Performance based pay is gaining ground within the IT industry as most employees view it as an opportunity to earn more, the study highlights.
The Nasscom-Hewitt Total Rewards Study 2005 states that there is growing trend of the industry towards differentiated total rewards practices based on specialised skill and complexity.
Sunil Mehta, vice president, Nasscom said, "The Indian IT-ITES industry continues to chart remarkable growth with an expected growth of nearly 28 per cent by exceeding $36 billion in annual revenues in FY 2005-06. With such growth, the industry is also rapidly maturing and moving towards a higher degree of specialisation in various fields like recruitment, employee rewards and compensation."
Hewitt surveyed over 125 locally and foreign owned companies this year. The study provides insights on Total Rewards in IT and ITES sector.
"Movement to tier II and tier III cities has expanded the talent base, but on the other hand the shift from low-end business processes to higher value knowledge based processes has amplified the challenge of hiring specialised manpower," Nishchae Suri, business consulting leader (Asia Pacific) Hewitt Associates said.
This study also highlights trends in compensation based on location, skill, and process complexity and captures the changing rewards landscape owing to fringe benefit tax.
"Outsourcing companies are now falling prey to increasing wage costs for specialized skills and the need to constantly align reward practices to the market continues," Suri added.
About 48 per cent of the survey partners said that they paid premiums for specialised skills at the hiring stage and the quantum payout was often left upon the recruitment manager's discretion.
Nearly the same number reported that they designed fixed pay ranges and placed employees with hot skills in a higher quartile within the same range. Other methods adopted by the industry to retain such employees were hot skill allowances; sign on bonuses and frequent salary revisions.
"Salary structures are a derivative of multiple factors: skill, complexity, experience productivity goals and special domain or process expertise. Organisations today are therefore striving to align their compensation with their business strategy by linking rewards to these critical factors across all levels," added Suri.
The study also highlights the changing rewards landscape as impacted by the introduction of the Fringe Benefit Tax. As per the study results most organisations in the IT and ITES industry chose to bear the tax burden themselves rather than pass it on completely to the employees.
Highlights of Total Rewards Study 2005
- Attraction and retention of employees remain to be a key issue for the IT and ITes industry. With more and more sectors moving on a high growth trajectory, the talent war is increasing and attrition soaring. At the junior level surveyed organisations reported an average attrition rate of 30per cent in the IT and 40per cent in the ITes industry.
- Capability development continued to be area of focus with 70 per cent of the survey partners of the Nasscom-Hewitt study putting emphasis on ongoing assessment of skills, knowledge and abilities to identify the employees' development opportunities. The study reveals that organizations are actively undertaking employee development measures through initiatives such as job postings, internal transfers, job enrichment and job redesign.
- Performance based pay is gaining ground within the industry as most employees view it as an opportunity to earn more. More than 80per cent organizations across these two industries report prevalence of short-term incentive plans and about 40 per cent report prevalence of long term incentive plans with stock options being the most favoured.
- Compensation movement as per the study has been in the range of 8-10 per cent on total cost to company. Though over the years this industry has witnessed double-digit salary increases, the actual compensation movement on median has not moved in the same proportion due to companies ramping up operations and augmented hiring.
- Continued trend of a cash heavy compensation. Organisations in this sector are increasingly designing compensation structures, which are tax friendly and allow employees to exercise their choice of benefits through a single flexible allowance.
- Complexity based compensation is gaining popularity. Out of the 91 IT organisations approached, 27 per cent reported a formal differentiation based on hot skills, whilst 41per cent said that they clearly did not differentiate between skills in specific functions. The rest maintained that they had no formal policy for differentiation, but differentiated compensation basis criticality of resource requirement. In ITeS industry, 66per cent of the organisations reported a formal policy of differentiating compensation based on process complexity.
- Bangalore and NCR reported a 3-6 per cent increment in compensation over the national average. Most organisations do not have a very high differentiation in compensation across locations, those that do differentiate pay based on locations, primarily align it to attraction and retention challenges in the location and cost of living differences.
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