Get documents about "04 2008 India's explosive growth has created a talent
Document Sample
Rewarding
India
Tradition meets
transformation
04 | 2008 India’s explosive growth has created a talent management crunch. Businesses
are struggling to cope as established practices are overturned by a dynamic
and ambitious new generation. Can you rise to the challenge? >>
2 Rewarding India 1
Contents
Big opportunity, big risk 2
Getting to grips with scale 4
The generation gap 5
A talent for over-engineering 7
Finding and keeping talent 8
Get your house in order 11
Get sophisticated 13
Get creative 14
Go the distance 16
2 Rewarding India 3
“ India is one of the most exciting
economies in the world, with great
opportunities for growth for both
domestic and foreign companies.
But those who look to India as the
source of an inexhaustible supply of
highly trained, cost effective talent Big opportunity, big risk
are likely to be disappointed – the The explosive rate of growth in India has created a phenomenal
”
demand for talent, which the Indian education system is
reality is rather more complicated. struggling to meet. The gap between older, established workers
and the ambitious, up-and-coming younger generation is
widening, leaving companies struggling to control internal
equity while attracting the graduate talent they need. Reward
programs are in crisis as wage inflation spirals and staff
turnover rates hit new highs.
The knee-jerk reaction of many organizations The best companies are already laying
to the ongoing challenges in India has the groundwork for their future success
exacerbated many of the difficulties faced in India and HR professionals are at
there. Success depends on a measured and the centre of their preparations. India
sustainable strategic response, particularly represents one of the most significant
in the area of reward. Those companies who HR challenges on the world stage: can
address reward together with broader issues you rise to it?
of talent management – training, clear career
paths, employee recognition – will win.
4 Rewarding India 5
Getting to grips with scale The generation gap
Everything about India is huge. Its 3.2 the top 10 producers in the world in a India’s emergence onto the world stage of new and dynamic organizations with
billion square kilometers is home to 1.16 number of sectors, including Tata Motors has been swift and audacious. Management, a new management style and a new type The median age of India’s
billion people – one sixth of the world’s in commercial vehicles, Tata Steel-Corus corporate structures – and, in turn, human of employee – younger, highly qualified population is 24.8 years.
population – and India is the world’s fourth in the metals sector and Ranbaxy in resources and reward management – have and ambitious – that sits uneasily within Just 5.1% of the total population
largest economy in terms of purchasing pharmaceuticals. In the past year an struggled to keep up with the pace of change. the traditional business and career is over the age of 65.
power parity, with a current GDP of Indian company (the state-owned Oil and structure. This new set of employees
US$1.1 trillion. Natural Gas Corporation) appeared for the Before 1991, 85% of post-matriculation thrives on achievement, is unafraid of
first time on the list of the Fortune Most employment was in the public sector. change and expects a rapid ascent up
Economic reforms introduced in 1991 Admired Companies. Pay was determined through agreements the corporate ladder.
set India on a road to rapid growth. between the government and unions, salary
Foreign direct investment trebled in It’s also, famously, a country of economic progression was determined by length of This phenomenon is complicated
2006/07, with India second only to extremes. While the rise of the middle service rather than by performance, and still further by the fact that India is
China as the most favored destination class has increased the spread of wealth, variable pay was rare. Similar conditions inherently a hierarchical society.
for investment. The country’s spectacular the gap between top and bottom of the prevailed in the private sector, where Deference is a feature at all levels and,
growth has been driven by the service range is enormous. According to Forbes government pay scales were often used while it is in decline, is still on a par
sector (particularly IT and business magazine, two of the richest men in the as a benchmark. Job security was the with the experience of the US and
process outsourcing), which accounts world (thanks to the meteoric rise of the fundamental driving force for the vast the UK in the 1950s. Older workers
for 55% of GDP. Mumbai stock exchange) are Indian – majority of employees in India. expect to earn more than anyone
Mukesh and Anil Ambani. At the same younger and there is a close psychological
It’s not all about foreign companies time, India is a country where a third of It’s hardly surprising that the people link between pay level and length of
taking the opportunities that India offers. the population cannot read or write and profile of Indian organizations, as a result, service with the organization.
