Article: Rewards Special: Landscape & Trends

#Trends

Rewards Special: Landscape & Trends

A deep dive into the trends, the expectations of organisationsand what the providers have to offer in the rewards industry
 

One of the barriers to outsourcing is the resistance to sharing confidential information with an external service provider

 

Buyers are unaware of the options available in the market and even if they are conscious of the services, the value proposition is not clear

 

The pulls and pressures of optimizing human resource management have been increasing over the last few months and in the next financial year, they will continue to rise. HR decision makers are increasingly looking at making each of the HR functions more efficient and effective. HR transformation and the emergence of players in the HR Industry will facilitate this journey.

Traditionally, the consulting service providers have dominated this segment, from access to data for benchmarking purpose, to support in reward and compensation strategies, to design and implementation of reward programs.

Today, there are many players, which are emerging strong in this space. There are the consolidated consulting giants, boutique firms, niche advisory services for tax and long term equity, insurance brokers, reward and recognition specialists, technology platforms and organizations focusing on providing corporate wellness solutions and other extrinsic benefits like childcare and concierge services. All these players aim to solve the challenges that organizations are facing in this function and represent a growing sub-segment of the HR Industry.

The landscape: An overview

The problems to be solved have led to business propositions on their own right. Each of the challenges are related to the different components of the Total Rewards structure or to the function itself.

One way to dissect this landscape is to separate the elements and to identify players that specialize in them. Firstly, any total reward structure would have a cash or compensation component. This would include near-cash allowances included for tax purposes; benefits like life insurance, mediclaim, cars on lease and others; some element of Short Term Variable Pay (STVP), like incentives, commissions and bonus, all payable in the same appraisal cycle; Secondly, there could be long term variable incentives, like ESOPs, or deferred cash; thirdly, recognition and non-monetary rewards and finally, extrinsic rewards like any benefit derived from corporate wellness plans, childcare, concierge service, office pickup and drop services, and access to discounts derived from grouping.

Today, there are players who have found their space targeting one or more of these elements, supporting organizations to design, deliver and maintain them effectively. For the purpose of this story, we have focused only on pure compensation and rewards components, keeping aside other elements that are also a part of the Total Rewards definition, like culture, training & development, and career.

Each component would have its own ecosystem comprising of consulting firms, technology platforms and specialist partners, and the offerings will range from high expertise-low volume, to transactional-scale.

Total Rewards consulting

The consulting space in this segment aims at targeting rewards strategies adopted by companies. The scope of involvement can be as broad as looking at how the reward strategy leads the talent management strategy, to focusing on deployment of the reward strategy.

In the consulting arena, there are the management consulting companies like E&Y and PwC that have a human capital practice that caters to support clients’ needs. These are full service firms that can provide end-to-end consulting in rewards and adjacent areas like taxation, legal and compliance that can emerge from a rewards intervention.

Subsequently, there are the full-fledged human capital management consulting outfits, like Aon Hewitt, Hay Group, Mercer and Towers Watson that have a wide service offering across the human capital value chain including other areas beyond Total Rewards.

Also co-existing in the consulting space, are the boutique consulting providers like Talentonic that targets the same space and there are players like ESOP Direct and Just Esops that focus purely on consulting and implementation of ESOP plans.

Most often, these consulting companies provide advice, access to technology and the ability to implement and handhold the client until the reward system is stable. Some of these players also have an outsourcing arm for payroll and benefits administration.

Insurance brokers & insurance providers

The biggest expense in the non-cash Total Rewards basket is that of medical insurance. Medical inflation has been high and the challenge for organizations is to ensure that they get the right insurance policies without increasing the premiums. The viability to group and negotiate rates for life and medical coverage has made this space increasingly attractive. Some organizations use insurance brokers like Medimanage, Vantage and Marsh to negotiate prices and compare products and some contract directly with the insurance company. In between the organization and the broker or insurance company, there are companies that manage the entire mechanism of payment and claim processing between the insurer/broker, the health care center and the employee (company), E-Meditek is such an example. These companies provide a common platform for insurance companies, corporates, brokers and individuals to manage their claims.

Specialized benefits providers: Car leasing

Car leasing is normally used either as a perquisite (cars offered for senior management) or as “tools of the trade” (cars for roles that require commuting like sales, for example). In the first case, industry benchmarking, taxation considerations and the compensation philosophy of the organization determines the provision of this perk. The second case, normally occurs in industries wherein their employee base is spread across cities, like agri-based companies, pharma, and chemical companies where cars are provided to execute the work more efficiently. On the one hand, it makes employees mobile, while on the other hand, companies need not maintain these costs on their balance sheet as the provisions of dealing with car insurance and servicing is leased to a leasing company.

