The Hindu Business Line : A ‘total’ view of rewards

In its ‘Asia-Pacific Total Rewards Survey 2007’, Mercer, a global provider of consulting, outsourcing and investment services, found that attracting and retaining the right talent is among the most serious challenges facing organisations in the region. More interesting, however, the study found that over 64 per cent of employers in the region invest primarily in training and career development as a retention tool, while only 27 per cent of employers use base salary increases as a strategy to retain employees. Other frequently used employee retention strategies that emerged during the survey include non-cash recognition (43 per cent) and annual cash incentives (34 per cent).

The survey, which covered over 750 companies including 53 in India, found that in many organisations, aligning the total rewards strategy with the business strategy is a major challenge. Organisations are striving to balance the employee value proposition by investing more in training and development and less in base pay to attract, retain and engage employees, says Rajan Srikanth, Managing Director-Human Capital, Asia-Pacific, Mercer. “Investments in training and development offer a number of benefits to employers by focusing on career opportunity and employee experience,” he adds.

In this interview with The New Manager, Srikanth explains the total rewards concept and focuses on some of the key points that emerged from the survey and their implications for companies in India. Edited excerpts from the interview:

How does the concept of ‘total rewards’ help in attracting and retaining talent?

In today’s scenario, ‘rewards’ encompass the overall value proposition that the employer offers to the employee, so total rewards include elements from three different categories:

Compensation, which includes base pay, short-term and long-term incentives and recognition awards.

Benefits, which include health and other group benefits, retirement plans, work/life programmes and perquisites.

Careers, which include training and development, stretch assignments and other opportunities.

Our experience suggests that the career component of rewards can significantly affect employee engagement and performance. There is significant evidence that monetary rewards are necessary, but not sufficient. In India today, many companies are responding to what they see as a serious talent shortage by throwing more money into ever higher compensation. They are on an accelerating treadmill with potentially disastrous consequences.

An employment value proposition that balances responsible compensation with appropriate benefits is the icing on the cake — but the cake itself is providing opportunities for employees to grow and develop. Companies that invest in career management and communicate potential career paths effectively are typically much more successful at attracting and retaining employees, especially in a workforce that is as young and restless as it is in India.

What did the study specifically look at? What are the key points that emerged from the study?

The study’s objective was to investigate the unique features of total rewards practice followed by organisations in Asia. We examined several areas pertaining to total rewards, asking participants how they define total rewards, their most important rewards issues and challenges and the key drivers of their rewards strategy.

From the study we find that two-thirds of the organisations report that they define total rewards as more than just pay and benefits, that there is a definite shift in total rewards investments towards rewarding high performers and others who create value for the organisation, a move to offer more non-cash rewards and enhancing the ability to adapt rewards strategies to local business and market conditions. There is also a clear shift in the talent management strategies in the direction of developing talent from within rather than relying on new hires.

What are the implications of the study’s results, especially for companies in India?

Companies in India have been battling with spiralling salaries and decreasing cost arbitrage, coupled with serious attraction and retention challenges. Many have been gasping for breath on the treadmill of accelerating compensation. The findings of our study hold out hope for companies in this precarious situation. The study provides real evidence that Indian companies can and should get off the treadmill of irresponsible compensation and get back to basics with an increased emphasis on careers. Today’s young employees may have unrealistic expectations from companies in terms of pay and benefits, but Indian employers bear much of the responsibility for this situation. The good news is that the balance seems to be shifting in favour of long-term careers, meaningful jobs and work culture as evident from the survey results.

Based on your experience with the study, what rewards strategies should companies consider?

We believe that companies need to invest in differentiated rewards strategies in order to best leverage limited resources. Segmentation involves identifying distinct workforce segments — performance drivers (employees who create value for the organisation), performance enablers (employees who support value creation) and legacy drivers (employees who historically created value for the organisation, but no longer do) — and developing premium, standard or discounted total rewards arrangements for each, based on factors such as business life cycle, business design, geography and brand impact.

HR leaders are adjusting both the types of total rewards investments and to whom they are directed by offering or emphasising different rewards for different employee groups. While they are focused on differentiating high performers, employers are starting to segment their workforce by these three groups to address critical retention areas and ensure that their limited rewards investments drive the right kinds of behaviours and outcomes.

One of the points thrown up by the study is that companies find it difficult to align total rewards strategies with business strategies. What are your thoughts on why this difficulty exists?

The key to aligning a company’s total rewards strategy with its business strategy is understanding how the business creates value, mapping distinct employee groups to the value creation process and allocating rewards investments accordingly.

Companies sometimes struggle with each of these three steps. In an environment of hyper-growth, the rising tide often does raise all ships and there is little time or effort invested to understand the real source of value creation in a particular business.

Similarly, driven by either haste, a lack of awareness or misplaced anxiety over ‘rocking the boat,’ there is often little attempt made to differentiate among employees — either to understand which segments of employees contribute to value creation or to reward them differently.

But these challenges will become a thing of the past when the smart Indian employer recognises the power of taking a more strategic approach to total rewards.

Training and development appears to be a major retention tool. Why is this so?

In India, employees expect organisations to provide them with learning and development opportunities in order to boost their credentials and employability.

In our experience, the best employers in India are organisations that can provide employees with visibility on their career prospects and provide them with the necessary support to achieve their career aspirations.

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