the india story ... unfolding (muninder anand)
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The India Story…..Unfolding12th April, 2012
Muninder AnandDirector – Information Product Solutions
1MERCER
Point for Discussion
Section 1: Changing Landscapes
Section 2: Salary Increase Trends
Section 3: Compensation Mix Trends and Benefits
Section 4: Demographic Reward Drivers and Expatriate Salary Models
Section 5: Conclusion
Changing Landscapes: Business, Leadership and HR
3MERCER
Source: Conference Board 2011 global survey of 704 CEOs
Current Business EnvironmentCEOs rank talent as #2 business challenge: Business growth and Innovation both dependent on talent
1
2
3
4
5
Business growth
Talent
Cost optimization
Innovation
Government regulation
Rank
Importance-adjusted top three strategies
Score
1.65
.74
.72
.70
.59
“Strategy and operational decisions are important, but defining bets are made on people.”Greg Summer, CEO. PerkinElmer
“Consensus among CEOs is clear: having the right talent will make a critical difference in executing against any of today’s business challenges”Rebecca Ray, Ph.D., The Conference Board.
4MERCER
“We are looking to increase our headcount to 150,000 people in the next couple of years. Rapid growth would merely be an understatement.”
Global Head of HR , Consulting, Technology & Outsourcing Company
“In the next three years our business in India will be as large as what we are globally now.”
Global Head of HR , Generics Pharmaceutical Company
“We can grow as fast as we want, we have a supply constraint. ”Chief Executive Officer, Beverage Company
Recent leadership conversations…
“Imagine a company with 15000 employees, born yesterday, with no context or history. We are looking to redefine ourselves towards 2015 without any correlation with our as-is state”
Chief Executive Officer , Generics Pharmaceutical Company
5MERCER
Leadership Imperatives
• How do people experience you?
• How do they experience themselves when they are with you?
• What’s the new leadership model?
• Where are your next 100 leaders going to be come from?
80% companies looking towards changes in their leadership development programs
Only 17% companies are confident about pipeline of future leaders, retaining leadership talent
The art of leadership is creating a world that people want to belong to
IQ + Technical skills + Emotional intelligence
6MERCER
Leadership ImperativesMapping Emotional Intelligence
Emotional Intelligence
Self Awareness
Social Skills
Self Regulation
Empathy
Motivation
Thirst for Constructive criticismRealistic self assessment and interest in feedbackSense of humour
TrustIntegrityAbility to deal with ambiguity
A passion for work and new challengesUnflagging energy to improveOptimism in the face of failure
Expertise in attracting and retaining talentAbility to develop othersSensitivity to cross cultural differences and diversity
Effectiveness in leading changePersuasiveness Expertise in leading and building teams
Emotional Intelligence
* Daniel Goleman EI model
Macro Economic Outlook : World and Asia Pacific
8MERCER
Global and regional GDPModerate growth of 4%-5% forecasted for Asia
GDP - Global and Regional
Source: IMA September 2011
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2008 2009 2010 2011 2012Perc
enta
ge (%
)
US Europe Asia Pacific World
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Indian EconomyBalancing inflation & growth
10.4%
6.9%7.6%
9.0%
12.0%
7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%R
eal G
DP
Gro
wth
(%)
5.0%
7.0%
9.0%
11.0%
13.0%
Infla
tion
(%)
GDP Growth 10.4% 6.9% 7.6%
Inflation 12.0% 9.0% 7.0%
2010 (Actual) 2011 (Estimated) 2012 (Forecast)
Source: IMA September 2011
10MERCER
Trends : High-Tech and ITeS Industries
11MERCER
Hi-Tech Industry in India
• M&A have continued to be a strong
trend for expanding business areas and
talent potential
• The ‘build versus buy decisions’ are
being based on more mature models of
skill tracking, incumbent level skill
accounting and time to time evaluation
of skill expertise
• Management of overall costs of
business has come into focus:
– Entry level salaries
– Talent segmentation
– Differential Rewards
Overall Trends• Product companies tend to pay a
higher differential over services companies at higher levels
• Semi-conductor companies continue to pay a premium at all levels
• What’s HOT in 2012 for Technology ?– Trendy 3D with its rising popularity
– Cloud Computing -‘King of data’integrating with business systems and applications to strengthen their responsiveness to user needs, streamline workflows & reduce costs
Segment Trends
12MERCER
People
• Virtualization and work load management
• Talent segmentation and differential rewards strategies
