IT–ITeS
Industry witnesses Differences in Compensation
based on Specialized Skill and Complexity
The
year 2005 saw burgeoning growth of the
IT & ITeS industry with players in the
industry signing multi-million dollar
deals and foreign companies offshoring
greater portions of work. The growth
saw companies expand operations in newer
towns and cities, and the nature of
work gravitated to the higher end of
the value chain. Pressures on talent
and profitability increased in 2005
and companies looked at ways to establish
competitive advantage. Organizations
created progressive practices to support
continuous development of its employees.
Commenting on this phenomenon, 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
US$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 specialization
in various fields like recruitment,
employee rewards and compensation. The
findings of this year’s study highlight
these trends
Sunil
Mehta Vice-President, NASSCOM
and
the market analysis on key elements
of compensation as well as prevalence
of critical benefits and HR practices
in the industry.”
Adding to this, Nishchae Suri, Asia-Pacific
Business Consulting, Hewitt Associates,
said, “The 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 specialized
manpower. 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.”
Among
the other findings, the study reports
that there is a growing trend of the
industry towards differentiated total
rewards practices based on specialized
skill and complexity.
*48 per cent of the survey partners
said that they paid premiums for specialized
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
quality 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. Organizations
today are, therefore, striving to align
their compensation with their business
strategy by linking rewards to these
critical factors across all levels,”
added Suri.
Nishchae
Suri Asia-Pacific Business
Consulting, Hewitt Associates
The study also highlights the changing
rewards landscape as impacted by the
introduction of the Fringe Benefit Tax.
As per the study, most organizations
in the IT and ITeS industry chose to
bear the tax burden themselves rather
than pass it on completely to the employees.
Commenting on this, Mehta of NASSCOM
said, “Expansion and profitability have
always been the points that drive any
business, but it is heartening to see
that when issues like Fringe Benefit
Tax come up, IT and ITeS companies take
their employee welfare seriously and
share the impact of the tax, rather
than completely passing it on to the
employee.”
Key
Highlights – 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,
the surveyed organizations reported an average
attrition rate of 30 per cent in the IT and
40 per cent in the ITeS industry.
*Capability development continued to be the
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 80
per cent organizations across these two industries
report a 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
the total cost to company. Though over the
years this industry has witnessed double-digit
salary increases, the actual compensation
movement on the median has not moved in the
same proportion due to companies ramping up
operations and augmented hiring.
*Continued trend of a cash-heavy compensation:
Organizations 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 gaining popularity:
Out of the 91 IT organizations approached,
27 per cent reported a formal differentiation
based on hot skills, whilst 41 per 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 bases criticality
of resource requirement. In the ITeS industry,
66 per cent of the organizations 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 organizations 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.
