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Unpacking the key compensation and salary trends across sectors

Compensation Strategy & Design|Executive Compensation|Talent|Total Rewards
Beyond Data

By Arvind Usretay | December 18, 2019

Pay and reward hold a central place in an HR strategy. The ever changing and demanding economic climate means that employers often have less room to maneuver in designing their reward strategies.

Pay and reward hold a central place in an HR strategy. The ever changing and demanding economic climate means that employers often have less room to maneuver in designing their reward strategies. Yet, the perennial challenges in this field remain – i.e. the need for the reward systems to be aligned with the organisation’s strategy, attract and retain the workforce required to deliver on the business strategies, encourage better performance, and shape attitudes and behaviours and reward people in a way that does not create disaffection or dispute.

Reward itself has several elements, each with its own value. First, we look at base pay trends in the market. The second theme explored is variable pay and emerging trends. Third, we look at benefits as rewards. Then, we look at recognition as an element of total reward and explore emerging trends there. And finally, we turn to executive rewards.

Base Pay

Indian companies have traditionally been heavily dependent on base pay programmes to drive performance and differentiation compared to their global counterparts. This way, supported by steady economic growth, India continued to show high salary increments compared to other countries in the Asia Pacific region and markets of the world.

However, this model of designing and managing base pay is continuously under pressure, given the demanding economic conditions and the need for businesses to manage their employee costs better. In classical format, pay should be determined at the intersection of supply and demand.

However, it is difficult to determine the market rate. Firstly, the increasing complexity of pay packages means it is harder to make base-rate comparisons and with a global market for skills, it is even more difficult.

We expect that increasingly employers will pay for possession of skills critical for future business model, market competitiveness, criticality of the role and perceived potential of talent.

Variable Pay

Given a tight labour market scenario, jobs and work being redefined, and the need to attract and retain not only critical talent, but diverse employee groups as well, it is critical to examine the traditional methods of pay process and governance.

However, recent Willis Towers Watson research found that most employers also struggle to use incentive pay as a tool to reward performance in a highly differentiated way.

In order to be successfully implemented, variable pay programmes require clarity in goal setting, transparent and objective performance evaluation, superior communication and complete alignment to the broader interests of the business.

Variable pay programmes can be expected to evolve in the following direction:

  • Aligned to the outcomes associated with the purpose of the job, not for simply fulfilling certain actions or activities
  • Designed to promote creativity and innovation and not to offer extrinsic “carrots” for getting the job done
  • Focussed on the “big picture”. They will balance between rewarding short and long-term results
  • Consider company performance as much as individual performance (traditionally, far too much emphasis was placed on rewarding individual performance)
  • Variable pay plans will be more clear, simple, relevant and achievable to be effective (traditionally, programmes have either been too discretionary or too quantitative)

Benefits

There has been increasing interest on benefits within reward strategies. Willis Towers Watson’s 2019/2020 Benefits Trends survey takes the pulse of current employer perspectives, strategies and practices in more than 50 countries around the world. Over the years, Benefit Trends surveys have identified a steady progression in how employers and employees view their employee benefit plans. From a transactional, “check the box” item, benefits have evolved into a true attraction, retention and engagement tool. Today, employers understand that their benefits can be instrumental in shaping the type of organisation they are and the way their employees and their peers perceive them.

So, what can companies do to deliver a modern employee benefit package? They can:

  • Establish a broad-based philosophy and strategy to modernise benefits to reflect business strategy and culture as well as employee values, preferences, diversity and inclusion
  • Review and update governance protocols and the operating model to execute the strategy
  • Ensure ongoing oversight to stay on track as the business and workforce evolve, corporate transactions occur, laws and legislations change, and employee preferences and behaviours evolve

Recognition

In addition to their low cost, recognition programmes offer a quick way to support emerging skills and changing workplace practices, and provide immediate, personalised rewards, particularly appealing to the employees seeking instant gratifications.

Going forward, we expect that employers will use this more often and more effectively.

Employers are also expected to make the following considerations when they design their recognition programmes:

  • The larger purpose: R&R programmes must enable employees to see the impact their work creates in the organisation, function or team. This helps them to contribute and deliver high performance consistently
  • Relevance: R&R is most impactful when it is connected to accomplishment of measurable objectives and not based on subjective opinions
  • Personalise: In order to be impactful, R&R programmes must be specific, accurate and personal - call out specific accomplishments rather than generic actions
  • Communication: Recognition needs to be communicated well and through multiple channels and as often as possible. This helps in ensuring the messages are well circulated and received

Executive Reward

The financial crisis of 2008 had put the issue of executive pay under the spotlight, highlighting the concern that executive compensation arrangements may have contributed to excessive risk-taking. Another a long-standing concern is around the increase in the remuneration of executives relative to other employees.

Willis Towers Watson’s research shows that, globally, organisations are reviewing their executive pay and incentive programmes and there is continued effort from regulators and institutional investors to strengthen the alignment between executives and company stakeholders.

Trends in the executive pay area include:

  • Tailoring executive pay programmes to company's specific strategy and execution
  • Monitoring performance targets of senior executives in light of changing economic expectations
  • Increasing use of high-quality executive compensation benchmark data
  • Revision and expansion of Remuneration Committee terms of reference
  • Scrutiny of pay mix, variability and role of discretion in executive pay programmes
  • Updated outside director remuneration to reflect expanded role, prominence

*The article was first published in Hindustan Times on 17th December 2019

Author

Arvind Usretay
Director – Rewards

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