Rewards & recognition, getting warmer

Rewards, recognition and loyalty programs have succeeded in creating a niche space for themselves in India. While organizations have been traditionally designing and administrating reward and recognition programs in-house, a new range of players have emerged who can bring efficiency, technology, expertise and scale can help organizations in devising rewards and recognition policies more strategically.

Looking at this sub-segment, there are three categories of service providers:

First, there are companies who provide gifts, coupons, certificates, access to discounts, etc. These organizations provide opportunity to employees to get access to new products at discounted rates. Some of the e-commerce companies are eying this space to provide best deals derived from grouping people in an organization’s cluster.

Second, there are companies that provide a technology platform; a web-based solution with a self-service model where managers can recognize and reward employees. This model also enables managers to make an instant decision without waiting for an approval because the budget and business rules governing the recognition system are built into the system. Such software are either available on SaaS (Software as a Service) model with a low monthly user fee and no capital expenditure, or they can be integrated on SAP or the company’s HR systems. A considerable number of these companies also provide an extensive catalog of products for employees to choose from, whereas some players provide options of redeeming points in cash via payroll. The technology platform also offers ‘Facebook’ style customized portals, which are designed for the purpose of sharing and communicating recognition across organizations, thereby leveraging the power of “social recognition”.

The third category, is that of recognition providers. The focal point of these providers is to assist organizations achieve targeted business results with the help of recognition. This is done by identifying the behaviors to be impacted, designing a suitable recognition program and using a technology platform to implement and analyze the data, which is utilized to observe the complete progress and effect of the recognition initiative.

However, in many cases, it is difficult to segment the service providers into these three categories as there are some players who offer the complete suite of services, while others either offer one or a combination of two of the services mentioned above. For a ready list of these players, refer to the listing of service providers in this supplement.

Corporate wellness

At a macro level, corporate wellness includes everything from fitness, ergonomics, physical, mental and emotional health. Client organizations have started viewing this space from a larger perspective. Employers are now using health to improve productivity and along with offering various medical benefits to their employees, they are also organizing regular health checkup camps. It is becoming increasingly important for employers to ensure that there is optimum employee engagement, which can only happen when they are physically and mentally healthy. This is an emerging area and a lot of players are specializing in these services but there seems to be an opportunity for players in silo, which provide end-to-end corporate wellness solutions.

Challenges

With the exception of consulting (albeit to some extent), the compensation and rewards marketplace is still in a very nascent stage in India. The services that are mostly used are salary benchmarking, buying of data and specialized support for complex products like insurance and long term equity based plans. The level of outsourcing in the rest of offerings is still low as compared to matured markets like the US. MNCs tend to outsource more in general and specifically in rewards. Some have even outsourced their entire administration of compensation and benefits program. Indian organizations and even most Indian multinationals engage with service providers only in very specialized cases. From running their PF funds, superannuation trusts, to administration of payroll and managing reward and recognition programs, a majority of organizations have opted to keep this function in-house.

These are the key challenges that organizations face when considering outsourcing in this function:

Sharing of sensitive data like payroll or employee records can be bottleneck. One of the barriers to outsourcing is the resistance to sharing sensitive/confidential information with an external service provider. For most services in this space, this is a requirement for the model to run. For example, if an organization is considering outsourcing their reward and recognition program, one of the key requirements is to map the entire database on the engine so that the reward points can be distributed and are encashable. Although service providers claim to be equipped to manage this responsibility, there is a huge apprehension and overall cautiousness from the buyer’s side in terms of the level of efficiency of service providers.

Distributed workforce poses a challenge in deployment. Some industries have distributed workforce across cities and not every employee has access to a computer or even Internet in order to deliver those services. Most service providers today provide modules that can be delivered on smartphones to solve this problem.

No clarity over value proposition from available options. Buyers are unaware of the options available in the market for them and even if they are conscious of the services, the value proposition is not clear.

Identifying the right vendor that will deliver the value proposition. Organizations are apprehensive about the fact that there might be a gap between sales and delivery. The concern is that sales might subdue content and methodology. Buyers strongly focus on methodology, content, competence and the ability to bring senior level experience and potential in a project.

Build or buy dilemma - Many of the services and products available, target a problem that is either being tackled with internal resources in some cases or not being tackled at all. Client organizations will need to assess the requirement of scale, expertise and advantage vis-à-vis the required investment.

