Weigh how the team as well as the individual has contributed to the company’s performance
A corporate’s success depends on the performance of the whole team. However, differences in compensation and the resultant feeling of injustice often split great teams. So, how should companies approach this perennial problem?
The important thing to understand is that corporates need to focus on two elements. One is the difference between various kinds of jobs. So somebody in the human resources (HR) team is paid differently from, someone who is in finance, who is paid differently from someone in treasury. And that difference has a direct correlation with the issue of supply and demand.
If you want to look at the history of how compensation moved, the information technology (IT) sector is a great example. In the late 1990s, when the Y2K problem was looming large, IT salaries went through step-jump increases. And, over a period of time, that led to a large number of people choosing IT as a career. When the supply caught up with the demand, the salary growth became much more even, and the curve flattened out quite a bit.
Similarly, in corporate India, one element that determines compensation is the difference between supply and demand, the second issue that determines compensation, more so in the financial sector, is the quantum of value-add. So yes, you’re right, corporate at the overall level are team sports, but within that, there are certain roles that have a high level of individual impact. Traders for instance, as a result of their job description, have a much higher level of individualised impact as compared to someone who is working in a risk or lending function.
Having said that, how do you really differentiate between performance within a function or ‘team’. How do you, for instance, differentiate between a good HR personnel vis-a-vis an average HR person?
I think, there are two key elements most good corporates should keep in mind.
The first of these is that the quantum of variable pay is determined not just by individual performance but is a function of how the firm has performed overall, that is, how has the organisation performed?
Then, how has HR contributed to the overall performance? And finally, how has the individual performed?
So, automatically, the performance of the entire team has an equal impact on the bonus of the individual — the stars as well as the average performers. And the overall performance impacts the bonus of each department within the firm, so the team issue gets taken care of first.
Where rewarding the individual is concerned, what one should measure is how they have performed in a given year. And in a year where your performance is exemplary as compared with others’, you ought to be paid more. Similarly, in a year where your performance is average, you will be paid less. So, you’re not rewarding an individual, you’re rewarding their performance. Once you establish and embed this principle, it works quite well across the entire platform.
Admittedly, it takes one or two cycles for people to understand the principle because everybody has different backgrounds and experiences. And rewards is an area where you can cry yourself hoarse explaining the lines on which you work, but until they experience it, people don’t believe you.
(The author the Group Head HR and Corporate Services at IDFC and Co-Chief Executive Officer, IDFC Foundation)