The Fourth Dimension - Aon

India • Volume 3 • Issue 2

The Fourth Dimension Voice of Employees

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The New Pension Scheme

A Step in the Right Direction

22

New Banks

License to Skill

32

The Changing Face of Rewards Perspectives from Leaders

what’s inside cover story

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The Fourth Dimension

Voice of Employees With an increasingly diverse workforce, no single reward element continues to be a value driver. Employee preferences vary widely – influenced by age, life stages, personal career anchors and so on. This article unveils the results of our flagship research on employee preferences in Total Rewards and how they vary by demographics.

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09

22

Analytics at Work

Decoding Flexible Benefits

Survey Calendar

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The New Pension Scheme

The Changing Face of Rewards

A Step in the Right Direction

09 New Banks

Perspectives from Leaders

32

License to Skill

Trend Check

22

CEO Compensation vs. Performance

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Total Rewards Quarterly India • Volume 3 • Issue 2 www.aonhewitt.com/india

Editors Shilpa Khanna [email protected] Sushil Bhasin [email protected] Tel: +91 124 4155000

Editorial, Reprints & Syndication Office Aon Hewitt Tower, DLF Centre Court

There is enough bad news all around us and while being aware of it is important, to keep debating the situation is of little use. In the same way that a long period of business expansion generates over-optimism, the sharp nature of an economic downturn tends to generate an over-pessimistic reaction. The worst thing economists do is to extrapolate the current trend, whether good or bad and we all know that it often does not pan out that way. We need to spend our energy in relooking at our people model in light of the new low our economy has landed in. We should strap ourselves for the next 12 months, the least it will take for some stability to be restored. Organizations in such a situation are likely to make early mistakes like, handle cost takeouts in a fragmented and unstrategic fashion, start downsizing thinking the war for talent is the phenomenon of the past, etc. From elevating HR to the CEO’s agenda we cannot suddenly regress and expose our undeveloped leadership and decision-making capability. We can’t be seen making a trade-off between engagement and business results.

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Total Rewards Quarterly is published four times a year by Aon Hewitt Copyright © 2013 Hewitt Associates India Pvt. Ltd.

Organizations are finding newer ways to enhance the perception of pay, without necessarily investing in cash. This has led them to focus on benefits, understand employee preferences and differentiate for critical talent. In this issue we bring to you insights from our extensive research on employee preferences. In a burgeoning economy there is colossal waste of resources, from capital to talent deployment. Organizations would need to take stock and enumerate various ways to improve efficiency and boost productivity. The focus should move from "attract and retain" to "differentiate and engage". No decision we take during this period should make our current survival and turnaround difficult. Few key messages which actually state the obvious, but are often overlooked in our rush to make a difference include: "Start before you have to" – emphasize restructuring as a proactive measure, than a reactive strategy Focus on core issues – "cost" may not be the problem Shift from a mindset of deadline to reinvention Ultimately, however we choose to act in response to the current challenges, we need to appear coherent as an organization, industry and country.

Sandeep Chaudhary Partner, Talent and Rewards, Aon Hewitt For more information, please write to us at [email protected]

TotalRewards quarterly


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Analytics at Work As leaders struggle to climb on the "big data" bandwagon, how can they be sure that they are making the most of the data available to them? The quantity of data available may make an issue seem important,1 but collecting more data won’t necessarily make for a better or more informed decision. Identifying the root cause, choosing data points that are relevant and applying the right level of analysis to suit the problem are the key means to reaching the best decision with the best possible outcome for the organization. In recent years, investment in enterprise technology has enabled organizations to make better decisions

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www.aonhewitt.com/india

about such business processes as customer relationship management, procurement and supply chain operations. Organizations have removed excess cost, achieved greater efficiencies and higher performance through superior understanding of the origin of their operational issues. Driving success from analytics came not just from its use, but from recognizing the specific operational issues and understanding how analytics could use the data available to facilitate objective, fact-based decision-making to realize a viable solution. Marriott International leveraged analytics to optimize its offerings to frequent customers and to assess the probability

PERSPECTIVE

of their defecting to a competitor, so that it could take action to retain them. Its revenue management analytics have enabled Marriott to create a highly successful revenue opportunity model, which has increased revenues from 83% to 91%, by analyzing actual revenues as a percentage of the optimal rates that could have been charged.2

The Power of Workforce Analytics When it comes to the workforce, organizations have not been as quick to adopt the same analytical approach. Organizations dedicate very little time or money to measuring the drivers or outcomes of employee capabilities.3 As organizations are challenged with doing more with less, leaders are now looking to understand how they can leverage their workforce more effectively and profitably. Human Resources Information Systems (HRIS) and other workforce information systems have made employee data more readily available. Organizations such as Google, AT&T and others have used analytics to understand what drives higher employee engagement, productivity and retention.4 Analytics has enabled such companies to remove subjectivity from their decision-making. They no longer ask “What do we think?”; instead they ask, “What do we know?” Organizations are now able to use the existing data that underpins their workforce dynamics – the flow of talent into, through and out of an organization – to make decisions on matters such as HR policy, Total Rewards, employee engagement, productivity improvements and people risks. Traditionally, workforce data was reported such that it captured and reflected historical trends. While this was informative, it lacked the granularity to be exploited to a great advantage. The organization’s ability to make decisions on where to focus retention efforts, training and recruitment activity were largely based on experience. Identification of future leaders and high potentials was based on opinion and past performance. By applying analytics, however, bias and ambiguity are removed. Leaders can make fact-based decisions that will improve workforce performance and productivity. By gaining perceptive insights from their data, organizations can understand the positive and negative drivers of workforce performance and change their HR practices to achieve better outcomes, such as increased retention of talent.5 How organizations turn workforce data into workforce intelligence by utilizing analytics need not

By using workforce segmentation analysis, an organization is able to break down large populations into "groups" of employees in order to hone in on what is important to them and how each group might behave in certain circumstances.

be complicated. There are many levels of sophistication in HR analytics. Creating the ability to take the data currently available and turn it into actionable insights relies on five things: Data – The key to analytics is both the quantity and the quality of the data available. However, organizations should not be deterred from using their data because they believe it to be of poor quality. Analysis will highlight where efforts to improve data integrity should be focused Technology – Information systems need not be complex, but analytics will reach its full potential if HR systems are integrated across the organization, have ample data storage capability and are accessible to those who require it Culture – Evidence-based decision-making is not just a best practice; it is advocated by leadership and applied by everybody Capability – Good analytics requires good analysts. Identifying and hiring individuals with a unique combination of analytical, business and interpersonal skills is critical for success Objective – A clearly defined purpose will enable the right data to be used to support the right solution

Getting Started So, what to look at first? Organizational performance is unquestionably linked to the capability and engagement of employees. Sysco, a Fortune 100 global food service company, used analytics to understand exactly why operating units with highly satisfied employees had higher revenues, lower costs, increased retention and greater customer loyalty. They identified specific management actions that had the greatest impact on their staff; within six years, they strengthened their TotalRewards quarterly


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retention rate from 65% to 85%. But the most significant result was the overall saving of nearly USD 50 million in hiring and training costs during that period.6 Analytics enable organizations to answer questions related to the links between their workforce and business performance: How does the workforce impact organizational success? A simple approach to analytics utilizes the results of an organization’s engagement survey and understands its relationship with financial performance over time. Which are the highest risk departments in the organization? Analyzing the performance results of employees by department provides insights into the areas of the business that are struggling. It also opens up areas for further analysis to ascertain if there are particular teams or individuals impacting the overall risk. Which HR policies or practices have the biggest effects on the organization? By leveraging analytics, organizations can evaluate the ramifications of employee programs on employee engagement, retention, productivity and performance. How does the organization deal with changes in the workforce? Analytics allow for more effective workforce planning by scrutinizing internal and external data to create "what-if" scenarios. This enables the organization to mitigate workforce risks such as turnover and retirement, as well as to plan for periods of intense recruitment and retention activity. What can the organization do to improve retention? Analytics enables organizations to understand what employees value and therefore develop a more relevant Employee Value Proposition (EVP), which will differentiate their employee offer and aid retention across an increasingly diverse workforce profile. What skills will the organization need in future to remain competitive? This is analytics at its most sophisticated. By creating a talent supply chain, organizations are able to optimize their employees work schedules, manage seasonal workforce changes and forecast workforce demands based on market variables.

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Using Analytics to Increase Value for Money A global materials technology company looked to optimize HR spend and engaged Aon Hewitt to support them with their analysis. The organization employed two HR professionals to manage union and union-related employee engagement, but the value of these two positions was questioned by the CEO. Aon Hewitt discovered that, as a result of HR's activities, no days were lost to strike action at the organization. By considering the market average of days lost to strike action and the annual revenue of the organization, the contribution of the two individuals could be quantified at an estimated €0.9 million per annum. Positions thought to be surplus to requirements were shown to be unique value-adding roles within the HR department. More sophisticated analytics can also be deployed to support significant improvement in an organization’s HR strategy, policies and practices. Managing Total Rewards, for example, will increasingly require more than a sense-andrespond approach to program effectiveness. It will require foresight – the ability to accurately forecast workforce trends, emerging competitive practices, potential regulatory changes, and the future wants and needs of the workforce. By using workforce segmentation analysis, an organization can break down large populations into "groups" of employees to hone in on what is important to them and how each group might behave in certain circumstances. There is no "right way" to do this, but organizations can consider demographics; opinions and attitudes; usage, employee characteristics or behaviors; and employee need or preference. Using such analysis ensures that an organization’s rewards program is designed and communicated appropriately to optimize employee engagement and Total Rewards spend, while reducing attrition and risk.7 Analytics can also help manage absence by understanding where and why absences are occurring. Organizations that understand the root cause of absence are able to implement absence programs to resolve the underlying issue and deliver improved financial and operational performance. The Pacific Gas and Electric Company (PG&E) promises strong commitment to delivering safe, reliable and affordable gas and electricity services. To honor this commitment to customers, the utility recognized that customer-facing positions needed to be properly staffed, and focused its attention on absence management as it directly impacts the customer experience, employee satisfaction, compliance and cost. Aon Hewitt's proposed four-step solution surveyed the workforce, utilized detailed analysis

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Analytics at Aon Hewitt Aon Hewitt compiles a wealth of comparative data available through our in-depth studies in compensation, engagement, leadership and people risk. In Asia Pacific alone, our: Total Compensation Measurement surveys cover 54 countries and 711 globally consistent positions Asia Pacific Best Employers Studies capture employee engagement levels, HR practices and leadership perceptions of more than 520 organizations with over 100,000 respondents in the region Our Top Companies for Leaders research collects data on leadership practices and performance in over eight countries in Asia Pacific Our People Risk study captures data on 30 factors relating to recruitment, employment and redeployment of people in 52 cities across the region By leveraging this data, Aon Hewitt is able to work with both HR and leadership to identify specific areas of opportunity to improve compensation practices, employee engagement, leadership assessment and development, and organization effectiveness. of absence trends, reviewed existing absence management procedures, and involved onsite job observations. As a result, PG&E has seen overall absence fall year-on-year since 2010.8 Analytics can also be utilized to refine organizations’ talent sourcing models. As workforce costs and the competition for talent increases, organizations look for more innovative solutions to their recruitment problems. A global transportation company with 22,000 employees wanted to optimize their global talent sourcing strategy. An in-depth analysis of talent availability, cost and risk allowed a deeper understanding of the quality and skill levels available in the global locations currently used for sourcing, in addition to the cost structures and sustainability of the talent pool at those locations. The outcome – a focused approach to talent sourcing in locations where the quality of the talent pool was the highest for the particular skills required. The analysis also highlighted potential risks to sourcing in those locations, which enabled the organization to put in place practices that would allow them to monitor and mitigate those risks over time.

