The time is right to think about compensation and related issues, given that most companies are now more worried than before about costs and productivity and balancing compensation with the organisation?s ability to pay. In the current environment, companies are concerned more about protecting their bottom line than lifting their top line. So employee salary and benefits, among the three top cost elements, is an area of focus for organisations now.
Traditionally, companies have considered benefits in the context of industry standards, roles and responsibilities. Companies evaluate the relative levels of employee benefits provided by an industry. This enabled them to strategically adjust elements of compensation. Key among them was balancing employee satisfaction, recruiting needs and financial risk with payroll budgets. But the employment landscape has changed drastically, and is gradually aligning itself to the new economic realities. There is more emphasis on making wage costs ?variable? rather than fixed and fossilised.
In a strong economy, compensation strategies are typically hinged on employee acquisition and retention. But in a slowdown, the equation changes towards managing productivity and fixed costs and yet keeping employees engaged and motivated.
Compensation philosophies vary from organisation to organisation and industry to industry, and in times like these, companies look at varied ways of rewarding employees. Some are looking at aggressively segmenting employees and rewarding only high performers, focusing on performance-linked long-term incentive programmes, cutting travel and administrative costs and the like.
Others are looking to reduce the base pay and increase short-term incentive compensation, the logic being that if employees are only paid for performance, then companies can afford to pay performers. Some firms are not necessarily looking at overhauling the incentive compensation plans, but looking at making them work better. Some others are reviewing their employee stock options plans to make them more attractive in a downturn.
So, this is a good time to revisit some of the principles and gauge whether they stand the test of time and economics. Given the good economic growth in last couple of decades and the hiring spree of companies, talent often has been overpaid just to be attracted or retained. At an individual level, this may give the illusion of value creation??since someone is willing to pay me more, I am more competent.? This may not be true; the higher pay is most likely an outcome of labour market economics and general business sentiment. When the chips are down, as somewhat now, the wheat will be separated from the chaff, and hopefully a sense of balance will prevail??what am I really worth??
On the other side, it is a good test for companies. ?How much am I willing to pay just for marginal value creation?? When competition and tough times really hit, the question of the worth for every single asset paid for is raised, and it applies to human capital as well. Underperforming assets have to be dealt with. The usual framework for most employees will change and rather than discussions on salary, other elements will take over.
Job security, performance measurement and opportunities for stable growth will be much discussed as is quite evident in language of managers and employees now. This will take the pressure off management and HR leaders, who will hopefully have an opportunity to have a more balanced view of other HR functions rather than just hiring and retaining at any cost, and sometimes even getting blackmailed by talented employees.
Most of the younger workers, and they?re plenty in India, have not really seen tough times. They will get great exposure to cost cutting, asset rebalancing and many similar exercises, which should be good for industry to mature well in the long run. A workforce that sees only white and has not experienced black or even grey is not rounded enough to be a major player in the global economy. B-school students and their prospective employers will also see beyond the sheen of management education. My view is that most companies will strengthen their talent management systems and will be better off in the medium run. They would devise realistic ways of acquiring, grooming and nurturing talent. This will be healthier for professionals as well as companies.
Finally, employees will take a more holistic view of compensation, looking at not just material rewards but at development, company brand, learning and overall well being. It has been the attempt of many HR professionals to get there but given the boom over the last few decades, it has been almost impossible. Perhaps this economic downturn will support that thought process and the external forces will bring about a much-needed change.
The author is head of human resources, Nokia India