Process
• Focus on process re-engineering to improve the efficiency levels and achieve a higher return on investment at lower costs
• Cutting down on cycle time
Client
• Aligning business units to client verticals for better delivery
• Organization re-structuring based on lines of business
• Improving customer focus
Revenue Focus
• Infrastructure Consolidation: Shifting fixed costs into variable costs
• Extending the business value proposition to expand the scope of business
What are the Focus Areas ?Balanced Score Card of major IT firms
13MERCER
ITeS Industry in India
• Geographical diversification
• Consolidation of Firms to gain larger market share
• Leverage Emerging Technologies
• Improving Employability in workforce
• Leveraging “Domestic” demand
– Telecom
– Aviation
– Utilities
• Movement to Tier 2/3 cities
Overall Trends
• Large Third party players will
outperform the smaller companies
Captives will evolve
– “either-or” choice by parent
organization will be captive for
value add “and” third party
provider for outsourcing base
transactions
Segment Trends
“How best can the industry turn the current challenges into opportunities and embark on the path of becoming an industry worth $225 billion by 2020” ?
14MERCER
Salary Increase Trends
15MERCER
Salary increases – 2010 to 2012 forecastsAll Industries- India amongst countries with highest increases
0
2
4
6
8
10
12
14
NZ JP AU TW SG HK KR MY TH PH ID CN IN VN
Bas
e Sa
lary
Incr
ease
%
2010 2011 2012Sources: 2011Total Remuneration Surveys and Market Pulse Surveys
16MERCER
Salary Increase forecast across industries over the yearsAll Industries - on Annual Guaranteed Cash
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Sala
ry in
crea
se (%
)
All Industry 13.0% 9.0% 11.0% 12.0% 12.0%
Consumer 14.0% 11.5% 10.1% 12.0% 12.0%
Chemical 13.0% 8.0% 12.0% 13.0% 12.2%
Pharma 13.1% 12.0% 12.0% 12.7% 12.8%
Auto 15.0% 10.0% 12.5% 13.4% 14.3%
ITeS 12.0% 9.0% 10.0% 11.5% 11.3%
Hitech 14.0% 6.0% 9.1% 11.0% 11.0%
2008 2009 2010 2011 2012
Source: IN TRS (2010, 2011)
17MERCER
Hi Tech segment wise salary increase trendsServices more optimistic on salary increase
11.40%
10.40%
11.70%11.50%
12.00%12.70%
Semiconductor Product Majors Services Majors
2011 2012
Source: Mercer’s India 2011 Hi-Tech Non-Executive Remuneration Survey (Jan)
Higher salary increase
forecasted for Non-sales
individual contributors in
services in comparison with the
sales individual contributors
At higher levels, product
companies tend to pay higher
differential over services
companies
A premium is paid by semi-
conductor organizations in
the Hi-Tech industry
18MERCER
8.8%10.0% 10.0% 10.00%
11.50% 11.30%12.0% 12.1% 12.0%
25P Median 75P
2010 (Actual) 2011 (Actual) 2012 (Forecast)
ITeS industry salary increase trendsConservative for 2012
19MERCER
2011 (Actual)
9.0%
11.3%
12.0%
10.0%
12.1%
13.4%
25P
Median
75P
Third Party Captive2012 (Forecast)
9.0%
10.3%
11.9%
10.0%
11.9%
13.0%
25P
Median
75P
ITeS industry salary increase trendsCaptives continue to project higher salary increases
20MERCER
Compensation Mix and Variable Pay Trends
21MERCER
Compensation mixHigher percentage of variable pay in the Hi-Tech industry
90%
85%
85%
85%
10%
15%
15%
15%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Prof-Non Sales
Prof-Sales
Mgmt-Non Sales
Mgmt-Sales
Fixed Variable
All Industries
90%
67%
85%
65%
10%
33%
15%
35%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Prof-Non Sales
Prof-Sales
Mgmt-Non Sales
Mgmt-Sales
Fixed Variable
Hitech
Source: Mercer’s 2011 India All Industry TRS (Mar 2012) Source: Mercer’s 2011 Hi-Tech Survey (Jan 2012)
• Individual and company performance are primarily used to determine variable payouts
• As the level of employee increases, so does the weightage of company performance
• Variable pay is primarily paid out on an annual basis
• Where it paid out quarterly or semi-annually, it is for sales force earning sales incentives
The Need to Differentiate and Customize
23MERCER
The need to differentiate and customizeBenefits - an answer to the need
• Need to relook at benefits keeping in mind the generational needs of the current workforce
• With compensation structures becoming standard and compensation costs becoming more competitive, benefits to become a strong differentiator
• A flexible and customized approach to benefits that provides “choice” to employees rather than a typical “one size fits all” approach
24MERCER
Where do benefits fit in?Adding value to the total package…
• Reward budget not enough to “move the needle” on base pay
• Benefits as a retention tool
• A sustainable rewards practice
• The perceived value of benefits to the employee can be greater than the cost to the employer of providing it!