Creating a Competitive Advantage The potential of HR analytics to provide keen insight on how an organization can maximize the value of its workforce is still to be widely realized. But, isn’t optimizing the largest single investment made by any business worthy of consideration? Moving forward, it will become more critical than ever to leverage the data available to organizations to derive greater insight and business intelligence to support decision-making. Analytics enables HR to be more proactive in driving business strategy, identifying high and low performers, recruiting and retaining talent, and developing HR practices and offers which employees truly value.

While "big-data" is increasingly available, implementation and the use of HR analytics is commonly hindered by the capability of collating and interpreting the data in a meaningful way. Nevertheless, the price of ignoring the insights that workforce data can provide is high. While improved execution of data analysis creates an expectation among leadership of HR’s capabilities, this is the direction HR must take if it wants to be a truly strategic partner and influence business strategy. HR owns data that can significantly influence the future shape and direction of the organization; knowing how to use it wisely will be the key to creating the organization’s unique competitive advantage. Data Sources 1. Managing at Warp Speed. Aon ONE, Q1 2013 2. Competing on Analytics, Harvard Business Review, January 2006 3. The Balanced Scorecard. R. Kaplan and D. P. Norton, 1996 4. Competing on Talent Analytics, Harvard Business Review, October 2010 5. Putting Big Data to Work. Aon ONE, Q1 2013 6. Competing on Talent Analytics, Harvard Business Review, October 2010 7. Total Rewards Survey 2012; Transforming Potential into Value, Aon Hewitt, 2012 8. Pacific Gas & Electric Company, Case Study, Aon Hewitt 2012 (http://360absence.alphazeta.com/wp-content/uploads/2012/12/ AonHewitt_360Absence_PGE_CaseStudy_2012.pdf)

Sally Evans Research Manager – Regional Talent & Rewards Analytics Center, Aon Hewitt For more information, please write to us at [email protected]



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The Business Case for Change

RemCentral India

Aon Hewitt’s Salary Review and Management Tool Managing salary reviews using multiple independent spreadsheets and numerous manual interventions doesn’t always provide the required levels of consistency and accuracy needed for this important HR function. Aon Hewitt’s RemCentral is an Excel-based program that assists organizations to manage, automate and streamline their salary review process allowing HR teams to focus on the tasks that will significantly influence the success of the salary review.

Tool workflow Manager

HR • • • • •

Design Salary Structure Run Payroll Simulations Freeze Salary Increase Budgets Salary Increase Implementation Manager Sheets with Recommended Increases

• • • • •

Generate Salary Review Letters Management Approval on Salary Increase Run Reporting and Analysis Finalize Salary Increase Receive Reviewed Manager Sheets

Key benefits • Cost-effective alternative to high-end dedicated solution software, but also to time-consuming manually-intensive processes • N o additional software or changes to your organization's existing systems are required because RemCentral is built on Microsoft Excel. Whilst generic in nature, it can be customized to fit specific organizational processes and requirements • T ransparent and consistent methodology for reviewing salaries to ensure the equitable distribution of increases. RemCentral guides the salary review outcomes in accordance with your desired remuneration philosophy, for example to target increases to top performers within your organization • R educed potential for human errors as RemCentral has been designed to consolidate data into one centralized master spreadsheet, to automatically sort, filter and export information into each reviewing manager's file, and then import it back again once recommendations have been made • Real-time data reporting to senior management and/or the board, to enhance the credibility and commercial focus of the HR team • Easy and fast creation of salary review letters, without the need to extract the data to another system

Contact us for a demo at [email protected]

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The New Pension Scheme A Step in the Right Direction TotalRewards quarterly


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The two pension plans, namely the Defined Benefits pension plan for government employees and the Employee Provident Funds (EPF) scheme for private sector employees have operated without any major changes for a long time. The unfunded government employee pension, together with the underfunded and mandated pension scheme introduced in 1995 for the private sector, are increasing pressure, year-after-year, on budgetary allocations and long-term sustenance. Moreover, these pensions do not have universal application, thus demonstrating apathy towards the need of changing demographic structures and the cultural fabric of India. It was therefore important for India to bring in sweeping changes to the institutions and the policies that aim to provide its employees (both in the organized and the unorganized sectors) a measure of old age income security. To this end, a committee was constituted for a project titled "Old Age Social and Income Security (OASIS)" to research, study and recommend a viable pension scheme. The National Pension Scheme (NPS) is the result of the research papers and studies by domestic and overseas experts and the technical consultations very responsibly conducted and coordinated by the committee. At Aon Hewitt, our intent with this article is three-fold – a) demonstrate the functioning of the NPS, b) elucidate the benefits that this scheme is likely to provide, and c) discuss the impact of the scheme on the employee population at large.

The Genesis of the National Pension Scheme (NPS) NPS is a defined contribution pension scheme introduced for the first time for all employees joining the central government (excluding defense services) from January 1, 2004. Twenty-eight state governments have also subscribed to the scheme and from May 1, 2009, it was also extended to all Indian citizens on an individual basis. Enrollment of the employees from corporates commenced from December 2011.

NPS – How It Works The Pension Fund Regulatory and Development Authority (PFRDA) is the regulator and is also responsible for the appointment of the following intermediaries for well-defined functions. It monitors the performance of all the intermediaries involved. NPS operates within an unbundled architecture, as each function is managed by a different entity.

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The diagram below explains information and funds movement to various intermediaries within the NPS architecture. The NPS Architecture

PFRDA has set up the NPS Trust under the Indian Trusts Act, 1882. Its Board of Trustees is responsible for the overall administration. The Trust holds an account with Axis Bank through which all money/fund transactions are carried out. The CRA is the Central Record Keeping Agency which has been hosted and set up by the National Securities Depository Limited (NSDL). Its functions are record keeping, administration, subscriber servicing and operational interface with all NPS intermediaries. As far as fund management goes, eight fund managers oversee investment of retirement savings strictly in accordance with the guidelines issued by the GoI and PFRDA. Over a period of time, fund managers mandated to operate within the prescribed guidelines may create almost similar pension wealth from the investment option chosen for by the subscribers. The custodian of the investment instruments is the Stock Holding Corporation of India Limited (SHCIL). All investments made by the fund managers are held by SHCIL and will remain unencumbered throughout. Annuity providers include six life insurance companies; anyone can be chosen by the subscriber for payment of pension. There are six types of pension options for the subscriber to choose from. POP refers to the Point of Presence and is the interface between corporates/subscribers and intermediaries. There are 52 POPs to extend maximum reach to the subscribers. Their functions include registration of corporates, undertaking "Know Your Customer" (KYC) verification, receiving contributions and its transmission

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to NPS intermediaries. Subscribers are registered employees of the corporate enrolled by the employer. Each subscriber will have a separate individual pension account known as Permanent Retirement Account Number (PRAN) which can be used by the subscriber any time, anywhere to access their account. The table 1 below outlines the fees and charges payable to each stakeholder.

There are two types of accounts offered – tier 1 is purely a retirement savings account and withdrawal is permitted only at the age of 60, when 40% would be allocated for pension payment through any of the chosen annuity providers. The balance is paid in a lump sum and can be timed between the age of 60 and 70. A minimum contribution of `6,000 per annum is essential each year during the contributing period. Tier 2 is designed to direct savings to investments as in tier 1, but is accompanied by no restrictions on withdrawals. Funds can flow from tier 2 to tier 1 but not the other way round. The minimum contribution for tier 2 is `250 per annum

Key Features of the NPS Cautious investment norms for fund managers, and regular monitoring of performance by the NPS Trust makes the NPS prudentially regulated and a well-disciplined investment mechanism NPS carries the lowest fund management and administrative charges, thus giving it a potent edge over investment and pension products Portability is ensured by providing operational convenience to the subscriber anytime, anywhere Flexibility is provided by choice of investment mix and pension fund managers. It also has the provision of auto option (life cycle) investment for those who are not financially literate. An additional flexibility offered is with regard to variations in contributions. It can be by employee or employer or both with equal or unequal contributions Simple and web-enabled/online transactions can be tracked through the CRA systems. Each employer and employee can check fund and contribution/NAV status at their convenience

Investible Assets and Options There are three investment groupings: 1. Asset Class E where the investments are in equity instruments linked to BSE and NSE index (BSE 30 or NSE’s Nifty) 2. Asset Class C is investments in fixed income instruments other than government securities 3. Asset Class G in government securities There are two options available to corporates as well as individual subscribers. These are Active Choice and Auto Choice. Under Active Choice, corporates and/or subscribers shall have the option to decide the distribution of pension wealth across the above asset classes with the rider that a maximum of 50% can go into equity. Auto Choice is also called "Life Cycle Fund", where the investment portfolio is predetermined. An interesting

Table 1: Fees and Charges Notified by PFRDA

Intermediary Transaction

Charges

How They are Charged

POP

Subscriber Registration

`100

Upfront Deduction

Contribution Upload

0.25%, min. of `20 and max. of `25,000

Subsequent Transactions

0.25%, min. of `20 and max. of `25,000 Any transaction not involving contribution is `20

Account Opening (PRAN)

`50

Annual PRA Maintenance

`190

Charge per Transaction

`5

Per Transaction from an RBI Location

0

Non-RBI Location

`15

Asset Servicing Charges

0.0075% p.a. for Electronic Segment

CRA

Trustee Bank Custodian

Through Cancellation of Units

Through NAV Deduction

0.05 for Physical Segment PFM

Fund Management

Up to 0.25% TotalRewards quarterly


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feature of this option is the capping of equity exposure at 50% up to the age of 35 and progressive reduction of 2% linked to age increase by each year. This reduction goes to increase the exposure in Asset Class C and G, thus providing a more conservative approach to the investments as one grows older.

