Compensation challenges and ways to handle it

As market becomes competitive, the value of talent goes up. Though pay policies of companies are derived out of their pay philosophy, market is also becoming a key determinant in deciding the price for the skill sets. Employee Value Proposition or EVP is the unique set of benefits that the employee receives in return for the skills, knowledge and experience they bring to the company. As per recent survey of the IT industry, with the rise in competitors and market volatility, two important developments are taking place:

-Rate of growth of revenue does not justify the rate of growth of employee cost or CTC

-Salary levels go up but attrition rates remain the same.

Both the cases will eventually increase the cost to company.

As human resource professionals, how can we propose a compensation model that goes well with the organizational strategy and returns?

-Look for entrepreneurial behavior

With stock options, we can not just encourage employee retention but also give talent reasons to feel ownership over their work.

-Simplify Compensation

We are playing a lot with variable component of CTC which is not needed most of the time. A simple principle is that if the you can monitor day to day work of the employee based on predetermined criteria, keep the employee motivated by increasing the fixed pay. However, for those positions that involve a high level of risk and where monitoring of both performance and potential is not possible on a daily basis eg.: sales position, keep them motivated with performance- based pay.

-Revise the job profile based on the compa ratio:

Compa ratio or compensation ratio is calculated as the employee’s current salary divided by the current market rate as decided by company’s competitive pay policies. Compa ratio 1 means that the employees is paid exactly what the industry average pays. Based on the pay policy of the organization, it might be leading the market/with the market or lagging the market. It will also depend on the demand of the skill sets for that profile in the market. eg.: organizations easily offer 35-40 % hike on current CTC when hiring for Data Scientist role but not more than 20% hike for Java Developer. Organizations need to revise the job profile when the compa ratio is more than 1 as it is paying higher than the market standards for the skill sets. Employee must be competent enough to be paid more than the market standards for the skills and experience. Keep revising the KRAs or KPIs to ensure that such employees are not becoming unreasonably expensive for the position and employer.

-Emphasize on the relational rewards:

Many brands are not pay masters but attract and retain best talent by providing relational rewards. These include work-life balance, flexi-schedules, job security, autonomy, work culture, other benefits. In long term ,these benefits are instrumental in engaging and retaining employees.

Devika Anand