When it comes to outsourcing, there is no right or wrong answer; it is a decision to be taken by the management team in the organization. The decision whether or not to outsource rests on a number of parameters including that of internal expertise, access to technology that will bring efficiency to that function, strategic positioning of HR in that given organization and most importantly, availability of service providers that can provide those services bringing in the edge of expertise, efficiency and scale. Organizations will have to examine intricately the exact ways in which outsourcing certain elements can either bring value or add value. The service providers on their part need to educate the buyers to minimize the present trust deficit.

TOTAL REWARDS SERVICE PROVIDERS*

Compensation & Rewards Consulting

- HR consulting practices of audit firms; E&Y, PwC, KPMG and HR consulting practices of technology firms: IBM, Accenture.
- Specialized consulting firms: Aon Hewitt, Mercer Consulting, Towers Watson, Hay Group
- Niche’ or specialized players: Talentonic, Kenexa, Purple HR Consulting, Cerebrus Consulting, ESOP Direct, Just Esops (for ESOP consulting), Rideau (for reward & recognition consulting)

Benefits

- Companies providing insurance advice and brokerage: Medimanage, Marsh India, Vantage India
- Car leasing services: LeasePlan India, ALD Automotives, Arval
- Emerging corporate wellness services: Quest Diagnostics (laboratory testing, information, and services), Medall (diagnostic service centers), 1 to 1 Help.net (counseling)

Reward & Recognition Space

- Emerging players in this space providing a combination of consulting, technology, platform and implementation support: Employee benefits and reward programs: Benefits Plus, Corporate Perks, Edenred, Grassroot, Payback (i-mint), QuadMo, Rideau, Sodexo SVC India, TriggerO.
- Loyalty programs, discount and catalog: Accentiv India, eYantra, Gift Links, Klisma, Loyalty One, Privilege Corner, RewardPort, The Deals Point.

*This is only an indicative list and should not be seen as exhaustive. We encourage our readers to write to us to complete this classification to info@peoplematters.in

TRENDS – 2012

The impact of the global economic recession has had varying effects on economies across the world. The affect in India is lesser but it is deeper than what was estimated by financial experts. The contagion of the crisis has spread across India, but on a macro level, the effects are subdued owing to the potency of the domestic demand, the prevalence of domestic investment financing and robust balance sheets of corporates in India. Despite these factors, the Indian economy is bearing the brunt of the downturn and the overall economic growth of the country is gradually decreasing. A recent UN report stated that India’s economic growth will remain restrained at 7.7 percent in 2012 and 7.9 percent in 2013. According to RBI’s recent monetary policy review, the baseline projection of GDP growth for 2011-12 is revised downwards from 7.6 percent to 7.0 percent.

As per Nalin Singla, Global Head – Rewards, Ranbaxy Laboratories Limited, the effect on the economy would not have been so strong in the past because the compensation levels in India were relatively low but in the present context, India is cutting thin on arbitrage and Indian salaries are at par with any developed economy and hence, the impact is more significant. Sandeep Chaudhary, Regional Practice Leader, Compensation Consulting, Asia Pacific, Aon Hewitt, opines, “There is a definite global crisis in Europe and US, and as a result, India is also seeing an impact. With poor politics and poor governance,our situation is not becoming better and our GDP has been revised to a humble 7.6 in 2011. Organizations will be more cautious in 2012.” Industry experts do not see the current situation in a very positive light, but there is an element of cautious optimism slowly sneaking in.

Effects on Total Rewards

In light of the gloomy economic scenario, industry players have to rethink and reconsider their employee engagement policies. Organizations are faced with the challenge to not only retain and engage employees, but also to continue doing so with cost in mind.

In this scenario, the entire concept of Total Rewards is gaining new momentum. The theory of Total Rewards, which evolved not more than a decade ago, is undergoing a transformation of sorts. Rewards, which were primarily viewed as a mere black box, have moved into a completely different sphere and are considered to be the most crucial tools for employee engagement. With the advent of MNCs in the last two decades, organizations have started getting involved in market studies to comprehend trends and practices, and are increasingly trying to understand the existing ecosystem to work on delivering value, sustaining and evaluating employee behavior from a reward perspective.

There is a more holistic approach towards rewards and companies are realizing that even though data might be an integral element for factual comprehension, it is equally important to have a reward philosophy in place. “Attract, retain and motivate is not a choice but an outcome and therefore, we see a lot of our assignments focusing on design and philosophy,” says Sridhar Ganesan, Managing Consultant-Mumbai Operations & Head - Reward Services, Hay Group. As a result, organizations are gradually moving away from a data driven approach, towards a more philosophical approach.