Benefits to Corporates The biggest advantage to corporates is the savings in expenses of a company-sponsored superannuation plan and the opportunity to exercise choice of investment and fund managers. 10% of the basic pay contributed by the employer is tax allowable expense (Section 80CCE). Clearly, the gains in extending/introducing the plan include inculcating a mindset of thrift aimed at providing old age security and contributing to the creation of a large pension corpus that may ultimately get deployed for the country’s long-term development.

Benefits to Employees The current retirement plans of EPF and Gratuity are linked only to basic pay (since inflation linked pay, i.e. Dearness Allowance is not an element of pay with most organizations). Structuring of basic pay varies with organizations from 30-50% of CTC (Cost to Company). In a compensation structure of an organization with 40% as basic, the combined contributions for PF and employer costing for Gratuity could be around 11.50% of the CTC which, based on certain experience assumptions, provides replacement ratio close to 26%, if no withdrawal is made from PF while in active employment. If we were to factor in withdrawals from PF while in active employment, the ratio gets lesser and lesser. This by no means is adequate and needs to be supplemented. NPS has been instituted with a framework of being the cheapest product with better growth options through long-term market linked savings. Tax savings, account visibility, efficient grievance management, auto investment option, nomination facility and staggered withdrawal of lump sum from age 60 to 70 are in the direction of enhancing old age security. This also enables the subscriber an opportunity of tax planning.

NPS – A Step Forward NPS is not only a logical choice to supplement the existing retirement plans of EPF and Gratuity (as necessitated by the less than abysmal replacement ratio), it also seems to be the most prudent and effective. The lower cost

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structure, regulated exposure to equity, if so desired (as compared to EPF) the opportunity to save on tax and the highly disciplined and prudent investment mechanism should make NPS arguably a better choice than many other investment and pension products in the market today. However, a couple of initiatives and suggested changes can make the scheme much more effective and impactful. The first change is to promote a healthy retiree population which corporates can influence by bringing in persuasive enrollment compulsion for their employees, by absorbing the nominal administration and enrollment charges for the NPS. The second change is to bring about much better awareness, education and understanding of the NPS as a retirement product. The inherently long time horizon of any retirement product (as is the case with NPS) is a catalyst for consolidating the savings and directing it for development and nation-building. Therefore, corporates, particularly the HR community, has an important role in shaping the future of this country with this tool. Useful Links http://pfrda.org.in/ http://pfrda.org.in/writereaddata/linkimages/POP-SP%20 LOCATION575033432.pdf https://www.npscra.nsdl.co.in/ http://businesstoday.intoday.in/story/national-pension-system-attractiveoption-for-investors/1/190176.html http://www.mayin.org/ajayshah/PDFDOCS/Shah2005_sustainable_pension_ reform.pdf epfo.org.in

Aon Hewitt’s mission is to maximize the value of benefit program expenditure by organizations. We design, evaluate and set up benefits programs that can help attract and retain key employees, control costs, improve employee awareness and attain full statutory compliance.

A P Sugathan Nair Senior Consultant – Retirement & Benefits Consulting, Aon Hewitt For more information, please write to us at [email protected]

"Total Rewards Statements" (TRS ) An impactful approach to communicating your Total Rewards program Our research suggests that a majority of companies are spending vast sums of money on complex Total Rewards packages, which many employees do not fully understand or appreciate. At Aon Hewitt, we believe that progressive organizations offer compelling rewards to employees. But the leverage of these offers is lost if it is not communicated effectively to the employees. Aon Hewitt's comprehensive and customized approach to communicating Total Rewards can help: Enhance an employee's understanding of rewards programs Define and articulate all elements of rewards programs

Showcase the differentiation of rewards programs from competitors Enhance the appreciation of rewards programs

We have built a comprehensive and robust online portal that communicates your Total Rewards programs. This portal generates unique and customized Total Rewards Statements for each employee, helping them see the value of their Total Rewards package. Total Rewards Statements – Showcase the value, build engagement. For further details and queries, please write to us at [email protected]

The Fourth Dimension Voice of Employees

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coverstory

1 out of 3 employees are considering leaving the organization. 2 out of 5 employees feel that they are not competitively paid. 2 out of 5 are dissatisfied with their current benefits program. These are some of the worrying findings from Aon Hewitt’s recent research that covered 7,000 employees. There is a clear gap in our investment in Total Rewards and the value as perceived by employees. In this article, we bring to you the highlights from this first-of-its-kind study in India that focuses on what employees want and value, and how their preferences change across demographics. For decades now, as consumers, we have demanded and received customized offerings. Starting from modular choices that organizations like Dell offered to the new wave that e-commerce has brought in, where organizations like Amazon are increasingly tracking individual preferences and building differentiated offerings around them. Location technology like geo-fencing, social networks and mobile messaging platforms are becoming the canvas for marketers to paint time-relevant, contextual messages and identify new opportunities for engaging customers. If we were to compare this with how the employee experience has been in the same period – the contrast is apparent. As HR professionals, we seem to have forgotten that our employees are also consumers. They are the same set of people expecting and experiencing this revolution and yet in most organizations, we have not even started the journey of understanding our customers and providing them a more relevant, personalized and engaging employee experience.

The Missing Dimension One key reason for this is the missing "fourth dimension" in our Total Rewards strategy. An ideal Total Rewards strategy has four key perspectives to address – external considerations, leadership inputs, cost or financial considerations and employee input (refer to figure 1).

A powerful concept like Total Rewards is failing to deliver to its potential in most organizations as they possibly are spending significant amounts of money on programs that employees either don’t value or don’t understand.

Figure 1: Building an Effective Total Rewards Strategy

In India, we typically overemphasize the external input – very often, market benchmarking almost defines our rewards strategy in isolation. A consciousness on cost, return and risk have, to varying degrees, set in post the downturn and we have strived over the years to align our decisions to business and talent objectives. What we have severely underleveraged is the element of employee preferences. It is not surprising then that such a powerful concept like Total Rewards is failing to deliver to its potential. We are possibly spending significant amounts of money on programs that employees either don’t value or don’t understand. The problem is further accentuated given the increasing diversity in our workforce. No single reward element continues to be a value driver. Employee preferences vary widely – influenced by age, life stages, personal career anchors and so on. Maximizing elements that create stickiness, by meeting individual or segmented employee needs will ensure a better Return on Investment (RoI) and will help organizations achieve the objectives that they set out with – to attract, retain and motivate their employees. To test this hypothesis, and to provide deeper insights to organizations on what these employee preferences are and how, if at all, they vary by demographics, Aon TotalRewards quarterly


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Hewitt, for the first time in India, launched an employee preference study. The study that was conducted from April-May 2013, collected responses from over 7,000 employees across industries. In this feature, we bring to you some of the compelling insights from this research.

The Rankings 1.

Additional Fixed Pay

2.

Higher Incentives

3.

Flexible Work Arrangements

4.

Retirement Benefits

5.

Professional Development Support

6.

Insurance Benefit

7.

Training Opportunities

8.

Healthcare Programs

9.

Transport Assistance – To and From Work

10.

Additional Paid Time Off

11.

Higher Subsidy on Loans

12.

Improved Child Care Support

Compensation

Benefits

Work-Life

Learning & Development

Source: Aon Hewitt Employee Preference Study 2013

The table above shows the overall rankings by 7,000 employees, 1 being the most preferred and 12 being the least preferred. Topping the charts clearly was cash-based compensation – both fixed pay and incentives. Interestingly, flexible working arrangements topped the list after cash, followed by a preference for a higher contribution to retirement benefits. The next bucket of preferences has broadly two themes – professional development & training and insurance & healthcare. The bottom of the list has items where there is a lower preference either because of high level of satisfaction with current provisions as in the case of paid time off or because it is applicable to only specific parts of the population as in the case of child care. As we sliced and diced this data across the 10+ demographics that we collected, the following key themes emerged. 1. Cash is King (Or is It?) 2. Flexible is Incredible! 3. Retirement is a Serious Concern 4. Gender Matters... 5. ...So does Generation 6. But Lifestage Matters Most

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1. Cash is King (Or is It?) Over 60% of the employees have ranked fixed pay or incentives in their top 3 preferences. Moreover, there is no significant change in these rankings across demographics. While this is an overwhelming response from employees, we need to consider the following: To what extent has the focus on compensation been perpetuated by us – HR and rewards professionals? For years now, we have disproportionally emphasized this one element – whether it is its prominence in our employee value proposition or the communication to our employees. The Aon Hewitt Total Rewards Communication Survey, 2012 showed that most organizations in India limit their rewards communication to the salary slip. It is not surprising therefore that employees attach the highest value to this element We also need to appreciate that attraction is not equal to engagement is not equal to retention. Our global engagement survey results show clearly distinct drivers for each and while cash is an important attraction driver, it loses its sheen when we look at engagement and retention. We need to use a combination of more experiential and personalized rewards to create "stickiness" with the organization And finally, for cash to really be a differentiator, it has to be significantly higher. The third question therefore is one of affordability and sustainability. There has already been significant debate on whether our, not so shining, business and economic environment can continue to support the rationale of the spiraling high double-digit salary increases Ironically, despite the prominence, focus and investment, satisfaction levels on this element were abysmally low – 35% for fixed cash, 29% for short-term incentives and 19% for long-term incentives. So while cash compensation is definitely important, an overemphasis on the same will not necessarily drive engagement and retention. Four out of five employees in our survey have said that their organization’s benefits program is an important reason for them to stay in the organization. Organizations therefore need to pay competitively to get this discussion off the table and then focus on other long-term drivers which can truly differentiate their employee value proposition.