Indian industrial companies rank among a quarter live on less than 40 cents a day. developed set characteristics. Typically
the workforce featured a large group of But the balance of power is shifting to
people who were dedicated, loyal and the younger generation. The growth in
proud of their long service with the same population together with increasing levels
employer. They were comfortable with of education mean that there are now far
the stringent company hierarchy set by more of the ‘new generation’ of workers
most organizations and expected their on the market – and their skills are in
career to follow a preset structure. demand. As a result, many companies
have to pay new recruits more than their
The open economy and technological older, established employees, creating
revolution, though, encouraged the creation internal inequities.
6 Rewarding India 7
A talent for over-engineering
Managing a two-tier workforce The higher wages demanded – and Indian organizations have been known market aligned blend of cash and benefits.
generally received – by the new young in the past for their love of bureaucracy Indications are that these will reduce Indian companies developed some
The tensions between the older, established generation of highly qualified and mobile and hierarchy, and pay is no exception. still further in future and align with the highly esoteric benefits in order
workers who have stayed with the same workers have created resentment among However, the trend since liberalization has western concept of “base plus bonus”, to reduce taxable income while
employer for years and the younger, the more established workforce. As an been towards rationalization of reward but for now many companies operating in maintaining the level of total
dynamic and ambitious employees added complication, older workers often packages, mirroring the movements that India still need to be prepared to do battle compensation. One company
(who are a particular feature of the have trouble accepting instructions from occurred in Europe in previous years. with levels of complexity and bureaucracy paid its executive a hefty
booming service sector) represent a a younger manager in a society where they long since forgotten in the West. ‘watchman/security allowance’ –
serious challenge for HR. have been used to demanding deference The historic legacy where there was no indication
from the younger generation. Prior to liberalization in 1991, compensation The move to rationalization of any security threat to the
Almost every established Indian packages in India tended to be low on Much of this complexity was driven by employee in question.
organization has these two diverse groups Managing these diverse sets of employees cash and high on complex fringe benefits the desire to reduce tax. A series of tax
of employees. The solid collection of older simultaneously and getting the best out of such as accommodation, cars and reforms has steadily reduced the incentive
(and often disillusioned) workers who have each is one of the biggest challenges faced subsidized loans. to continue these practices, while pressures
been with them for some time are unlikely by established companies in India. New for greater corporate governance and
to go anywhere in a hurry. The younger entrants to the market can, to some extent, In the 1980s, if you asked an employee the need to streamline practices have
employees, on the other hand, see limited avoid this legacy – but will not escape what their salary was, they would tell also acted drivers for simplification.
chance for progression and so look the ‘talent squeeze’ caused by a lack of you their ‘basic salary’, which is not
elsewhere for the promotion prospects skilled workers. the same as a ‘base salary’ but was the Inertia and employee preferences
they crave. primary component that anchors the cash have meant that this legacy still lingers,
allowances and retirement benefits. On particularly in the more ‘traditional’
top of ‘basic salary’ would be other non- heavy industries, but many fast-growth
monetary benefits such as hard furnishing, companies and new market entrants
The legacy practices and cultural influences on Indian business lead to some housing and travel allowances. As many have adopted a simpler, ‘cost to
reward and talent management practices that would be unthinkable in the West. as 22 benefit types per employee were company’ model. It’s likely this trend
For example, many organizations have ‘minimum length of service’ criteria that not unusual. will continue as companies look to
must be met before an appointment to the next grade can be considered. The reduce administration overheads and
cumulative effect of this policy in one Asian bank is that a total of 41 years’ Now, a typical compensation package may comply with more rigorous corporate
service is required before a promotion to general manager could be considered. have up to 12 elements, which include a governance requirements.
