The Hindu Business Line : Compensation 2008-09: Will this be the year of deep differentiation?

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Compensation 2008-09: Will this be the year of deep differentiation?

This fiscal may see compensation design and implementation become more complex

Organisations will place engagement over differentiation when dealing with the middle 60-70 per cent of employees consisting of solid performers, who will be extremely crucial to keep the business running.

Ganesh Chella

One of the global compensation managers I used to work with narrated this funny incident which he said was a common occurrence in the US in difficult times.

Apparently an employee came up to him and said: “Hi Tom, what is the pay increase looking like for the year?” Tom told him there was none for the year. Instead of protesting the employee said, “That’s fine Tom. I’ll see y ou next year.” The employee was obviously happy to keep his job!

Can this happen in India this year?

For a good four or five years organisations in India have been struggling in vain to ‘manage expectations’ and make ‘bell curves’ really stick. For reasons that we are all familiar with, it just did not happen. The more sophisticated and automated the performance management system became, the less credible it was perceived to be. The more objective and metric driven we became, the more difficult it was to give employees real feedback. The more we surveyed employees, the less engaged they seem to have become!

I believe that all of this will begin to change in 2008-09. Driven by harsh market realities, we will see the beginning of real deep differentiation. The task of compensation design and implementation will however become extremely complex. Consider the conflicting sets of goals that most HR and compensation leaders will need to grapple with this year:

They will need to contain pay increases in the face of eroding profitability and subdued revenue growth in many industries.

They will be under huge pressure to “trim the fat” by identifying and dealing with poor performers.

The shortage of talent in certain leadership positions as well as in niche skill areas will require that they continue to provide for sharp pay increases for select groups of employees notwithstanding market conditions.

For those in industries that will witness the entry of new players like telecom, retail, financial services and so on, they will also need to protect their organisations and their key employees from predatory moves by these new players.

Despite these internal challenges, they will also need to support the hiring agenda of their staffing organisations by ensuring that external equity is maintained.

Those caught in the mindless activity trap of hiring from premier campuses (for reasons I fail to understand) will also need to make adjustments for their earlier batches if they are still around.

Having done all this, they will also need to get good scores in the next engagement survey and continue to get voted a good / great / best employer!

The challenge of influencing and satisfying multiple stakeholders will be quite a challenge. Of course, there is some good news too. Thanks to the media, the otherwise onerous task of communicating business realities and the impending harsh actions to employees has been made very easy. The news of a few large organisations allegedly separating poor performers and cutting pay has helped deliver the message in a way that not even the most articulate business leader could have managed. News about the recessionary trends in the US, the sub-prime crisis and the poor stock market performance has also helped soften the blow. Therefore, if businesses do announce tough measures, it will not be a surprise.

So how will businesses accomplish these diverse stakeholder objectives? While the strategies of organisations will vary given their unique life stage, the underlying theme will be “deep differentiation but without slicing the middle”.

What does that mean?

Organisations will be emboldened to get tough with poor performers and will push hard to identify and separate them. There will be no kindness this time around.

Organisations will also go all out to identify and reward their top performers. Top performers would include those with long-term potential as well as those with special skills and competitive value to the business.

What about the middle? This is where organisations will place engagement over differentiation because the middle 60-70 per cent consisting of solid performers will be extremely crucial to keep the business running. Given the size of this population, they can also influence the engagement quotient significantly. Most importantly, organisations will find it much harder to find objective data to slice the middle and their managers will not have the fine skills to make such a granular segregation stick. All things considered, organisations will be forced to manage the middle for engagement by rewarding them somewhat similarly.

Here is where the unique Indian recipe book of innovative motivation practices will come in handy! Some of this 70-odd per cent will get promoted to a mezzanine floor while some will get really promoted. Some will get additional bonuses, some will get posted overseas and some others will get the job changes they asked for. With a lot of jockeying and pushing, managers will somehow use all the goodies they have to keep this bunch!

What else can organisations do? There are three things that organisations should do: Speak; speak the truth; and act truthfully. This is the time for communication and dialogue. This is not the time for faceless group e-mails and help desk responses. We must actively seek people out and speak and show that we care.

We must also speak the truth. Employees in any case know most of the truth. We might as well tell them the complete truth. The good thing about speaking the truth is that you can never contradict yourself.

Finally, our actions must be consistent with what we say. Employees will be quick to observe actions that are inconsistent with the espoused value of efficiency and cost management and will certainly not pardon us. Worse still, in a labour market that remains vibrant, they will vote with their feet!

(The writer is the founder and CEO of totus consulting, a strategic HR consulting firm. He is also the co-founder of the Executive & Business Coaching Foundation India Ltd. He can be reached at ganesh@totusconsulting.com)

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