2. Flexible is Incredible! One of the most striking findings of this research was around the demand for flexibility. What was striking was not only how

coverstory

Flexible Work Arrangements – The Most Preferred Benefit


high it was ranked but the fact that against popular belief this was not limited to only certain parts of the population. We explored flexibility across two dimensions – flexibility in the benefits that the organization offers and flexibility in the work environment provided by the organization. Flexible benefits program, with a menu option (a program that would allow employees to choose the best benefits package based on their personal needs) is preferred by a staggeringly high percentage of employees (81%). In fact, two-thirds of the surveyed employees said that they would be willing to make voluntary contributions or participate in co-pay programs to get access to certain additional benefits or higher entitlements for benefits such as insurance, fitness/club memberships, additional retirement options, etc. For organizations, there are several advantages of catering to this high employee demand for flexibility – a differentiated EVP, higher utilization and therefore better appreciation of benefits and in the longterm cost management as it fundamentally means shifting from a defined benefit to a defined contribution approach. Flexible Work Arrangements (FWAs) was rated as "the most preferred benefit" for employees (3 on a scale of 1 to 12 among different Total Rewards elements with fixed compensation and performance bonus being rank 1 and 2, respectively). As the figure above shows, it also featured prominently as an attraction driver and as a preferred reward for high performance. FWAs range from alternative work schedules (e.g., non-traditional start and end times, or compressed work weeks) to arrangements involving overtime, predictable scheduling, and shift and break schedules, flexibility in the number of hours worked, such as part time work, job sharing, phased retirement or part year work and also flexibility in the place of work, such as working at home, at a satellite location or at different locations.

As we sliced the data further, we found FWA was consistently ranked the highest across all demographics – barring a few like baby boomers, top management (male) and tier 3 cities (male). However, less than 50% of the employees surveyed were satisfied with their current work-life balance and 1 out of the 3 employees, to whom FWA were offered by their employer, were dissatisfied with the arrangements. The survey clearly spells out the implications for organizations. FWAs can no longer be treated as a discretionary benefit offered to a few employees on a caseto-case basis. Organizations who deploy it as a deliberate strategy will be able to gain a competitive advantage over others by ensuring lower attrition, higher levels of productivity, access to a diverse talent pool, cost savings in real estate and over a longer period of time – organization sustainability and business continuity. Flexible Work Arrangements – Consistently Ranked Highest Across Demographics




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3. Retirement is a Serious Concern Retirement benefits have emerged as a strong area of concern and focus. More than half of the surveyed population (53%) indicated that they are fairly or seriously concerned about having sufficient funds available when they retire. Not surprisingly, this concern was the greatest amongst baby boomers. Additionally, approximately 65% employees indicated dissatisfaction with the current state of these benefits. In fact, a large part of this dissatisfaction could be attributed to a low understanding of these benefits. A surprisingly high (21%) percentage of the population said that they did not fully understand their retirement benefits. Our research shows that our current mandated retirement benefits (PF and Gratuity) will generate a replacement ratio of roughly 25-30% of the terminal salary on retirement. Given that this clearly cannot provide a sustainable post retirement income, the concern of employees is well-founded and accentuated by the absence of a national social security system. Increased contribution to retirement emerged as the second most preferred benefit. The figure below presents the preference for the same across various demographics: Increased Contribution to Retirement – The Second Most Preferred Benefit

Mr. Narayana Murthy, in his interview with us last year, emphasized the responsibility and role of organizations, its leaders and HR in educating and ensuring that the younger generation is aware and is taking adequate measures to create assets and prepare for retirement. The National Pension Scheme (NPS) now available to corporates presents a great opportunity to help employees prepare for their retirement and take a step in truly creating a safety net for them.

4. Gender Matters... Warren Buffet famously said that one of the reasons for his great success was that he was competing with only half of the population. India, the world’s second most populous country, with over 48.7 million graduates, is facing a talent crunch that is predicted to get worse. To fully harness the power of "all talent", organizations must recognize the business case for gender diversity and assess the effectiveness of their programs in promoting an inclusive culture within the organization. Thus, diversity at the workplace is no longer just an ethical, moral or a compliance issue. The business case for the same is a strong and an irrefutable one. But do organizations know what it takes to create an environment which attracts, motivates and retains men and women equally? Our survey results show clearly different preferences for men and women. Given our societal fabric, the role of women as the primary caregiver for children and dependents and concerns on safety, it is no surprise that transport assistance tops the charts along with FWAs and child care assistance for women. Different Preferences for Men and Women


For single employees, retirement is ranked as No. 8 (fifth most important benefit) due to higher preference for other benefits such as professional development, T&D opportunities and transport assistance. However, this changes significantly for employees with 6+ years of experience where retirement features as the most or second most preferred benefit. Preferences on retirement do not vary by location.

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coverstory

We also found differences within the same gender across tiers of cities. Women in tier 3 cities favored training opportunities over child care support; while professional development was more popular than FWAs amongst men from tier 3 cities. On literally a lighter note, we found that men ranked onsite/subsidized memberships to fitness facilities as the most preferred benefit for achieving health & wellness goals, whereas women preferred availability of health food (salads, fruits, yogurt, etc.) on premises. Hence proved – men are from Venus and women from Mars!

Different Preferences for Different Generations

5. ...So does Generation Managing the multigenerational workforce is perhaps the most popular and most researched topic in talent management today. By the year 2020, HR practitioners will be faced with the task of recruiting, engaging and retaining four or perhaps even five generations of employees. While theories and classifications vary, there is no denying the diversity in their work styles, expectations, behaviors and attitudes driven by changes in education, technology and the macro-economic environment. Marketing experts have translated this understanding into the kind of products, experiences, delivery channels, etc. that they are creating for their customers. Unfortunately, the same cannot be said of HR. According to a survey by WorldatWork, 56% organizations do not even consider generational differences while designing and implementing their Total Rewards strategies. Our survey brought out the distinct preferences of Gen Y, Gen X and the baby boomers as shown in the figure in the next page. While some may argue that we need to go beyond generational stereotypes and look at individual value drivers and that may be ideal, but till we get there, this segmentation provides us with a useful framework and some clear themes that we can begin working with.

Gen X allocated the highest points to compensation, Gen Y to learning & development and work environment and baby boomers to benefits.


In our survey, we also asked employees to allocate 100 points amongst the four quadrants of Total Rewards – compensation, benefits, work environment and development. Gen X allocated the highest points to compensation, Gen Y to learning & development and work environment and baby boomers to benefits.

6. But Life Stage Matters Most Life stage is defined as all those stages in the life of an individual wherein he/she experiences a change in role and change in expectations from family and dependents. This encompasses marital status, parental status, dependent parents, etc. Life stage has far reaching impacts on the overall employee preference and if woven into the rewards programs and policies of an organization can significantly increase their odds of retaining employees and driving down turnover and replacement costs. This is perhaps something, though in an informal, discretionary manner, that Indian or proprietor-driven organizations did well as compared to the professional organizations today. Loans were extended and work arrangements altered on a need basis to support the employee who was seen as a part of the "family". Our research highlighted some interesting trends: Employees with dependent parents/grandparents ranked retirement and insurance as the most important benefits after flexibility, gaining 3 rankings each as compared to employees without dependent adults Preferences of single women were very similar to preferences of men TotalRewards quarterly


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After flexibility, women with children ranked child care support and retirement as most important benefits, compared to transport assistance and professional development as preferred by women w/o children Significant differences were observed in women with toddlers or teenaged children as compared to women with children over 18 years of age. Loans gained importance in women with older children, possibly to support their higher education. This category of women was also one of the few demographics where FWA was not the most preferred benefit It was no surprise to see that preferences of women for rewards such as FWAs, child care support, and time off were inversely proportional to the age of their children. Women re-prioritize their self-learning & development and hence professional development opportunities gain rankings as their children grow older. One poignant point that we debated extensively as we studied these findings was the implication of professional development and training falling to the bottom for women with babies and toddlers. The underlying assumption in organizations is that it has to be flexibility and support at the cost of career opportunities and advancement. Women are forced to either step out or step aside in lieu of these benefits. As organizations, we need to rethink this equation and look at enabling performance and career management systems to truly make this work.

Many organizations are getting insights into individuals based on their psychographic profile, attitudes and value drivers not just to optimize their offerings and design segmented or flexible rewards programs but to also drive the right behavior. looked at here is segmentation by demographics, many organizations have gone steps ahead and are getting insights into individuals based on their psychographic profile, attitudes and value drivers. In addition to helping them optimize their offerings and design segmented or flexible rewards programs, these insights are also helping them communicate effectively with employees in order to drive the right behavior particularly for health and wellness initiatives. The objective of this study was not so much to delve into what the demographic differences in employee preferences are but to create an awareness and hopefully kick-start a journey amongst employers – a KYC drive – to bring in focus the missing fourth dimension from our rewards decisions.

Rewards Prioritization at Different Life Stages

Shilpa Khanna Director – Research & New Products, Compensation Consulting, Aon Hewitt, India Source: Aon Hewitt Employee Preference Study 2013

In Closing Our survey results clearly lay out the need for organizations to recognize that employees are different and so are their preferences. While what we have

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Poonam Chopra Senior Consultant – Rewards Consulting, Aon Hewitt, India

For more information, please write to us at [email protected]

Weigh Your Options. Optimize.