8 Rewarding India 9
Finding and keeping talent
Quantity doesn’t equal quality and 15% of general college graduates Even if you find them, In an environment where employees can
are considered employable. NASSCOM achieve a pay rise of between 40% and
The real picture – engineering
India has gained a reputation as an almost believes that the IT sector will face a
you lose them 50% by moving to a competitor, they are Ajay Chopra, a 29-year-old
Despite its reputation for producing
inexhaustible source of keen, talented, talent shortfall of 500,000 by 2010, unlikely to stay put. And because younger marketing communications
an endless stream of engineering
educated and English-speaking talent, which will seriously compromise The high level of demand for graduates employees are less likely to place a high manager with an IT services
talent, demand from other sectors
particularly in the IT and service sectors. India’s position in the offshore IT and experienced employees is driving wage value on continuity of service and loyalty, company in Mumbai, is on his
means that India is facing the same
The reality is more complex. services industry. inflation and creating a culture of job- many typically have several employers fourth job since completing his
shortage of technical engineers as
hopping. Staff turnover of 20% or more on their CV within their first five years MBA in 2002. His first position
the rest of the world. Hay Group
While there is no shortage of graduates Some of the problems can be traced is not unusual in high-demand sectors in the job market. was with a business process
research shows that only 25% of
in India, there is real concern about the to India’s fragmented educational such as the service industry, as talented outsourcing operation (BPO),
technical/engineering graduates are
quality of new recruits. India’s universities system. Indian engineering schools are workers jump from employer to employer, The response to these problems has where he earned RS 13 lakhs
suitable for core engineering jobs.
produce three million graduates a year but not uniformly endowed. World class following the promise of even higher wages. lacked imagination. Typically, employers (US$34,600) a year. Just over a year
only a fraction are considered suitable for institutions like the Indian Institute of make feverish attempts to price and then later he moved to an advertising
employment in the business processing Technologies (IITs) and National Institute Wages are forecast to rise by 14.4% during keep pace with the market, overpaying agency with a salary increase of
and IT outsourcing industries. According of Technologies (NITs) co-exist with 2008, the fifth successive year of double- new recruits and creating resentment 60%. His third move, to an IT
to the National Association of Software privately run engineering colleges which digit growth. This far outstrips wage among longer-serving employees. But company, resulted in a further 70%
and Service Companies (NASSCOM), are devoid of both proper equipment and inflation in China (9.2% in 2007) and this approach only feeds the problem rise in basic salary. He moved to
only around 25% of engineering graduates trained faculty. is second only to Sri Lanka, where wage by driving wage inflation and failing his current employer because, he
growth has been driven by high inflation. to nurture internal equity. says, there was limited room for
professional development with
his previous employer – the move
secured a 40% increase in his wage.
Engineering schools in India ‘There is more room for negotiation
produce around 400,000 graduates Sourcing sectors % Average annual base salary increase (%) with an IT company because there
a year, 125,000 of whom will be is more money there,’ he says.
Information technology 55% 2005 2006 2007
snapped up by the five largest IT
companies in the country. Even so, Indian Banking and financial services 4% Clerical 11 12 12
many have to supplement their engineering Consulting/advisory 2% Supervisory 11 13 14
graduates’ education – Infosys Knowledge process 4% Middle management 12 13 16
Technologies estimates that it talent outsourcing Senior management 11 12 14
spends twice as much on training Higher studies 10% Executives 11 12 14
(around 4% of sales) at its purpose- Core engineering sector 25%
built training centre in Mysore than (chemicals, manufacturing etc.)
its US-headquartered competitors. Source: Hay Group research
Indian engineering talent = all types of engineers – mechanical, chemical, mining
instrumentation, computer etc.
