh transactions a month. The reason why we did not outsource the same is because we looked at our peer groups, TCS, Wipro and Infosys and noticed that they had their own in-house departments taking care of these. Furthermore, we do not think there is any vendor that can support this task in India today. Our plan is to strengthen this and look for a vendor who can do it efficiently. In the future, all transactional activities slowly will be outsourced; we want to see if there is a suitable vendor as there are no shared services vendors as of now.