Total Rewards Optimization (TRO) – Helping your rewards make a difference Aon Hewitt’s Total Rewards Consulting and Optimization approach can help maximize the return on investment on your Total Rewards investments. Our approach and tools are proven to: • Identify the optimal Total Rewards mix that maintain or improve engagement/retention for different cost and business objectives

• Anticipate employees' reactions to new programs or future program changes

• Target business-critical talent pools and workforce demographics and their rewards preferences

• Provide data rigor to support decisions for rewards program design, delivery and communication planning

TRO is a preference measurement tool. It helps organizations optimize their plan costs and employee preferences to increase RoI on compensation spending. • Uses conjoint technique to collect preference data

• Completely customizable rewards attributes

• Fully self-adaptive survey based on individual employee preferences

• Provides real-time data analysis

For further details and queries, please write to us at [email protected]

New Banks License to Skill For the majority of 2012 and 2013, the Reserve Bank of India (RBI) has borne the brunt of the industry, the financial institutions and the media, for just not doing enough to support economic growth and encourage the investment climate in the country. The central bank, on its part, has remained stoic, stubborn and unruffled in the wake of all this flak, choosing to defiantly stand its ground. And while it has seemed to drag its feet on most policy issues and monetary mechanisms, it finally managed to rouse the dormant, disgruntled and somewhat damaged banking industry out of its reverie, by finally giving the go ahead for corporates and

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Non-Banking Financial Companies (NBFCs) to apply for new banking licenses. A decision that has swung back and forth like the moody Sensex and that has been much debated and even more awaited, given that it is coming after a long hiatus of 10 years. And a decision that is likely to cause a lot of chaos, commotion and competition in the struggling BFSI sector in India. While the RBI made its stand clear earlier in the year and laid out its guidelines, 26 companies (of all sizes and backing) have already thrown their hat into the ring. While enough thought has been given to the business strategy in

Perspective

The RBI Guidelines The Reserve Bank of India (RBI), in its guidelines, has laid down the requirements from companies applying for a banking license. The key guidelines are: 1. The minimum paid-up capital for setting up a bank has been pegged at `500 crore by the RBI with the cap on foreign investment, including FDI/FII and NRI at 49% 2. On receipt of license, the promoters have to start banking operations within 18 months and have to list the company within three years of commencement of the business 3. With an aim to promote financial inclusion, the RBI has mandated the new banks to open at least 25% of their branches in rural unbanked centers

4. Following the grant of license, the promoter group, which could be a public sector entity as well, will be required to set up a wholly-owned Non-Operative Financial Holding Company (NOFHC). The NOFHC will initially hold a minimum of 40% of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15% within 12 years 5. The bank will also be required to maintain a capital adequacy ratio of 12% for the first three years – starting from day 1 of commencement of business

Further clarifications made by the RBI in June made the restrictions more stringent with the following guidelines: 1. Any individual including relatives belonging to the promoter’s group can only hold 10% voting equity shares of the NOFHC 2. The company being issued a license, publicly listed or not must have 51% of its shareholding

owned by the public 3. Re-organization of promoter entities will have to be completed within a period of 18 months from the date of in principle approval or before commencement of banking business

Figure 1 Source: RBI website, Business India Magazine, Mint & Economic Times

light of the stringent guidelines laid down by the RBI (see Figure 1 for the salient features), the most critical challenge that will confront these companies (and even the larger BFSI segment) once the licenses are announced will be around human capital, unequivocally the backbone and fulcrum of any financial institution. The idea of this article is to ascertain what these HR issues are likely to be that will engage the applicants as they prepare for the coveted licenses to fructify, and also the ones that the overall BFSI industry is likely to grapple with once the new kids on the block become ready to rock and roll.

The (Banking) World is Not Enough

The banking industry needs to hire 9-11 lakh people in the next five years (Source: The Financial Express and BCG research), a number that is largely led by the Public Sector Banks (PSBs). This number is likely to inflate depending on the number of licenses rolled out by the RBI, and this will open the floodgates for a huge scramble

for talent. And target sectors/profiles for this new breed of banks will be shaped by a few factors: firstly, the kind of talent that is required (retail, corporate, rural, etc.); the kind of talent readily available and affordable; and the mandatory businesses that the RBI guidelines require the new banks to get into. Intensive poaching is a certainty and top management positions are already being filled in and actively budgeted for, as these incumbents will need to build teams and perhaps bring teams from outside. A lot of hiring for junior and mid level positions will only start actively once the licenses are announced. The following represents an analysis of where we see the maximum talent at risk: PSBs & local cooperative banks will bear the brunt of this exodus at the junior to middle levels as people search for bigger, performance-friendly pay packages and faster career growth. PSBs would be a hunting ground given their relatively lower salaries and slower growth opportunities TotalRewards quarterly


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Private sector banks could be targeted at the mid to senior levels given the sizeable experience of the larger banks in building branch networks and successful fee-based businesses, as also the culture of frugality, productivity and building scale that they imbibe. These banks are perhaps the most vulnerable (especially at the mid-levels) given the kind of ready talent and capabilities they bring to the table In the past, foreign banks have been targeted as well by new private sector banks and this time around, specific functions are likely to be at risk. Control functions like compliance, risk, audit and finance have traditionally been strong for MNC banks, and these are likely to attract the new banks. Additionally, retail banking may also be at risk given the marginal growth (or decline in some cases) that foreign banks have seen in this segment, whereas the opportunity for new banks in retail will be substantial Other Financial Institution (FI) sectors like insurance or broking may also see a talent threat given their low base costs and a slowdown in their respective sectors. Life Insurance (LI), in particular, is likely to be a happy hunting ground for the new banks since the sector has seen a challenging business scenario for the past one year, and presents easily affordable talent given the compensation gap between LI and banking. But the most important aspect of targeting this sector is likely to be the skill set availability: the insurance industry thrives on building an extensive distribution reach and have significant experience in operating in tier 3 and tier 4 cities, and building a scalable sales force in sparsely banked areas. This will be in high demand given the RBI’s guideline for new banks to have at least 25% of their branches in rural unbanked sectors Rural banking, branch managers in rural and semi urban locations (classified as tier 5 and 6 cities), and

SME bankers are likely to be in demand as far as roles in junior and middle management are concerned. This again follows from the mandatory guideline of focusing on the unbanked and rural areas The biggest impact is likely to be on control functions, especially at the senior and mid levels. While NBFCs have been strong in the assets business and will have no dearth of talent in that space, along with corresponding operations expertise, there will be a push to look for liabilities side bankers. But the biggest talent hunt is likely to be on for critical control functions like – operations risk, market risk, regulatory risk, compliance, fraud, anti-money laundering, etc. where existing banks have the requisite niche skill sets in dealing with RBI and other regulatory authorities. Given the current governance-oriented climate and the RBI’s hawk eye on any element of financial risk, the need for strengthening such functions is likely to spiral northwards

The Applicants: Time to Live and Let Die The dice has been rolled and the next few months are likely to be an anxious wait for the 26 applicants in the race for the new licenses. While the action is likely to heat up only around later in the year (when the RBI is scheduled to award the licenses), there is a lot to mull over, strategize and plan for, as regards the indispensable element of human capital. The applicants will need to stringently focus on overall talent and rewards strategy in the first three years as there is a crucial need to balance cost with revenue given the listing time frame. As has been witnessed in many start-up operations, there is a tendency to pay aggressively (a preferred rewards philosophy for new banks) as top talent needs to be pulled away from the market. However, many companies who eventually struggled to go public after huffing and puffing their

The Aspirants

Tata Sons

LIC Housing Finance

Aditya Birla Nuvo

Department of Posts

Reliance Capital

Bajaj Finserv

Bandhan Financial Services

Edelweiss Financial Services

IDFC

IFCI

Indiabulls Housing Finance

India Infoline

INMACS Management Services

Janalakshmi Financial Services

J M Financial

L&T Finance Holdings

Magma Fincorp

Muthoot Finance

Religare Enterprises

Shriram Capital

Smart Global Ventures

SREI Infrastructure Finance

Suryamani Financing Company

Tourism Finance Corporation of India

UAE Exchange & Financial Services

Videocon's Subsidiary Value Industries

Source: RBI website

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Perspective

The balance between managing with low cost as well as hiring experienced talent to run the business in the growth stage will be a tough test for most NBFCs and business houses pitted against each other in the license race. way to a break-even, have learnt and imparted the lesson that an inflated wage bill needs to be controlled and monitored judiciously. The balance between managing with low-cost as well as hiring experienced talent to run the business in the growth stage is a tough test for most of the NBFCs and business houses pitted against each other in the license race The kind of talent scouting will depend on the current business and geographic spread of the applicant. For those in the non-BFSI space (business houses, selfpromoted companies, government departments, etc.), the entire spectrum of banking talent will be needed to be built. For NBFCs largely present in urban and tier 2 and 3 cities, the need to develop a distribution team for the rural and tier 4 and 5 cities will be paramount Given the strength of internal teams and resources, most large NBFCs and conglomerates will look at elevating and redeploying key talent from within to take leadership roles in the newly formed entity. While this will ensure continuity of overall culture and values, which the group might want to leverage, it will also provide excellent career movement opportunities for their identified key talent in the current organizations Even within the sizeably strong NBFCs and financial conglomerates that will look within to promote and prepare key resources, reskilling of existing talent will be extremely crucial given the inherent nature of the banking business and its divergence from the NBFC world. This will spread across the assets side as well as on support areas like operations, finance and control functions. NBFCs may also need to spend time in training and development of middle management teams to upscale current skill sets, given the changing nature of banking, and both business and regulatory prerogatives

The Pay Paradox: Some Quantum of Solace By any general perspective on pay differentials in the BFSI industry, one would safely assume that MNC banks would

rule the roost in terms of fixed pay, followed by Indian private sector banks and then NBFCs, a distant third. And if this stark gap was to exist across all levels, it would be correct to say that the applicant companies, largely consisting of NBFCs, have a tough task ahead of them to hire and manage pay for the target banker population. A deep dive into the fixed pay differentials between MNC banks, Indian banks and NBFCs, through the Aon Hewitt McLagan Compensation Surveys (2010-12) throws a different yet definitive picture (refer to Figure 1.1). Figure 1.1: Comparison of Banks vs. NBFCs in 2010 on Total Fixed Pay (Indexed on Base Pay of 100 for NBFCs)

Figure 1.2: Comparison of Banks vs. NBFCs in 2012 on Total Fixed Pay (Indexed on Base Pay of 100 for NBFCs)

Source: Aon Hewitt Compensation Surveys 2010-12

It can be clearly seen that in 2010, the gap was indeed very wide at the junior and senior levels of management, ostensibly given the difference in entry level salaries for the junior levels especially in sales. For top management, NBFCs were not paying as well as banks – both local and MNC and thus, the talent movement was also limited. However, two years hence and the compensation comparison in 2012 looks starkly different to the earlier analysis. The gap at junior management still exists with the entry level salaries being almost 50% higher in the banking TotalRewards quarterly


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sector as compared to the NBFC sector. This could be largely attributed to the profiles being hired at entry level across both sectors, which are quite different in terms of talent pools as well as campuses that are visited At middle management, the gap has widened from 2010, primarily because the local banks have made corrections to their salaries and have tried to ring fence many of their top talent at these levels. The average increases given at this level over the past two years have been higher than those given to the top and senior level roles At senior management, the gap is slowly reducing with NBFCs being more competitive at these levels combined with the fact that both local and MNC banks have been cautious giving increments to their senior management in the last couple of years, on account of business pressures as well as regulatory reasons. Additionally, in the wake of the announcement of the banking licenses in 2011, many NBFCs have made strategic hires at the senior to top management levels. We have seen hires specifically in the areas of risk, compliance, SME, corporate finance and similar functions in which banking talent had a significant premium over the NBFCs This essentially denotes two key ramifications for the impending war for talent scenario. Firstly, NBFCs will struggle to hire at junior and middle levels from both local banks as well as the foreign banks, given the continuing fixed pay differentials. And here is why insurance companies and some brokerage houses may be at high risk, as their salary levels tend to be still lower. Secondly, the talent movement at the senior and top management positions is not likely to pose as much of a challenge given the plateauing of salaries in the older banks, and the conscious hiring and positioning of critical levels within the NBFC sector.