- Group buying power gives lower cost - Access to better terms and conditions- Status (higher benefits entitlements for top management)- Impact on productivity (wellness and medical check-up)- Impact on behaviours and long term cost (co-payments for healthcare)- Focused on specific employee needs (flex)
25MERCER
Engagement
Attraction RetentionBenefits play a significant
role in employee62% 64%
Benefits fit in everywhere….
26MERCER
Results of recent snapshot survey What benefits HR thinks will be important to employees…
Which group of benefits do you think has the highest
impact on employee satisfaction?
6
2
543
1 Flexible working arrangements
Term Life Insurance
Company car
Sabbatical leave
Health and Wellness benefits
Paternity leave
27MERCER
# 1 Newer talent pools
89% of women who voluntarily leave their jobs — for
example to raise a child —want to go back to work but only 40% have
been able to find full-time, mainstream jobs.
28MERCER
# 2 Increased mobility
Foreign nationals are authors of the majority of patent applications filed
by many US companies: 65% at Merck and 64% at GE and 60% at
Cisco
29MERCER
# 3 Employability
Employability will continue to be a huge problem worldwide. Because of the uneven quality of education systems, only 25% of Indian and 20% of Russian professionals are currently considered employable by multinationals
30MERCER
Demographics driving Rewards
31MERCER
General Demographic Trends
Falling birth rates
Increasing life expectancy
2010 Managing Compensation and Benefits across Borders
32MERCER
General Demographic Trends
Addition to the working age population by 2018 (Millions)
2010 Economic Trends - IBEF
Increasing Middle Class
33MERCER
$$$$$$ ?
Talent flight risk - 54% seriously considering leaving
Source: Mercer’s What's Working Survey 2011
34MERCER
54%
66%
54% 53%
44%39%
0%
10%
20%
30%
40%
50%
60%
70%
Allemployees
16-24 25-34 35-44 45-54 55-64
Gen Y
Gen Y poses a significant talent flight risk
35MERCER
Pay is one of the top-ranked element of the deal, but satisfaction with it is down
Benefits more important to attraction and retention, but satisfaction with them slips
Retirement programs not a priority
Employees see gains in talent development
Views of senior management rise and 70% say company is well-managed
Increasing emphasis on ‘My Job’ and managers getimproved marks
Most say work load is reasonable and work/lifebalance is possible
One in two India workers is seriously considering leaving
Source: Mercer’s What’s Working™ survey
Reward drivers for different countriesWhat employees in India value most?
36MERCER
#1Career Advancement
#2Base Pay
#3Training Opportunities
Reward drivers for different countriesWhat employees in India value most?
37MERCER
What’s inside employees’ mindsMost important value proposition elements: Asia-Pacific
38MERCER
Employee MobilityThe right People in the right Places & Roles at the right Cost for the right Time & Results
People
Place & Roles
Time & Result
Cost
Remuneration & Benefits
Talent Management
Return on Investment
Resource Planning
Effective mobility management requires the cooperation between business unit leaders, talent management, compensation and benefits, process and communication, third-party providers (including outsourcing) and of course the employee and their family.