10 Rewarding India 11
Get your house in order
There are clearly serious problems that India is a unique market but reward But this approach has its limitations, Escape the wage inflation spiral
need to be faced by multinationals managers are often hamstrung by unrealistic especially in a fast-growing and often
operating in India and the HR function policies that are set outside of the country. volatile market, where the market price can Too many multinationals in India have
will play a key role in readdressing the Wages in India are rising, and quickly – fluctuate as quickly as every quarter. What’s fuelled their own problems by throwing
balance. Many of the difficulties faced in but in relative terms, India’s wages are more, the almost instinctive tendency of money at young graduates in the chase
retention and recruitment in India have still low. Indian companies is to over-engineer, and for talent. As a result wages have grown
been exacerbated simply because the many HR departments fall to ever more out of control, job-hopping is endemic
specific cultural issues have been ignored specific market ‘cuts’ in a bid to gain more and established workers are increasingly
Market pricing alone
or avoided. Addressing the problems insight into their competitor’s practices. demoralized. It’s even debatable whether
need not be complicated – but it does is not the answer pushing up starting salaries for new recruits
mean tackling some basic housekeeping The reality is, however, that market pricing works in the long term – sector retention
requirements now, or risk facing more With the pressure to retain key talent in such a fast-changing environment can rates and anecdotal evidence suggests
problems in the future. growing, organizations are naturally only ever give a general indication. What’s strongly that it does not.
falling back on market movements more, since in-demand graduates are able
to benchmark their pay. The primary to move between industries, regions and Given the cultural and historic context
Keep your perspective approach to valuing work in India, as even job families, highly specific market of Indian business, consistency in reward
in the West, is market pricing. Many pricing is, to put it bluntly, a waste of time. can be the single most powerful retention
Managing reward in India demands organizations undertake a full review An over-reliance on pay information based tool available to multinationals in India.
flexibility throughout the organization. of the market twice a year. on a micro-market also runs the risk of An equitable pay structure that does not
upsetting internal equity, as you lose sight penalize talented long-stayers can pay real
of the bigger picture. dividends. If you’re brave enough to buck
the trend, maintaining pay parity between
How effectively does your organization new recruits and established workers can
Case study link pay to the market? drastically improve overall retention rates.
The in-house Business Process Outsourcing facility of an American multinational imposed A survey of companies in all sectors
a group-wide wage cap in 2007 of 4% as part of a central cost-cutting strategy. Ravikumar, in India carried out by Hay Group in
its HR and Rewards manager in India argued strongly that the wage cap would seriously 2008 showed that the majority of those
compromise its India operations, where wage inflation in the business outsourcing sector questioned felt that their organization
was running at around 18% for entry-level graduates. ‘I asked for a 20% increase in my was effective or very effective in linking In the late 1990s, a global consulting The growth of key industries has
remuneration budget and was pretty much laughed out of town,’ he says. pay to the market rate. firm decided to puts its technology led to an increase in cross-sector
and business outsourcing facility in opportunities for qualified employees.
The wage cap meant that recruitment levels at the India operations fell by 35% in the Not effective – 1 (3%)]
Bangalore, South India. The mandate The construction industry is currently
first six months of the year. The restriction has since been relaxed for India and other key was to scale the facility to 5000 seeing staff turnover at a rate of
developing markets. employee in two years and the brief 25%, compared with 5% five years
for the recruitment managers was ago. Employees with experience
Average Very effective “multiply by 4”: raise the salary of any in the construction industry are
7 (22%) 10 (32%)
potential recruit by four. This resulted being lured into the IT industry,
in the closure of number of smaller as they are highly valued for their
firms in the city who could not construction industry experience.
Effective compete with the newcomer.