Variable Pay – The Classic Casino Royale Game While we have established a not so worrisome scenario for the NBFCs on fixed pay given the dwindling gap at the senior levels, the game takes an interesting turn when we start to include the inescapable influence of variable pay. Possibly in light of the impending license developments in the last couple of years, front-runners from the NBFC space are striving to be more competitive and in alignment with banks with regard to their rewards structure. One of the key focus areas in this regard has been the impetus on variable pay and the reduced reliance on fixed pay as a magnet for key talent. In the last two years, the share of variable pay has seen an upward trend

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in the pay mix of leading NBFCs. The trend is visible across all levels of management and is most pronounced at the senior and top levels (refer to Figure 1.3). At the top management, the target variable pay proportion has witnessed an increase from approximately 20% of the Cost to Company (CTC) in 2010-11 to close to 30% of the CTC in 2012-13. Clearly, NBFCs are looking at higher target variable pay components as a mechanism to contain their fixed costs and drive a performance culture. Figure 1.3: Shifts in Pay Mix for NBFCs from 2010 to 2012

Level of Mgmt. 2010-11

Junior

2012-13

Fixed Pay

Variable Pay

Fixed Pay

Variable Pay

87

13

81

19

Middle

85

15

78

22

Senior

84

16

74

26

Top

82

18

72

28

Source: Aon Hewitt Compensation Surveys 2010-12

So far so good, as far as the NBFC's hunt for talent at the senior level goes. However, the earlier charts only showed us the story on fixed pay and short-term incentives – this would play a key role in hiring talent but primarily at junior to middle levels. For senior levels, the importance of Long-Term Incentives (LTIs) cannot be undermined. Let’s look at an indicative change in the pay scenario at senior levels with the inclusion of our latest entrant, LTI: Figure 1.4: The LTI Legend – The Story with LTI Across Banks and NBFCs for Senior Management

Fixed Pay Base

LTI as a % of Fixed

Simulated Total Comp.

NBFCs

100

30-40%

130-140

Indian banks

110

80-100%

198-220

MNC banks

121

40-50%

170-180

The above are indexed numbers on a base of 100 (NBFCs) Source: Aon Hewitt India Banking Study & NBFC Study 2011-13

Figure 1.4 clearly shows that when we include LTIs, the game changes significantly with local banks (led by the substantial value of stock options doled out at their senior levels) being the highest paid on a Total Comp basis followed by the MNC banks and then the NBFCs. The gap between the NBFCs and local banks could be anywhere

Perspective

NBFCs may struggle to hire at junior and middle levels from both local and foreign banks, given the high fixed pay differentials. Insurance companies and some brokerage houses may be at high risk, as their salary levels tend to be relatively lower.

talent which is not an easy task, given the need to delicately avoid the temptation of upping compensation leading to spiraling wage costs, in the backdrop of a sluggish economy and stymied growth. Once the coveted licenses do become a reality, the skies may not exactly fall in the BFSI industry, but the heavens will open up for sure and a tempest is likely to hit the sector at least as far as a talent melee goes. Clearly, the players who survive this upheaval and come out better off are the ones who will be resolutely ready, sooner than later. Annexure Definition of Aon Hewitt Levels

in the range of 80-100%, thus still bringing about a lot of ground to cover for the former, when it comes to strategic and long-term hiring especially at senior levels. However, this also hints at an interesting spin to the story. Many senior bankers will eye the new banking licenses as a golden opportunity to create wealth. Given the RBI’s guideline for the new banks to list within three years, many employees would want to join at the start given the experience of other local banks that have previously received licenses where stock options given in the early years is now a huge source of wealth accumulation for old time employees.

As We Prepare for the Sky-to-Fall There is no clarity as to when exactly the RBI will eventually grant the sought-after banking licenses – it could be later this year or perhaps seep into next year, which seems more likely. In any scenario, the wait promises to be an anxious and arduous one but there is enough and more for the applicants, as well as the other stakeholders in the BFSI world to think about and prepare for. With just 18 months being given to the new banks to commence their operations in full swing, most contenders will need to be at the starting line with their strategies in place and resources in shape. NBFCs in the race will need to think about every element of HR strategy right from identifying and drawing up an organization structure that will enable long-term growth of the new bank, to planning redeployment and of reskilling of resources, manning the new bank and reshaping the capabilities that will come into focus with its birth. Training and development is likely to play as important a role as defining a rewards strategy for the new banks, to balance out the high costs with the desire to hire rampantly. Existing banks, insurance companies and fund houses have proactively started to prepare for this eventuality, and need to ring fence their key

Level

Experience

Roles

HA1

Graduate 0-2 yrs.

Entry level/Junior level front line office

HA2

Graduate 1-4 yrs.

Senior level officer

HA3

MBA/CA 1-2 yrs. Graduate 6+ yrs.

Entry level MBA. Team members

HA4

MBA/CA 3-6 yrs. Graduate 8+ yrs.

Experienced MBAs. Senior team members

HA5

MBA/CA 6-8 yrs.

Head of a small section/limited large accounts/region with independent responsibility

HA6

MBA/CA 8-12 yrs.

Heads of department

HA7

MBA/CA 12+ yrs.

Heads of functions

HA8

MBA/CA 18+ yrs.

Head of a large & critical/key function, with national or transnational scope

Data Sources: RBI website Aon Hewitt Database for NBFC & Banking 2010-12 The Economic Times The Financial Express Business India The Times of India

Roopank Chaudhary Director – McLagan Consulting, An Aon Hewitt Company

Adithi Jagannathan Senior Consultant – McLagan Consulting An Aon Hewitt Company




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Decoding Flexible Benefits Marcus Underhill

Regional Director, Integrated Benefits Solutions, Aon Risk

Marcus Underhill is the Regional Director for Integrated Benefits Solutions at Aon, based in Singapore. He has over 20 years’ experience in flexible benefits and Total Rewards solutions and has worked with over 20% of the FTSE 100 on global choice design and implementation. His career includes 10 years as Head of Flexible Benefits Consulting for Mercer EMEA followed by five years in start-up technology companies providing global solutions for employee enrollment and data insights. He is a regular speaker at WorldatWork events and Asia Pacific HR Summits. He is a qualified Actuary and wrote the only paper to date on flexible benefits pricing for the Institute of Actuaries. Q. Over the last few years, we have seen a growing prevalence and interest in flexible benefits around the region. What, in your opinion, are the key drivers and how do you see them panning out across different markets? A. Drivers for flexible benefits typically fall into three main categories: Employee engagement including the desire to provide employee benefits that meet individual

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needs, quite often based around their life cycle The desire to modernize the employee experience through the use of efficient technology and administration Cost control and cost management often exhibited by moving the spend on benefits to be more defined contribution than defined benefit, enabling organizations to annually review

the competitiveness of their spend on benefits rather than automatically provide inflationary or market-driven increases Typically, a business case will have attributes of all three elements but will have a primary focus on one area. Countries such as China may well focus on engagement whilst countries such as Singapore may have more of a focus on cost management of healthcare costs.

ASKOUREXPERT

Q. What are the different kinds of flexible benefits plans that you see in the region? In your experience, what kind of plan works best? A. There are multiple types of flexible benefits designs based around two key mechanisms: An annual choice of benefits provision, often with the ability to change mid year as a result of named life events such as marriage or death of a dependent A spending account mechanism that enables an employee to claim reimbursements of each pay period against certain agreed areas, e.g. health screen The two have similarities in that typically, the spend available to the employee from the employer is fixed and then the employee has an element of decision on how that spend is used. A modern design will merge the two approaches in that any monies released under the annual choice can be added to the spending account and drawn down upon. The main simple types of design within an annual choice plan are: Affinity or voluntary benefits – a company typically provides a link to discounted products from a third party with ideally the employee seeing value in the discount compared to them buying the goods individually. The contract is between the employee and the third party and the company typically is just using its purchasing power to generate savings for the employee Trade up only – allows individuals to purchase more company provided benefits (to gain from a company’s purchasing power) with the additional benefit paid for by payroll deduction or in some countries salary sacrifice

Trade up and trade down – similar to trade up but also allowing the employee to have less of some benefits. This typically releases money to spend on other benefits or have allocated to a spending account. Note that a western world model may also allow these released monies to be paid to the employee in cash form. This, in some ways, is similar to the flexible salary structure within India Within the trade up and trade down models, there are multiple models that ultimately move to a more holistic Total Rewards focus, and also move to define cost away from a contractual right to a benefit to instead a contractual right to a spend from the organization. Q. What are the typical benefits that are included in a flexible benefits program? Does that vary across countries in the region? A. Benefits do vary by country, and by whether the benefit is included in the annual flex choice or the spending account mechanism, but the three key areas that are likely to be included are: Insurance – life cover, accident cover, disability and medical cover Financial – pensions, savings, stock and phantom stock plans Lifestyle – annual leave, child care support, employee development, technology equipment, social responsibility and wellness support, e.g. health screens, gyms and massages The lifestyle grouping above is a broad category and typically, organizations in launching flex will break this out into multiple areas as a guide to the employee on the overall organization’s benefit philosophy.

