‘Cos taking cue from crisis to rationalise pay packages’

A Mercer study finds that companies are taking the financial downturn as cue for aligning their compensation strategy.

Mercer released findings from its first compensation practices survey conducted during the 3rd quarter of 2008 which showed that the current economic crisis has made companies revisit the way they attract, reward and retain their best talent.

Mercer?s survey spanned 76 MNC and Indian companies primarily in IT, Manufacturing, Engineering and High Tech of which nearly half the surveyed companies had a headcount between 1000 to 10,000 employees and over one third had revenues ranging from $1000 to $10,000 Million and over.

Speaking with FE, Gangapriya Chakraverti, India Business Leader, Information Product Solution?s business at Mercer said that Mercer felt this was a good time to conduct the survey primarily because over the last few years because of the exponential growth in some sectors there was no real system practiced by companies in managing compensation. Compensation rules such as adherence to salary bands and to internal equity were not followed. This resulted in variation in compensation for same jobs and increments which were not linked to performance.

The survey found that though most companies in India use the Cost to Company (CTC) model, there weren?t any similar definitions as to what individual companies included in CTC. While the survey revealed, ?Most companies (82%) revise the pay ranges once a year, while some companies (11%) revise/ review pay ranges depending on market conditions?, Mercer felt it was normal for companies to revise salary bands based on market.

?The principles for good compensation practice are straightforward. The rules for compensation being followed by an organization need to be perceived as fair and need to be communicated across the organization. Two, global organizations will succeed when they show they can adapt their compensation rules to the local country they are operating within, for example global IT and Research and Development companies which have witnessed exponential growth in India and have emerged successful are the ones who have tweaked their practices to the reality of the local market based on pure talent dynamics and also taking into consideration their local HR?s input on compensation.

Finally, companies which already have practices in place regarding compensation and are not adhoc about compensation exercises are the ones which will stay on track in the long term?, adds Chakraverti.

Global companies show adaptability by revising salary bands based on the local market. Benchmarking salary against industry and peer group is a common practice within companies in developed countries. This trend is also increasing in India. Benchmarks may differ in that developed countries may position their salary against the median in the market, whereas in India because of the growth during the past few years companies may have had to position themselves above the median in the market in the past few years.

Mercer plans to conduct this survey once every two years as that is the time period over which companies make substantial changes to their compensation strategy.