Time to think “Compensation”
This is an interesting time to think about compensation, and related areas, given the fact that most companies are more worried about costs and how not to compensate rather than the other way around. However, this is actually a good time to revisit some of the principles and test whether they stand the test of time and economics. Here are some random thoughts–hopefully in keeping with the times.
a) Given 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 –i.e., because someone is willing to pay me more, I am more competent. This may not be true and in fact, is most likely an outcome of labor 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?
b) 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 (or costing the corporation) is raised–same applying to human capital as well. And underperforming assets have to be dealt with.
c) 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 sable growth will be much discussed–as is quite evident in language of managers and employees now, as well as the media. This will take the pressure of management and HR leaders who will hopefully have opportunity to have a more balanced view of other HR functions rather than just hiring/retaining at any cost and sometimes even being blackmailed by talented employees.
d) Most of the younger workforce, and that’s plenty in India, have not really seen tough times. They will get great exposure to “cost cuts”, “asset rebalancing” and may similar phenomenon which should be good for the industry to mature well in the long run. A workforce which sees only white and has not experienced black or even grey is not rounded enough to be a major player in the global economy.
e) 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 overall and will be better off in the medium run while also setting a more realistic way forward for acquiring, grooming and nurturing talent, which will be healthier for professionals as well as companies.
f) Finally, employees will take a more holistic view of compensation, not just material rewards but 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, has been almost impossible… Perhaps this economic downturn will support that thought process and the external forces will bring about a much needed change.
In the light of changes in the market scenarios of late, the balance of power indeed has shifted. The talent scenario has morphed from a sellers market to a buyers market, with organisations putting themselves back in the driver’s seat and being the price maker rather than price takers. Thus, there will be a strategic shift with organisations focusing more on the ‘motivational’ aspects of compensation rather than the attraction and retention aspects.
There is a need in India to re-visit compensation packages for executives as well. CEO compensation should also reflect the current market scenario, this will be a step in the right direction for ensuring compensation fairness and procedural justice.
Given the current tumult in the global markets i think it will become imperative for companies to rethink their compensation strategies. i agree with Bindiya in her assessment. packages now would have to focus a lot more on the motivational aspects. also the current scenario will ensure a correction in the packages, which to my mind have spiralled out of control a little in the past few years.
I will agree with Kiera in her assessment of there being a correction in terms of the salaries. how do we then still maintain to attract the top talent then remains the challenge. Innovative compensation plans are the need of the hour in my opinion.
As Bimal has very rightly pointed out, what employees need is a holistic view towards compensation, rather than mere monetary benefits. In fact the practice of switching jobs for merely monetary incentives should come to an end. i feel compensation should reflect the current market scenario as veenu has mentioned
I feel that the compensation strategy of an organisation essentially depends on the nature of the economy. In a capitalist economy, which is the private sector of India today, the essentail focus is on maximising returns to the owners (shareholders) of the company. In this scenario, employees are paid like any other asset, their price being determined by the supply and demand dynamics. Now in the given market scenario (recessionary), the going price of human capital/labour would be low. I feel therefore, that any assets worth, including human resources’ is fundamentally a play of the market forces of supply and demand.
Here is my take, though the current marketplace economics determines a lower pricing of human capital, its also important to note that the companies which invest rightly in terms of innovation and technology differentiators eventually win out when the markets shifts out from the trough. Hence it is important that we just continue to build the right talent at the right price and keep the foundation strong when the going gets tough
2 comments:
-Just as mentioned earlier, talent is also being priced as per supply-demand economics. The faster the workforce realises this, the better. This has implications for companies as well: buy when the market is low. It’s a great timeto hire good talent, at market competitive prices.
-This also means all those who oversold themselves will now find their “true value” in such a market.
An interesting aside: in today’s scenario, the “true value” of our function may well go up! Need for HR practitioners who are well versed with slowdown, IMHO, should be at an all-time high.
A good discussion and thought process by Bimal on Compenstaion & Benefits. In the current recssion time it also important to re-look at our existing HR Policies and processes. Rationalization is necessary but at the same time keeping intact the motivation of employees(which is more intrinsic in nature) is the key cahllenge. Economy is dynamic and a cyclical process therefore while attmpting to correct the existing compensation and benifit requires a long term and futuristic vision in the interest of the Company.We should not craete a set up to fall.