Trends - What will happen in 2012?

Variability driven by unpredictability
The combo of economic downturn and volatility in the market has given rise to a sense of unpredictability and an element of cautiousness is prevalent. Across industries, HR professionals are experiencing that while there is a substantial talent pool keen to join the big brands in the industry, there are people who are holding the company to ransom. This is one of the major reasons as to why the predictability in the compensation and planning of costing for the year is reduced and this predictability is going to further reduce in 2012. As a result, there will be a pressing need for organizations to construct a balance between retention and consistency. This will ultimately put demand on the rewards and compensation team to work towards retention, as replacement has a higher cost factor involved. Companies will either follow their existing paths or think out-of-the-box and innovate in terms of imbibing a sense of excitement amongst employees to grasp their attention. More importantly, organizations will have to innovate and create a structure, which provides flexibility at the unit level.

Variable pay will be linked with the overall performance of the individual and as organizations cannot reduce or avoid increments, productivity will have to maximize. The percentage of variability at senior levels is almost 50 percent whereas it is anywhere between 20-30 percent for middle management employees.

Segmentation and focus on performance

Performance management has been in the limelight now and ratings are linked to the payouts. Organizations are focusing more on reliability of performance rating, which is linked directly to the performance of the organization, which in turn is linked to the final payout. With limited budgets, the criterion for differentiating performers from non-performers is going through a transformation and companies have raised the bar of their acceptance of low performance.

Segmentation in terms of rewards linked to the kind of existing workforce present in an organization, will be a major trend this year. The priorities and expectations of the new workforce are considerably different and that will persuade companies to work on restructuring their pay packages and make them more flexible. “There will be changes in structuring pay packages and flexibility around those designed for this younger workforce,” says Puneet Swani, ASEAN Information Product Solutions Business Leader, Mercer. This indeed will be a step towards empowering the employees with a choice to decide their own compensation and benefits structure.

‘Cost to Company’ approach

Compensation is gradually becoming a part of ‘Cost to Company’ in the IT/ITeS and other service industries. One such example would be that of cash compensation against perks, where an employee has the choice of converting benefits and perks into cash. Companies will also strive to benefit employees without changing their CTC, which will see the emergence of non-cash and non-monetary benefits.

A closer look

Show me the money

The trends in the cash component will differ, based on industry standards. The banking sector will get some respite as interest rates, which went sky high, are expected to come down considerably. This, in turn, will give boost to the real estate and automobile sectors as a result of which they will devise better reward strategies. In the retail sector, FDI will have a significant positive impact and other industries like BFSI, FMCG, hotels and hospitality, will also pick up pace in 2012.

As far as compensation is concerned, industry players have differing views. According to Rajesh Rai, Director - HR, Benetton India, the average salary increase would go up to at least 12 percent from 11 percent in 2011 and therefore, reward strategies may undergo further changes. Likewise, Sridhar Ganesan, Head - Reward Services, Hay Group feels that the increment will still be double digit, anywhere between 10-12 percent, though the ratio of fixed to variable in this context would depend on the economy and outlook of the particular organization. Sandeep Chaudhary, Regional Practice Leader, Compensation Consulting, Asia Pacific, Aon Hewitt, says, “Sectors that are a little concerned with the situation will see 8-10 percent increase in salary, whereas the insurance and pharma sectors will see 10-15 percent increase in salaries.” Puneet further adds, “The double digit salary hike is definitely coming down after a considerable increase 2 years ago. Now, we are more in the range of 12-13 percent depending on the industry one belongs to.”

On the contrary, some industry experts are of the opinion that a hike in the fixed compensation will not be as high as the last financial year, and in some cases, they might not happen at all this year. Gokul Santhanam, Senior Vice President & Head - Global Compensation & Benefits, MphasiS, opines, “Some companies might even resort to salary cuts in order to take care of the impact they are facing from the global recession.”Although a few industry experts are optimistic regarding the increments, owing to the vulnerability of the market, industry players perceive cautiousness. Whatever the case may be, the emerging role of variable pay is quite evident. Organizations are increasingly considering redesigning their compensation strategies in order to align with the present market situation.

Short term vs long term pay

From a reward framework perspective, long term incentives are gaining prominence to drive business agenda and right behaviors. Organizations want to focus more on creating wealth and remuneration for their employees. Long term incentives are becoming a vital element of the entire rewards framework and companies are involving their employees in the overall organizational growth. The purpose is to imbibe a sense of ownership within the employees so that they feel they too are a part of the overall organizational goal. Equity compensation is emerging as one of the most important components of long term incentives and is evolving as a well accepted form of compensation. Even though during the last recession, there was reluctance in terms of investment, the confidence in the economy is back. A number of companies are resorting to ESOPs as a part of long term incentives. The instruments of ESOPs are linked to the growth story of the economy and as long as that continues, the instrument will continue.

