Attrition rates at Indian BPOs are an important criterion as outsourcing buyers determine the best location for their offshore work. What is the rate? Why is it so high? And what can employers do about it?
The HayGroup recently completed its 2008 “BPO Sector Special Survey,” which answers those questions. The study focused on the compensation and benefits of almost 39,000 Indian jobs in this sector.
Key findings include:
- The remuneration structure is not as competitive in BPO firms as they are in the rest of the Indian market. The short-term variable pay was just four percent last year while the rest of India’s workers enjoyed 10 percent.
- The attrition rate at BPOs last year was 23.5 percent compared to 15 percent in the general market.
- The benefits package mainly focused on retirement benefits, which is a disconnect since most of these workers are in their 20s.
Why Indian BPOs have a high attrition rate
There are three challenges. First, the variable pay component is “very small,” says Oscar De Mello, head of Reward Information Services for the Indian market for HayGroup. This component “doesn’t give the benefits manager any leeway to create incentive programs to encourage employees to work harder or stay at the organization.”
Second, the benefits focus mainly on money that will become available post-retirement – about 30 to 35 years down the line. “The concept of long term doesn’t really exist for a 20-year old,” says De Mello.
Focusing on retirement benefits also is not a retention faction. De Mello points out that, per law, every Indian employee, no matter where he or she works, automatically participates in the national Provident Fund, which requires employers to withhold 12 percent of the employee’s base salary that the employee must match. Provident Fund savings continue right through a person’s working life irrespective of where the worker is employed. The employee gets the money at age 60. So retirement benefits like Provident Funds do not encourage employees to stay at one company.
Finally, the robust job market doesn’t encourage retention. De Mello says BPO workers know that after just three months on the job, they can leave to join another BPO for $200 more a month. “The system itself creates a certain level of movement,” he observes. “There’s no reason to stay.”
Fixing the problem
HayGroup hopes BPO companies will learn from the findings and create “more realistic” pay policies. “Companies need to bring their pay structures more in alignment with the market,” De Mello says. The study recommends employers “pay for performance” for their junior and middle-level managers.
To keep young workers on the payroll longer, the HayGroup study found companies should focus instead on take-home pay. “Compensation managers need to play the money game,” says De Mello. “They have to offer people a higher rate of performance-based incentives if they are going to retain talent.”
If companies don’t want to pay out more cash, the study suggests innovative options like stock options or deferred and retention bonuses. “Employers need to retain their employees and keep them motivated two years down the line,” he says.
BPO companies need to introduce more benefits, too.
The study suggested BPOs do more career planning. “Employees need to see more distinct career paths,” De Mello says. He says employees may stay longer when they see they can move up to a better job at the same company.
Another option is sponsoring the employee for post-graduate education programs. “That will lock the employee into the organization” while he or she is going to school, says De Mello.
Many BPO workers use the money they earn to fund a post-graduate degree. Some use the experience to get a day job as soon as they can.
The BPO work is attractive to younger workers. De Mello explains that India is a relatively conservative society that expects its young people to be home at night. BPO workers, however, work through the night to be able to call the Western world. “This gives them a new-found freedom and a unique lifestyle,” he says.
Many of the jobs are monotonous. The HayGroup suggests cross-training employees in other processes to provide a respite. For example, a voice person can also learn data processes. A secondary benefit: “it makes the employee more visible in the organization,” says De Mello.
How Hay Group conducted the study: The firm assessed 35,800 jobs in 12 participating companies in early 2008. The consultants used e-mail, the telephone, and personal visits to gather the information. They talked to employees and HR managers to create a job map to standardize results. “We looked at companies that we believed would be ‘the voice of the industry,'” says De Mello.
Lessons from the Outsourcing Journal:
- Indian BPO attrition is currently 23.5 percent. The HayGroup study found three reasons why attrition is high:
- A robust job market
- Emphasis on retirement benefits
- Low variable pay
- The study found several ways to combat attrition:
- Pay more for performance
- Offer stock options
- Pay retention and deferred retention bonuses
- Have clearer career paths so employees understand how they can move up