Assessment of employees in terms of their competencies and potentail and realigning their job for better efficincy, engagement and prodouctivity can to some extent address the issue of irrational compensation given in the past due to marlet dynamics.
Wisdom revisited. The one which we forget when the economy booms. The same set of talent poachers talk a different language in such a time. We must take lessions from corporations who have seen varoius cyclic changes and stood firm in their moderate(labelled by the “market”)compensation policy.
This economic slowdown at global as weel as local level has awakened everybody and has made us realize how important it is to take a holistic approach and how seamleness is essential in successful accomplishment of any goal.The cyclical nature of any activity/subactivity, function and processes alongwith the interlinkage sometimes acts as a trigger in this direction.
Similarly when we discuss about compensation restructuring, it should not only aim at reduction of employee benefit schemes in any organisation rather its implication on other sub systems.Ideally it should aim at rationalisation of its cross linkages thereby acting as a speed breaker for every related fields.Case in point is, consistently top rung b schools and engineering colleges see a surge in salary at entry level.A conscious decision to stop this surge should ideally be reflected in reduction of fee in these institutions of repute.
So the objective should be rationalisation at every front by restructuring of compensation at this point in time.
This is like witnessing the collapse of the ‘talent bubble’ - unreasonably high asset ‘prices’(i.e. remuneration)driven up by speculative investors (in this case organizations outbidding each other).
Perhaps, we are now entering an era where compensation variability will decline for the bulk of the workforce, especially amongst those with generic skills, while specialised and leadership positions will continue to witness robust growth, though at a pace slower than what we have seen in the last few years.
Bimal interesting read. Business cycles are a normal part of the economic landscape and we will see the boom again. India is witnessing a contraction for the first time, for it is the first time that the economy had boomed.
The Indian talent market is small, though growing and it may be short-sighted for organizations to squeeze costs by reducing numbers.
What organizations need to do is :
1) To control costs via a focus on “Total Compensation”, rather than just “Cash Compensation” as they were doing recently.
2) Look at Total Employee Cost by factoring in costs like training, office costs, travel costs etc.
3)When the good times come back, as they inevitably will, organizations have to ensure that more and more of the pay is variablized. This is essential for the organizations to survive tough times without layoffs.
4) Ensure that they have a transparent process in place for recognizing and rewarding talent.
Bimal has very humbly tried to raise a context which gives a chance to look beyond and raise a new level of thinking.
Really, it’s time to radically rethink compensation strategies without compromising on creating high performance spaces, if we are serious about growth and sound business outcomes.Since tough times are also an opportunity for many of us to look at newer business avenues both in terms of redesigning out business thinking and balancing the compensation mix in innovative ways.All should realise that in the current economic cycles instead of falling behind and panicking, one has to stand up,work out a proactive and a very strong visionary business plan supported by cherry picking talent and powerful rewards.It’s a window of opportunity for us to look at the bright side of the dark economy.Hence we should have a correct and proper understanding of compensation without being defensive and use it both strategically and tactically to drive business results.
The true test of a business is to keep going ahead and thrive on chaos despite of hurdles,as in the 21st century we would continue to live in a fluid and uncertain economic environment.Though Compensation plans on their own are not sufficient reasons for many employees to act in the way that they are compensated to.Conversely there are reason to believe that the failure of many organisations who came out with innovative approaches to value creation as against their own valuation,their ways were ostensibly designed to be opposite leading to disaster,due to crises of integrity & behaviour, as in the case of Global financial bigwigs.This behavioural dimension liked to financial performance has to be rightly understood & addressed by all HR professionals prior to the next big move, as a strategic business partner.Truly speaking, HR is supposed to be the custodian of people and a trust keeper.
Let’s surge forward with a progressive and strategic approach so that we can wisely reshape or re-vamp our compensation structures.Transparency and creating trust is going to be a key element in this process.The trick is to be able to develop a good balance between fixed and incentive compensation, and long term versus short term pay.We have to think about our organisations like owners, only then we can ensure a sustainable cash flow and positive return on our compensation invetment.
If we remain confident we will use our fuel for further growth and certainly there is going to be a light at the end of the tunnel.
Warm Regards,
Vijay Rai
Group President
Luxra Group