39MERCER
Parity among nationalities of expatriates
Equivalent pay with
peers in the company
Competitiveness with other
multinationals
Repatriation
Ease of administration
Program costs
Assignment Duration
Assignment Location
Assignees’ Nationality
Assignees’ Family
Assignment Cost Centre
Social Security & Retirals
Taxation
Split pay
The external factors such as market competitiveness, benchmark to peers, assignment administration and so on
The core factors, which are usually unique to the assignee and tend to differ for every assignment viz. assignment duration, assignee family requirements and so on
CostDetermining international compensation
40MERCER
CostScientific build up
25,92,627TOTAL CTC (Net)
4,74,792Pli Payable
21,29,248Total Choice Pay
4,500Hosp Insurance
180Gpa Insurance
1,96,824Vehicle Emi
99,996Superannuation
5,000Gift Coupon
16,200Food Coupon
15,49,148Special Allowance
2,400Club Allowance
15,000Medical
2,40,000Fuel & maint-4w
13,52,534Total Base Pay
1,94,642PF + Gratuity
11,57,892Basic
Compensation (INR)India Compensation Components
67,83,808Gross CTC
49,40,019Net CTC
3,46,014Car
16,92,000Housing
3,09,378Cost of Living Allowance
25,92,627Base
Compensation (INR)
International Compensation components
Some Additional Benefits
• Medical (home country allowance will discontinue)
• Travel Insurance
• AD&D
• Spouse Allowance
• Relocation
41MERCER
Time & resultInternational assignment and employee categorisation
International Assignments
• Long Term Assignment - Transfers of 1 to 5 years’ duration with essentially a managerial and business development purpose.
• Short Term Assignment - These assignments are usually single status foreign assignments lasting up to 12 months.
• Commuter Assignments - These assignments require the employee to carry out job related tasks by commuting every week or every two weeks
International Assignees
• Deputed Assignees – Employees sent abroad but still retain status as employees of home location.
• Short Term Assignees – Employees sent abroad for a period of less than or up to 12 months
• Third Country Nationals – Employees who are citizens of one country, hired by global headquarters, to work in a third country
• Global Nomad – Multicultural, global professionals who have no fixed home location
Contracts, compensation & benefits are allocated depending on the assignment type and the category of international assignments the employee falls under
42MERCER
Expatriate Salary ModelsGlobal vs APAC
69.3
12.27 3.8 3.7 2.8
27.9
16.3
7 5.8 4.7 3.5
14.5
52.3
0
10
20
30
40
50
60
70
80
BalanceSheet (Home
based)
BalanceSheet (HQ
based)
Host Home Plus Host Plus Higher(Home or
Host)
Others
Worldwide
APAC
Source: Mercer’s 2011 Worldwide Survey of International Assignment Policies & Practices
Expatriate Remuneration Approach
Perc
enta
ge P
reva
lenc
e
Most preferred compensation approach
43MERCER
Expatriate Salary DeliveryGlobal vs APAC
Expatriate remuneration delivery
Source: Mercer’s 2011 Worldwide Survey of International Assignment Policies & Practices
45%
19%
15%
16%
5%
Split between Home& Host currency
Pay in Homecurrency
Case by case
Pay in Host currency
Pay in third countrycurrency
40%16%
10%2%
32%
GlobalAPAC
44MERCER
Potential Priorities for 2012 and Beyond
45MERCER
Potential priorities for 2012 and beyondWhere to focus your efforts
• Communication up– Continuously remind global colleagues of
- The growth opportunities- The demand for talent- Employee priorities and expectations
• Global changes may not be relevant here– Increased variable pay to drive growth in flat markets– Maybe more emphasis on base pay required in growth markets
• Competition for talent from large locals– Do not try to outbid on compensation– Focus on non-financial components of package
- Training, career development, knowledge transfer, international assignments, equitable and transparent performance management
46MERCER
• Talent management– Leadership development– Focus on the gaps and be targeted– Ensures more ROI
• Communication down– Talk to employees!– Encourage your leaders/managers to talk to employees– Educate and keep them informed– Create a relationship, not a transaction
• Get the basics right– Partnership between business and HR– Desired market position on compensation– Link compensation with development
Potential priorities for 2012 and beyondWhere to focus your efforts
muninder.anand@mercer.com
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