Benefits that typically can allow trade down may be annual leaves and the core provisions of life, disability, accident, pension and medical (if not below mandatory levels). Q. Rising cost of health benefits is a key concern with most organizations today. How would moving to flexible benefits help address this issue? A. In the western world flex plan designs, it is common to utilize the flex design to get employees to co-share costs of the medical cover. For instance, if an employee only cover costs 700 dollars one year and the cost increases to 800 dollars the following year, then the organization may increase its funding to 750 dollars (increasing the spend from the employer) but the employee then has to pay 50 dollars to maintain their level of coverage. In addition: By using technology platforms, it is possible to provide content, tools and options for employees that are personalized to meet their own health status New benefits can easily be added to the benefits portfolio which can support health management such as massages, gym and fitness initiatives and health screens Costs can be rebalanced between employee and dependants so that the core workforce receives a greater proportion of the spend from the employer on healthcare Finally, we are starting to see models that can influence the company spend if the employee manages their health profile. In the US, this is evidenced by different costs for smokers and nonsmokers but simpler mechanisms could be say awarding an extra 50 dollars if the employee can evidence that they have taken up healthy initiatives during TotalRewards quarterly


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the year, such as a health screen or gym membership. All of these mechanisms ultimately encourage an employee to be more responsible about their own health profile. In an Asian environment, the same mechanisms can work in most countries but their degree of acceptance and usage is lower due to the pressures on talent attraction and retention. There is no doubt that the wellness linkage though will be a key component of most Asian plan designs, irrespective of country. Q. What, in your view, are the challenges in implementing flexible benefits? What can an organization do to address these? A. Flex is not difficult but there are a number of basic aspects that organizations need to get right: Truly understand the drivers within your own business In some markets, look closely at the cost impacts when letting people trade down. Insurers views on flex vary and ultimately trade down on insurances could increase the cost of the original provision as the insurer will price the benefit assuming that only the ill people will elect the benefit. Here at Aon Hewitt, we have a good understanding of each vendor’s views and can help you navigate this area Going into a project, most organizations see administration as the biggest issue whilst post implementation, the universal view is that the key issue is communication. Avoid these pitfalls by setting up multidisciplinary project teams and involving employees in the communication process Look at the ability for employees to enroll and be communicated to online. Paper-based processes

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are unlikely to be viable in the short-term as flex does increase the volume of these Use robust project management – there are multiple project dependencies If you want flex to control costs, be clear on the legal construction you need to implement contractually to achieve this Form a plan over how you see the plan evolving over say three years, rather than just focusing on year one. Most organizations start with a small degree of flexibility to enable employees to better understand the concept and then evolve it based on employee feedback and demand And finally, be realistic – some of the cost aspects are independent of organizational size, so flex initially is likely to be more of a larger company initiative. It is difficult to stereotype the size of an organization but 250-500 people is often seen as a minimum for a robust cost-effective business case. Q. Given that India is just starting its journey on flexible benefits, what would be your advice to organizations as they draw out the contours for successful design and implementation? A. India is in a very interesting position at the moment. Our recent research on employee preferences has shown that there is employee demand for greater choice and personalization of their package. The traditional response to attraction and retention for most organizations has been to pay more cash but this model now looks unsustainable. The vendor and technology marketplace is now opening up to make such designs possible within India.

These enablers in other markets have seen flexible benefits gain traction. Depending on your organization's size, there are many possible first steps on the journey. These can include: Total Rewards statements – communicating the value of the whole package often elicits feedback on elements not of value Business case assessment – a look at what is available in the marketplace and a summary of drivers and costs appropriate for your organization Employee preference assessment – either by survey, focus groups or more statistically-based conjoint analysis which help you understand the needs and wants (and potentially value of choice) High level scan – overview of what is possible in the marketplace and the issues you may face if you embark on a flex journey I have worked with companies on their flex strategies now for over 20 years and there is no single entry point on the journey. However, the most simple one is to list your benefits in one column and then put different demographic segments (e.g. single, young, married, high/low earner) in other columns and then simply think whether you think each segment would, if they had the chance, want more or less of each benefit that what you currently give now. This at the end of the day is the simple message – "a one size fits all" approach cannot ultimately be optimal. Even though India may be only just embarking on this journey, it is a question not of when, rather than if.


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The Changing Face of Rewards Perspectives from Leaders

Our Annual Rewards Conference, held on May 30, 2013, gave us the opportunity to meet an extremely impressive line-up of industry stalwarts – from former Chairmans and CEOs to CHROs'. We managed to catch up with some of them for a short tête-à-tête in between their sessions, and in this feature, we bring to you their perspectives on the changing face of Total Rewards. They talked to us about the expectations from HR, the rising wage costs, the need to think beyond compensation and lots more. 32


PerspectiveS

Q. You were instrumental in making Microsoft not just one of the most successful companies of our times but also a strong employer brand. What do you think are the real drivers of employee engagement and what should organizations do to build a good employer brand? A. Organizations need to start with making sure that their fundamentals are in place, and that includes ensuring a competitive pay and benefits package. It doesn’t have to be off the charts but definitely needs to be market-aligned. In my opinion, the single most important determinant of an employee’s happiness turns out to be who he or she works for. So you need to focus a lot on quality of the people managers. For us also, particularly during the hyper growth years, the focus was to improve manager capability. First time managers especially, need to know how to engage employees, how to motivate them, how to manage performance, how to inspire and unfortunately, I don’t see many companies doing this. Additionally, people look for challenge and mission. They want to be a part of something bigger than themselves. So companies should try and instill a sense of purpose, a sense of mission, a mission that drives all the right kind of behaviors. Q. Do you think salary increases and compensation issues are over-played in India today? A. I think they have always been over-played. If anything it’s lost some of its edge after 2008-09. We focus too much and too narrowly on just the issue of compensation and benefits. The reality is, whether it’s the millennium generation or my generation, people always come

Ravi Venkatesan Former Chairman, Microsoft India

to work for much more than just a salary. They come to work because they want a purpose and meaning in their lives, they want challenges, they want a community, they want to learn and grow and unfortunately, there’s too little emphasis on these aspects. In the process, you inadvertently create a very transactional culture and lot of mercenaries. The old US Army slogan was "Be all that you can be – Join the US Army". They never worried too much about the compensation they paid, they just said come join us and we will help you grow into the leader that you are. And that, according to me should be a core part of the promise to employees. Q. We have seen the role of HR change over time, from being largely transactional to more tactical. How do you see HR shaping business? A. Honestly, I haven’t quite seen the role of HR change; I have seen the need for HR to change but I think this is still lagging considerably. Many HR

leaders are functionally competent but they are rather narrowly focused on things like compensation, policy administration, recruitment and staffing and are not focusing enough on transformation, on the change agenda, etc. They are not adequately connected to the employees nor do they understand the business drivers intimately. They tend to be transactional, short-term-oriented and subservient to the business heads, not equal and not capable of challenging. This is the shift that we need to see and I hope that happens. Q. What do you think should be the priorities for HR in 2013? A. I would say that the core issue for a lot of companies today is how to accelerate the growth of outstanding leaders from within. And while that’s really a business issue, HR has an incredibly important role to play in it. A lot of companies are clueless on how to go about it and I think there’s a huge opportunity for firms like yours to help other organizations. TotalRewards quarterly


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Q. Sales force attrition and sales force effectiveness continue to be the recurring concerns for the insurance sector. What has ICICI Prudential done differently to manage these specific issues? A. I think the key issue is – how do we help our front line sales employees acquire the capability to perform? We need to hire right but it is equally important to give the new hires adequate time to perform. Selling is a skill and skill maturity is a function of input (training and coaching on the job by the manager) and time to learn and practice. In our context, the Branch Head plays a critical role in creating the right ecosystem and when done well, the issues of attrition, retention, productivity and performance get automatically addressed. Q. Rising cost of rewards is obviously a big concern for the industry as a whole. What are some of the measures you would look at to assess the effectiveness or failure of your programs? A. I think the key parameters would be to evaluate the effectiveness of rewards programs in signalling meritocracy and in retention of top talent. A structured process to assess and identify top talent is necessary from the perspective of transparency, consistency, objectivity; and the rewards systems need to be aligned to the performance management and talent management systems so that it directs and rewards the right behavior. The second issue is the overall wage cost. I feel that while it is important to be market-aligned, we do not necessarily need to follow the market. Instead, overall

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Judhajit Das CHRO, ICICI Prudential Life Insurance

wage cost needs to be evaluated based on the business model and affordability considerations. One needs to be mindful of the CAGR growth of wage cost. If wage cost is growing much higher than inflation without commensurate increase in productivity then the business model is put at risk. Q. Do you think salary increases and compensation issues in India today are over-played? A. One of the challenges has been that productivity levels have not kept pace with wage increases, which obviously makes the business model unsustainable. Many organizations have gone overboard in giving high wage increases to attract and retain talent and hence, there is a crying need to invest in creating supply of employable talent both within and outside the organization to counter the issues of the demand and supply gap. The role of oversight and governance in compensation also needs to be strengthened.

Q. What would you define as the big HR agenda for 2013? A. The life insurance industry is in the process of re-orienting its business model with the changing landscape and enhancing its value proposition for customers. This is a transformation agenda and the role of HR is to facilitate the transformation process in the context of the evolving environment.

PerspectiveS

Q. Given the current economic environment and the cost pressures, what do you think organizations can do to maximize their compensation spend? A. There are three things organizations can do. One, the goal setting has to be very robust. I think in India we tend to gloss over it. It has to be robust because it brings accountability from both sides. Second, we need to move away from the socialistic bell curve to a much sharper, realistic bell curve. It’s not about making people happy, it’s about doing the right thing for the business. And third is creating a differentiation basis performance. You have to set stretch targets and up the bar each year. It is important to give the right message that there is a big delta between the top raters and the next two rungs. Today, there isn’t enough to motivate employees to go ahead and take the next leap. Q. Do you think there is an over emphasis on salary increases in our country? A. I think, yes. Though I am also seeing some semblance of balance coming now. In a way, the downturn since 2009 has helped. People are getting far more grounded, and are willing to question the underlying assumptions. Thankfully, the high double-digit hyped salary growth of 17-20%, is something of the past. We ourselves have given a sub double-digit salary increase pool. Single-digit is the only way to go forward. Q. What are the key elements of your rewards strategy and how do you ensure that this is

Inder Walia Group Director, Human Resources, Bharti Enterprises communicated to both current as well as prospective employees? A. Much of what I have said earlier is what is enshrined in the philosophy and what is being implemented. We keep pushing ourselves trying to challenge the status quo; we are very entrepreneurial as a group and we love trying new things, we want to be at the forefront of championing good practices and policies. So given that, I would say that we do a fairly good job of communicating internally, starting with the orientation program. Where we need to do more is to communicate outside. I think the best learning comes through sharing examples, case studies and experiences. We need to look at subtle platforms to communicate better with the external community and while the brand has been built to a very good extent, we have a lot more to do on this front.