13 (42%)
12 Rewarding India 13
Get sophisticated Get creative
Reward practice in India is still hamstrung in India at levels beyond the traditional Instead of competing blindly on price, there that doesn’t necessarily make it an
by ingrained habits and cultural quirks. domain of senior management. Indeed, is plenty of scope for employers to apply a insurmountable problem. The best
The best companies are breaking free from in our experience, many CEOs and little imagination to their reward strategy companies are already finding ways
India’s employment and reward legacy, while business leaders are using their variable pay as a way of differentiating themselves from of making India’s culture work in
recognizing that India is a unique market components, not only as a strategic lever to their rivals. No employer can afford to be their favor.
with specific requirements. attract and retain talent, but to build high- lazy about the total reward package – a little
performance environments. flair goes a long way. In terms of reward, this means putting in
The strategy employed by many companies place more grades, levels and bands (based
of pushing up salaries is simply not Variable pay is not unusual in India, but its The benefits culture is deeply ingrained in on clear and quantifiable thresholds) than
sustainable in the long term. For the past application in practice could be drastically India and employees will inevitably expect you would do in other parts of the world.
five years, companies in India have doled improved. For instance, until recently, to see a reward package built on basic It’s also worth celebrating progression
out double-digit salary increases but employee share schemes have been used pay, with a variety of benefits and cash through the company hierarchy with even
attrition rate still hovers at around 15% simply as a tax-free way of paying employees allowances. This gives plenty of scope to more exalted designations. The pay grades
across all levels. A more sophisticated more. Schemes typically last for just a year offer incentives that are likely to appeal to may be on par with the practice in other
approach is needed, which borrows the and are effectively a bonus paid in shares. the target audience – the younger Indian countries, but there are many more job
best from Western reward practice while They are known colloquially as ‘sweat generation value technological gadgets very titles within each level. This goes a long
making allowances for the local market equity’ – the reward for all the sweat and highly, for example, and training of all types way towards fulfilling the need to see a
environment. tears of the previous year’s work. These is held in high regard. steady career progression. It also allows for
short timeframes mean that there is little a closer alignment to the market, as the
Overall, for example, its cultural heritage or no scope for aligning reward to long-term Instead of offering a basic set of benefits, salary differentials between levels of work
means that India scores poorly on linking performance measures. the best companies are beginning to offer in India are much higher than in some
pay and career progression to performance, a choice from a menu of incentives that other markets.
and this represents a huge opportunity for India remains far behind the West in the allows employees to optimize their tax
employers. There is enormous scope for way it uses equity-based compensation planning. Some, such as an accommodation The best companies also recognize
multinationals to move to a more merit- and the link between share schemes and allowance, attract favorable tax treatment that Indian culture values knowledge
based attitude towards reward, with a performance, in particular, is in serious need while others, such as a company pension, and education very highly indeed. The
greater concentration on job evaluation of attention. Existing variable pay schemes are unusual enough to attract interest. promise of a certificate can be a major
and a rigorous approach to performance should be closely examined to check motivator for employees. Many MNCs
management. whether they are reinforcing behaviors operating in India offer a wide range
which bring benefits to the organization, Make India’s culture work for you of training options with, most
This desire for greater accountability and not just benefits for the individual importantly, a certificate or some other
has seen a recent growth in ‘at risk’ pay employee. The influence of hierarchy in India, form of celebration at the end of it.
particularly in the workplace, is not The more noise you can make about
something that can be avoided. But individual achievement, the better.
A survey of large employers in all sectors in India carried out by Hay Group in 2008
showed that only 42% felt that their organization was very effective in demonstrating
a clear link between pay and performance. 32% felt the link was effective and 19%
felt their alinks between pay and performance with on a par with their competitors.
7% of those questioned felt the link between pay and performance could be improved.
One respondent commented that the link between pay and performance was strong
‘on the drawing board’ but the evidence of how well the scheme was motivating
employees in practice remained to be seen.
14 Rewarding India 15
Go the distance
There are serious concerns that India’s potential as a world class
How effectively does your organization economy is being jeopardized by its inability to compete on
use non-cash reward such as recognition Case study quality. The sale of Jaguar-Land Rover to an Indian manufacturer
programs?