Contrary to the belief that long term compensation is taking the front seat, some industry experts stress that short term compensation is going to be the focus. “Because of the pressure of talent acquisition and the shortage of talent, one of the problems companies are facing is the pressure to improve short term compensation as compared to long term,” says Deepak Dhawan, Founder & CEO, Talentonic.

The problem that arises is that compensation is not looked at from a strategic perspective in India. The idea of long term compensation is not well marketed to the employees and there is a trust deficit. Compensation alone cannot change the culture of the organization; there has to be a balance between the vision, leadership communication and compensation design. There has to be a right mix of benefits, variable pay and fixed pay to retain, motivate, engage and attract talent. Along with the monetary elements, the non-monetary elements are equally crucial. The monetization of programs and making it a part of the overall reward design has become imperative.

Emerging strong: Non-cash components

Non-cash components are an emerging component in today’s total rewards scenario. Insurance, corporate wellness programs and other support benefits like concierge services, gyms, child care centers, etc. are all a part of non-cash compensation. Judhajit Das, Chief of HR, ICICI Prudential Life Insurance Company, says, “HR policies are also becoming more aligned to benefits and are gradually acknowledging the relevance of flexibility like sabbaticals, continuing education, more relaxed maternity norms for women, marriage leaves, etc.”
Medical costs are increasing at an alarming pace and insurance premiums are rising at a rate of almost 20 percent a year. Employees want more and more specialized health care treatment and their expectations are going higher. Companies are witnessing an increasing number of claims as employees feel it is their entitlement to avail a five star facility even for a very minor disease. This misconception has to be changed and hence, employers are working at innovative designs in terms of co-pay options where a part of the premium is paid by the employer and one part is taken care of by the employee.
Also, from a benefits perspective, life insurance policies are becoming more prevalent as compared to the traditional healthcare and personal accident insurance policies. “As healthcare costs and expectations increase, people will continue to buy insurances and apparently employees will value medical benefits offered to them,” says Anil Khanna, CEO, E-Meditek. Consequently, many business groups in India have started offering medical benefits on actuals, which is a very high impacting benefit and is explicitly being communicated to employees.

Corporate wellness

Employers are using health benefits to increase productivity; hence, the significance of corporate wellness becomes all the more important. The scope of employee wellness has broadened and at a macro level, includes aspects of fitness, ergonomics, mental health, etc. Employers are looking at supporting their employees to remain healthy and fit as that consequently will enhance the overall organizational performance.

Rewards & recognition

“Rewards and recognition programs are rapidly becoming a necessity in the way companies attract, retain and motivate employees, as today’s dynamic workforce is looking for instant recognition on achieving every milestone,” expresses Ashish Talwar, Managing Director – Motivation Solutions, Sodexo SVC India. Total Rewards covers all four aspects - compensation, benefits, environment for employees to enjoy the time they spend in the organization, and the development and learning potential of employees. In the rewards and recognition space, companies are structuring creative and meaningful benefits to fill the emotional connect. “Employees today also expect a much higher frequency of recognition and are not always satisfied waiting till the end of the quarter or the year for their recognition to come through,” says Rohit Rawal, Co-founder, QuadMo.

Given the gloom and uncertainty prevailing in the economy ,coupled with very less increase in fixed pay in the near future, companies are looking at devising strategies to enhance their reward and recognition programs. As a result, companies are preparing to spend more on reward programs and the focus on intangible benefits will take the forefront. Employers are empowering their employees with more choices in terms of rewards, thus experiential products are becoming the obvious choice. The rewards space is growing at a rapid pace and is becoming an integral component of the Total Rewards arena.

Going forward

The time is apt for organizations to help their key employees stay productive, focused and loyal. Retention will gain more importance than ever before and budget constraints will also play a vital role in influencing the compensation strategies of employers. The need of the hour is to innovate and look at rewards and recognition from a holistic experience. Short term variable pay is expected to take the forefront, whereas a lot of companies will also look at long term incentive plans to retain and motivate their talent pool. Going forward, organizations will have to uphold a more extensive perspective of Total Rewards and also focus on non-cash components and the value of benefits.
 

Topics: #Trends, #TotalRewards, Compensation & Benefits, Strategic HR

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