HR agendas that you would like to drive in the next 3-5 years? A. Talent identification and development is going to be a top priority. It is not just an HR agenda but a business agenda too. I think business managers need to be tasked with a specific KRA to identify and help in the development of leaders. The second thing is to identify a game plan to provide multiple opportunities for these individuals to show their capabilities and enhanced learning. And finally the third is to make sure that these high potential employees are, over a period of time, locked in with some form of a long-term incentive. So these three would be my wish list and I would want to not only implement these but make sure that they are institutionalized.

Q. Moving beyond rewards, what are some of the other critical TotalRewards quarterly


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Q. Do you think the BFSI sector has learnt its lesson from the 2008 crisis? What do you think still needs to be done to control the excesses which still plague the financial services industry in India? A. If you confine this discussion to India, there were hardly any excesses in 2008 with regards to Indian banks and the Indian banking system. There may have been some on the periphery, but broadly, it was not there. So in that sense, lessons were more for the western banking system or the foreign banks. As for lessons learned, there are two things – one at the macro level, at the level of bank policies, systems, procedures, risk management, etc. There you need some level of regulation when the times are difficult and maybe even more when the times are easy. We are seeing a lot of regulation at that level. The second is at the individual level; we hear of incidents of individual greed, or individual greed fired by opportunities. Those are more difficult to regulate and control and I am not sure if anything is happening there. Q. What in your view are the real drivers of employee engagement and building a good employer brand in the market today? A. Today’s youth is committed and driven. They look for jobs which give them happiness, opportunities to grow and apply their creativity. I think organizations need to understand this and move beyond using compensation as the only lever to retain employees. They need to create a culture which is all encompassing. They need to define a meaningful value proposition which resonates with the employees. If they are able to achieve that, the stickiness with the organization will increase.

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O.P. Bhatt Ex-Chairman, State Bank of India

Q. Do you think the new banking licenses which the RBI plans to award to some NBFCs at the end of the year is likely to start a fresh war for talent and will increase salaries to an unaffordable level for the industry? A. I think there are many factors which will determine that. Factors such as how many licenses are being issued, how many people are required, whether these banks start operation immediately or it is spread over one or more years, etc. Obviously, these banks will require talent but to say that there will be war for talent or there will be shortage of talent – I don’t think so. Bulk of the banking work is not so complex and most people can do it. There may be a few key roles which require specific skills and knowledge or simply a great person. For these roles, there may be some sort of fight for talent but otherwise, I think more opportunities will be created. There may be some haggling at the CEO/top management level but

overall I don’t think it will be a big issue. Q. You managed a bank which had a large human capital base, what do you think should be the human capital agenda for the industry for the next two to three years? A. Unfortunately, bulk of the HR agenda in most organizations has become confined to routine aspects like recruitment, transfers, etc. However, there is an HR agenda which goes beyond the day-to-day tasks, it is about changing attitudes, motivating and driving right behaviors, instilling an urge to do better, creating a working environment where employees want to excel and give their best. And this, I feel is not getting much importance and is possibly the cause of dissatisfaction and poor quality results in the workplace.

trendcheck

Trend Check

CEO Compensation vs. Performance Increase in CEO compensation has been a topic of interest for variety of reasons ranging from how much the increase should be for next year to questions raised by governance activists. Aon Hewitt recently did an analysis to check the growth rate of CEO compensation vis-à-vis growth in financials for BSE 200 companies. This analysis is a same incumbent analysis i.e. companies where the same CEO was in position over the last five years were considered.

All Companies 5 Year CAGR – Financials

5 Year CAGR – Compensation TFP

18%

Revenue

19%

TCC

18%

EBITDA

17%

TCC w/LTI

17%

PAT

16%

Overall CEO compensation grew by 17% over the five year period while the top line (revenue) for the same companies over the same period grew by 19% and bottom line (PAT) by 16%.

Revenue

PAT

TCC w/LTI

TCC w/LTI

All Companies

0.12

0.16

Promoters

0.04

0.23

Professionals

0.32

0.12

R – Squares (CAGRs)

We notice that while the top line in the case of both promoter and professional CEO led companies grew at same rate, the growth in profits was higher in the case of promoter CEOs by 200 Basis Points. In the same period, growth in compensation for promoter CEOs was more conservative compared to professional CEOs (16% and 18% respectively). The correlations are interesting and tells us what gets taken into account while deciding on pay increase for CEOs. We are not commenting on what is right and wrong but the data surely points towards greater introspection.

Interestingly, CAGR in compensation shows a stronger correlation with CAGR in top line for professional CEOs and with bottom line for promoter CEOs.

TFP – Total Fixed Pay TCC – Total Fixed Pay + Variable Pay Follow this space to read about emerging compensation, benefits and rewards trends in short insightful bytes.

Anubhav Gupta Senior Consultant – Executive Compensation, Aon Hewitt, India Supported by Srishti Aggarwal For more information, please write to us at [email protected]



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surveycalendar FMCG Outsourced Field Sales Force (OFS) Study February-June Flagship study in the FMCG industry focused on presenting comprehensive compensation and benefits benchmarking data for the field sales staff in India.

ITeS Industry Study May-August The forum brings together ITeS sector organizations to benchmark their compensation, benefits, people practices and presents detailed analysis across third party, BFSI captives, other captives and KPOs.

India Hotel Survey May-September The forum brings together leading hotel groups to benchmark their compensation, benefits, people practices and key organizational metrics and covers multiple properties and locations.

Hi-Tech Industry Study May-September The study provides robust information on cash compensation and other industry trends across IT sectors – IT services, IT products, semiconductors and engineering design.

Banking Captives Forum July-September This forum brings together the leading banking captives to benchmark compensation and share best practices and key insights with regards to managing talent and rewards.

Hi-Tech Skills Study June-August This study provides benchmark information and best practices with regards to managing compensation for niche and differentiated skills in the IT industry.

Indian Semiconductor and EDA Forum (ISEF) October-December The forum brings together leading semiconductor and EDA companies to benchmark compensation, variable pay practices and key organizational metrices.

Salary Increase Survey Phase I: June-September Phase 2: December-February One of the most exhaustive studies in the area of performance and rewards in India. The study measures actual and projected salary increases, variable pay and performance data across employee categories.

India Pharmaceutical Forum June-September The forum brings together the key MNCs and Indian pharmaceutical organizations to benchmark their positions, levels and benefits across the industry.

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Upcoming Medical Technology Forum July-October The study covers leading organizations in the medical devices/technology domain providing robust and comprehensive information on cash compensation and industry trends.

Retail Forum July-October The study covers leading organizations in the retail industry providing robust and comprehensive information on cash compensation and industry trends.

Executive Compensation Study July-December The study provides organizations with access to rich analysis of data and practices in executive compensation.

Power Sector Forum August-December The study covers leading organizations in the power and energy domain, providing robust and comprehensive information on cash compensation and industry trends.

Campus Compensation Study October-December The study provides organizations with trends in compensation for MBAs and graduates from top business schools and engineering colleges.

SIAM C&B Forum September-January A study facilitated by SIAM members covering more than 25 large auto OEMs in the country. The study benchmarks compensation, benefits and people and productivity measures in the auto OEM industry.

Auto Ancillary C&B Forum September-January A study conducted for auto ancillary organizations across the country. The study benchmarks compensation, benefits and people and productivity measures.

CRO Forum October-January The study covers leading organizations in the CRO/CRAM domain providing robust and comprehensive information on cash compensation and industry trends.

India Telecom Forum October-February This forum brings together leading telecom companies to benchmark compensation, benefits and other best practices.

Insights McLagan – Banking & Financial Services Insights Capital Markets Forum Study April-September A benchmark study conducted for large MNCs and Indian institutional securities firms covering equity capital markets, debt capital markets and investment banking job families.

India Banking Forum Study May-October A platform for all major Indian and MNC banks to come together to share and benchmark their positions, levels, functions and sub-functions across the industry.

Investment Management Forum Study June-October A flagship study in the asset management sector covering key job families like fund management and sales.

Private Banking Forum Study June-September A study covering large Indian and MNC private wealth management organizations studies benchmark key roles across functions.

Life Insurance Forum Study September-January A study of the largest life insurance players in India covering positions across all channels of distribution and key corporate functions.

General Insurance Forum Study September-February A study of the largest general insurance players in India covering positions across all channels of distribution and key corporate functions.

Retail Broking Forum Study October-January A study that covers Indian and MNC retail brokerage organizations to benchmark positions across sales, PMS and other functions.

Private Equity Forum Study October-January A study of private equity players covering key positions across fund management roles.

NBFC Forum Study November-March A study of large NBFCs covering levels and positions across sales and support. For more information, please write to us at [email protected]

Salary Projections 2013 Did they come true?

Salary Projections 2014 Will the battles of 2013 continue in to 2014 for India Inc.?

Aon Hewitt recently concluded its mid-year Salary Increase Survey to understand the manner in which HR and rewards professionals are dealing with the vagaries of the Indian economy and the intensifying pressure on cost. In India, the survey received an overwhelming response with 600+ organizations participating. The survey gauges the difference between salary increase projections made in the beginning of the year and the actual salary increase paid out in 2013. It presents insights on salary budgets planned for 2014, factors influencing pay decisions, actual and projected bonus payouts and the measures organizations are taking to control escalating wage bills.

The survey was conducted globally across 119 markets over July-August 2013. Market-specific reports are now available for this phase of the survey. Like each year, the India Salary Increase Survey Phase 2 will be launched in December 2013 with the objective of bringing you latest insights.

For further details and queries, please write to us at [email protected]

Revisiting your campus hiring and compensation strategy?

Participate, Benchmark and Plan

Announcing the launch of Aon Hewitt Campus Compensation Survey to understand the changing dynamics of campus recruitment and compensation across engineering, management and other education streams. The survey presents in-depth analysis and insights into campus hiring for 2014 and the changes, if any, in the compensation offers being made across various tiers of colleges. You can look forward to: In-depth analysis on entry level hiring trends across education streams with YOY analysis and 2014 projections Campus compensation philosophy and brand building initiatives Compensation offers planned for tier 1, tier 2, tier 3 and other tier colleges across various industries

Joining bonuses across education streams and tiers of colleges Interns stipend and benefits offered

All participants will receive a complimentary summary report.

To confirm your participation, please write to [email protected] with the subject:

Aon Hewitt Campus Compensation Study 2013-14