India Sees Performance-Linked Salary Hikes for Outsourcing Staffers in 2005 | Article

indian maleProfessionals working for India’s booming business process outsourcing suppliers are all smiles. Their pay packets across all levels recorded a 14.5 percent increase in 2004 over 2003. Hewitt Associates predicts salaries will continue to rise this year. Employee performance is driving these raises, according to Hewitt’s recent survey of India’s outsourcing suppliers, also called ITES (IT-enabled services) companies.

According to the survey, the “Ninth Annual Salary Increase Survey,” increases in 2004 marked an improvement over salary levels in 2003.

“Due to a large region-wide economic upswing and the global attention attracted by India, employers reported a more positive outlook on salary increases across industries in 2004,” says Nishchae Suri, Asia Pacific Business Consulting Leader at Hewitt Associates. “Projections for 2005 also indicate that this trend will continue,” he adds.

In 2004, overall salary increases for outsourcing suppliers were:

  • Senior/top management: 14.2 percent
  • Manager: 14.5 percent
  • Professional/supervisor/technical: 14.8 percent
  • Clerical and support: 15 percent
  • Manual: 13.2 percent.

The outsourcing sector ranked third in terms of percentage increase in salaries at 14.5 percent, after the information technology industry with 14.9 percent and the entertainment/communications/publication industry with a 14.7 percent increase. The survey projects further increases of 14.4 percent; 15 percent; and 15.4 percent respectively this year.

Salary Projections for This Year

The outlook for salary increases in 2005 looks even brighter; employers are more confident about the direction of the economy and the expected performance of their organizations, the survey revealed. It also found that very few organizations are reporting the need to freeze salary increases going forward in 2005.

Sunil Mehta, Vice President of the National Association of Software Services Companies (NASSCOM), agrees. “With the improvement in the pricing scenario, suppliers are willing to pay more. We expect that salaries on an average would increase by 12-15 percent across processes,” Mehta says.

The Rise of Variable Pay Plans

Eighty-five percent of the survey’s respondents reported having a variable pay plan component, which includes bonuses and performance-linked increments, in 2004. The survey found there was a significant increase in the variable pay plan across all levels as a percentage of the total cost last year. For example, at the senior/top management level, this target payout increased to 20.9 percent in 2004 versus 16.3 percent in 2003.

Deepak Dhawan, Vice President of Human Resources at EXL Services, one of India’s large service providers, agrees that the variable pay component has gone up over the last couple of years and has put pressure on the fixed income group.

In 2005, the survey predicts that the variable pay component of the total cost to the company for top managers could increase to as much as 22.4 percent and the increase could happen across all functions.

Suppliers are increasingly favoring performance-based hikes in salary to enhance productivity, Dhawan adds. However, he is also quick to point out that salary increases with the large established suppliers would probably be below the industry average. “I believe that the larger suppliers by now have established employment practices, so wage rates would have stabilized,” he says.

Suri says that suppliers are using the pay-for-performance philosophy to build a high-performing organizational culture, which then translates into better profitability. “Organizations have to spend each dollar wisely. Today, CEOs and business leaders have a stronger commitment towards differentiating rewards based on the individual’s contribution to a company’s overall performance,” he says. The survey found that an outstanding performer earns more than twice the salary increase than an average performer.

The Challenge of Attracting and Maintaining

Most suppliers have been using the variable pay as a strategic lever of attracting and retaining talent, the study revealed.

“Managing young, competent knowledge workers with high aspirations is posing to be a huge challenge. Investing in their development and showing them a clear growth path has become an imperative and organizations are continuously looking for innovative ways to retain and engage such a workforce,” points out Suri.

He says the entry of a large number of newer players into the market have also raised wages. These new suppliers often need to establish themselves and are, therefore, buying good and experienced talent at wages that are higher than the industry average.

How the study was done: Between July 2004 and January 2005, Hewitt studied 573 foreign-owned, locally-owned, and joint-venture organizations across India, analyzing information on more than 700,000 employees. The survey measures performance and reward trends across five employee groups: senior/top management; manager; professional/supervisor/technical; clerical/support and manual employees.

Hewitt collected information across 24 industries including banks, financial services, consumer durables; IT and BPO providers, engineering; automobiles, and media/publications.

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