Companies now shift focus to employee cost

Amid business uncertainty coupled with gloomy revenue predictions and cash flow challenges, organisations are looking at various options to cut down their fixed costs. While remote working helped companies to rationalise their fixed cost on real estate to some extent, companies are now shifting their focus to another major area — employee cost.

Leading recruitment firms and HR experts say many organisations are changing their pay structure, reducing fixed pay and increasing the variable component of salary, linking the pay directly to the employee's performance.

“The world was anyway moving towards that (variable pay structure) Covid has only amplified it,” said Amit Vadera, Head Staffing - BFSI & Govt, TeamLease Services, adding, “the top leadership always had variable component linked to performance of the company as well as the individual but now we are seeing this trend picking up across all levels.”

While sales verticals are traditionally known for their incentive-oriented pay structure, Vadera said all other streams such as finance, HR or operations are now moving towards performance-based pay outs.

Differentiation

n The 2020 Workforce and Increment Trends survey conducted by Deloitte Touche Tohmatsu India said organisations are focusing on differentiation to manage overall cost budgets.

The survey, conducted with seasoned HR professionals covering 300 organisations spread across 7 sectors and over 20 sub-sectors, revealed that ‘Performance and potential differentiation’ remain the central theme with 90 per cent companies differentiating pay increases on the basis of past-year performance while 34 per cent companies focus on differentiating pay based on potential.

“Salary increments in India are likely to transition from a more classical rule-bound approach to one which is far more based on individual performance and skills. The level as well as the change in compensation is likely to reflect the pace of learning and accumulation of skills required for the job,” Anandorup Ghose, Partner at Deloitte India, said in the report.

However, recruitment experts said the increase in variable pay is not merely for the cost benefit of companies but to boost productivity and efficiency of employees since these are directly linked to their performance.

“It is more from the accountability perspective. Most of these (variable) pay structures cover the top layer of the organisation. It is nothing but to make them more accountable and more responsible to the P&L of the company. That’s the trend we are witnessing,” said Alok Kumar, Senior Director, Sales & Global Accounts, ManpowerGroup India

Noting that the trend is catching up in FMCG, FMCD, Healthcare, Pharma and BFSI sectors, Kumar said the trend is witnessed more with new recruitments since tweaking the pay structure of existing employees may attract some resistance.

“Today if ₹100 is cost to the company, 85 per cent of it is fixed and the remaining 15 per cent is variable. Now, that 15 per cent is expected to move to 25-30 per cent,” TeamLease’s Vadera pointed out.