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Saturday, Mar 15, 2003

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In corporate India, it pays to reward performers

Ajita Shashidhar

NEW DELHI, March 14

GONE are the days of across-the-board pay hikes. Today, Indian companies are going in for performance-pay structures, a norm that has been in practice for several years among MNCs operating in the country.

A recent study by Hewitt bears out this fact. It shows that almost 87 per cent of Indian companies are looking at retaining top talent and are using performance pay to do it. "The results of the study, in fact, reveal that an outstanding performer earns on an average twice the salary increase earned by an average performer," says Mr Nishchae Suri, Measurement Practice Leader, Hewitt Associates.

According to him, Indian companies are practicing the concept of performance-linked rewards widely. "While the outstanding performers of these companies got a hike which was almost 4.7 per cent higher than the low performers last year, this year the percentage grew by 6 per cent."

Mr Suri adds, "As corporate revenues and budgets stagnate or even reduce, the companies are also realising the need to retain their best talent in order to drive better business results."

Agreeing with Mr Suri, Mr Sunit Mehra, Managing Director of Hunt Partners, says, "Almost all progressive companies that I am aware of have a performance-pay plan in place or are implementing it. Instead of remunerating everyone equally, the Indian companies have started remunerating the performers more. The advantage to both parties is that overall salary costs are contained and it also helps to motivate the better performers."

Mr Mehra also points out though this structure has definitely helped to improve the efficiency of the employees; in order to make the plan effective, the companies need to have simple, effective, realistic and transparent metrics to evaluate performance.

Mr Ulhas Deshpande, Vice-President, Human Resources, IDBI Bank, says, "Ever since we have switched over to the performance-reward structure, it has helped in enhancing the efficiency and effectiveness of our employees. Just as a large number of employees have exceeded expectations, quite a few underachievers have also worked in right earnest and shown significant change for the better. Overall, it has helped to improve the employee productivity and quality."

Mr Deshpande says across-the-board hikes not only result in a wider distribution of rewards but also dilutes the quantum for each employee and this results in building a mindset of complacency. He adds, "Moreover, contributors who add significant value are left with a feeling that there is no premium on performance and hence either get demotivated and leave or start underperforming. As far as the non-performer is concerned he continues to get some increase, which is a good enough incentive to continue in the system and not improve. Therefore, the Indian companies are rightly focusing on differentiation and targeted rewards linked to results."

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