It’s time to rewrite rules of the compensation game

The conventional wisdom of managing employee compensation has focused on budgets, benchmarking and transactional methods of pay. It’s a game we all play in the corporate world like a ritual, with no real rationale.

Evolution of compensation has been primarily guided by the logic that it is the best tool to attract, retain and motivate talent. But a growing collection of evidence in every organisation is beginning to defeat it.

The never ending war for talent, a slowing economy, two decades of double-digit increases, executive pay reaching global levels, a far larger economy from where we started in 1991, are all getting us to a point of inflection.

It’s not just important but critical for our survival to re-think the future of rewards. Employee demographics have changed dramatically. The average employee is 10 years younger, over one third of the workforce is made up of women, virtual working is a reality, the private sector has grown from metros to tier-2 and tier-3 cities.

All these factors will impact the delivery of rewards in the years to come. Today’s workforce will superannuate or weed out owing to redundancy; only 20% of the total workforce in the private sector is at an income level that can plan for retirement.

The rest, in the absence of any social security by the government, will struggle for sustenance. This is a major concern that unfortunately neither employers nor employees are thinking about. It’s a golden opportunity for HR leaders to claim their rightful seat on the management table. It will require compensation and HR managers to wear different hats — as business leaders, as the voice of employees, as financial planners and as soothsayers and psychics. It will need them to:

STUDY EMPLOYEE PREFERENCES 
They will need to invest in studying employee preferences, spending patterns and current and future needs. Rewards will have to be managed as a portfolio and not programme by programme. You can create a win-win solution by blending employee preferences with organisational costs to optimise plans. If only benchmarking guides your programmes, the only differentiator is the cash in hand, which is easy for your competitor to improve and replicate.

ALIGN WITH BUSINESS PERFORMANCE 
We all believe that salary increases have followed the logic of economic growth, which creates job opportunities, rise in attrition levels and hence the spiralling of compensation. For a long time in many sectors, organisations have been paying bonuses and salary increases without correlating it to real value creation for the shareholders. If pay is at the 75th percentile, then performance must be too.

RE-EXAMINE LEADERSHIP REWARD 
Shareholder activism is increasing and rightly so. India is the most capitalistic country, with the highest salary divide of 822 times between the CEO and the entry-level employee. We have kept entry-level salaries in check, with only 8% to 10% increase over the past five years; while this has been achieved owing to attrition and increased hiring from campuses, why isn’t the same trend seen at middle and senior management levels, where the increase is 35% and 60% respectively? Why haven’t we groomed internal talent and built a leadership pipeline that would have reduced lateral hiring and kept salaries in check?

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