Not at all A New Delhi-based electronics manufacturer introduced a performance-linked retention was opposed by Jaguar dealers in the US on the grounds that
2 (7%)
Not applicable Very effective scheme in 2006. Employees receive additional incentives only after completing three Indian ownership would damage the brand.
2 (7%) 3 (10%) years with the company. As the length of service increases, so do the incentives, with
the maximum achieved once an employee reaches 10 years of service. The scheme also
involves transparent and effective communications to all employees. Attrition levels both
The reward culture has a part to play in addressing India’s brand
Less than
at the middle and junior management levels have been reduced by half. quality. The challenge to India is to recognize the value of skills,
effective
4 (14%) Effective particularly manual skills. Unless India is able to compete with
9 (31%)
the quality goods manufactured in Japan and Germany and
Average elsewhere, its long-term economic survival is at risk.
9 (31%)
(Hay Group
survey, 2008) Organizations operating in fast developing in the global market. Instead of competing
economies have a tendency to follow the on price, India will need to rely on quality,
bandwagon without thinking where it’s going. innovation and expertise – and reward
India presents enormous opportunities for managers will contribute to this by aligning
multinationals, but comes with equal risks. total reward more closely to quality-based
performance measures.
Now is the time to address these issues,
while the business environment is positive The challenges faced by large employers
and companies are enjoying growth. The in India are urgent but by no means
potential slowdown in the US market insurmountable and a successful future
will have implications for India’s service lies in a robust but imaginative HR strategy.
industries, while investors who put money It’s up to HR professionals to deal with
into India in past years are going to start some their basic housekeeping demands
looking for returns. This will put increased now, if you are to avoid trouble in the
pressure on companies to reduce overheads future. Some hard work over the coming
and increase performance – those who months and years will provide the necessary
already have their house in order will better backbone and sustainable framework for
weather any coming storms. managing pay, people and performance
in the long term.
In the longer term, pay inflation will erode
the relative affordability of Indian business India is a huge prize but this is a long
and Indian companies will have to work distance race. It’s not the sprinters that
harder to ensure that they are competitive will win.
16 Rewarding India 17
Authors:
Mark Thompson Sridhar Ganesan
Practice Leader, Asia Consultant
Reward Strategies Reward Strategies
Hay Group Hay Group
Email: mark_thompson@haygroup.com Email: sridhar_ganesan@haygroup.com
Tel: +91 (0)124 417 7414 Tel: +91 (0)9867005323
Mark works with a wide range of Sridhar works with a range of organizations
organizations in India, UK, and around in India in the areas of organization
the world to design reward strategies design and reward strategies.
and to implement reward policies that
support business objectives.
Africa Helsinki Dallas
Cape Town Istanbul Edmonton
Johannesburg Kiev Halifax
Pretoria Lille Kansas City
Lisbon Los Angeles
Asia London Mexico City
Bangkok Madrid Montreal
Beijing Manchester New York Metro
Hong Kong Milan Ottawa
Jakarta Moscow Philadelphia
Kuala Lumpur Oslo Regina
Mumbai Paris San Francisco
New Delhi Prague San Josè (CR)
Seoul Rome Toronto
Shanghai Stockholm Vancouver
Shenzhen Strasbourg Washington DC Metro
Singapore Vienna
Tokyo Vilnius Pacific
Warsaw Auckland
Europe Windsor Brisbane
Athens Zeist Canberra
Barcelona Zurich Melbourne
Berlin Perth
Bilbao Middle East Sydney
Birmingham Dubai Wellington
Bratislava Tel Aviv
Bristol South America
Brussels North America Bogota
Bucharest Atlanta Buenos Aires
Budapest Boston Caracas
Dublin Calgary Lima
Frankfurt Charlotte Santiago
Glasgow Chicago Sao Paulo
Hay Group is a global management consulting firm that works with
leaders to transform strategy into reality. We develop talent, organize
people to be more effective and motivate them to perform at their
best. Our focus is on making change happen and helping people and
organizations realize their potential.
Visit www.haygroup.com
Related docs
