<p>Compensation is a critical factor in any individual’s choice of career path, particularly at the junior levels. As the new financial year approaches, HR heads must contend with compensation-related issues, particularly in terms of increments. At the same time, with attrition elevated across sectors, many are still struggling to hire or retain talent. A recent India CHRO Forum session in Mumbai, organised as a free-wheeling peer-to-peer exchange, brought out learnings, perspectives and best practices. This paper summarises these discussions.</p><h2>Trends in the Manufacturing Sector…</h2><p>Variable pay in the manufacturing sector tends to stay within well-defined bands. However, pay hikes are becoming bigger, with job-switchers often expecting 50-60% increases. The sector is finding it harder than ever to attract and retain IT, R&D and engineering talent, primarily owing to rising competition, both from direct competitors and from IT companies. The most commonly-cited HR issues in manufacturing pertain to demands for flexible hours and hybrid work.</p><p>Pay hikes in FY24 are expected to average 9-10.5%, excluding the blue-collar segment. Top talent may receive hikes of up to 25% while low performers are likely to receive 4-6% increases. There will also be a strong focus on retention; some organisations are even looking to issue bonds mandating a minimum of 3-4 years of service as a means to retain talent. One company takes a more holistic approach to retention: it leverages its strong employer brand, focusing on its large homegrown management cadre and prioritising internal succession.</p><h2>…Financial Services…</h2><p>For financial services firms, market conditions have tilted sharply in favour of employees and talent is in short supply. Given the rising focus on digitalisation, technology and digital are particularly ‘hot’ skills, attracting 70-80% pay hikes. Yet, while it remains a challenge to hire new workers, attrition rates are down from ~20% during the pandemic to ~13-14% today. Further, variable pay ratios, which stood at about 2x the long-term average in FY22, have fallen to 1.5x this year (FY23). The majority of BFSI companies expect only limited increases in their overall wage bill this year. Wealth-management companies are an exception, with many firms seeing their competitors offering up to 200% pay hikes to new joinees.</p><p>BFSIs follow a strong pay-for-performance philosophy, but some are tinkering with these models at the edges. One asset management company has adopted a two-fold approach: it gives performance-based merit increases while correcting salaries for those who have been promoted internally to match market levels. It expects to keep most increments in the 9-10% range, leaving bandwidth both to reward high performers and to make any internal adjustments. Partly as a result, attrition is down from 18-19% in 2020 to 16% currently. However, for many businesses, compensation is not the <em>only</em> – or even the <em>main</em> – solution to the problem of attrition. Younger workers, in particular, have some very specific expectations of their organisation, which requires businesses to take a very different tack with them. Another AMC follows a strategy of hiring disproportionately from tier-2 colleges, grooming and training them, and paying out additional benefits for staying with the company for more than 3 years.</p><p>Insurance companies are seeing high rates of churn, particularly in the sales, investment and actuarial functions. One major life insurer has built its compensation strategy around differentiating pay for HiPos, giving them increments that are ~8-10% higher than those paid to average performers. Additionally, anticipating potential challenges, it has bumped up the base salaries of its feet-on-street workers to match the overall (company-wide) median.</p><h2>…and Further Afield</h2><p>Firms across sectors are exploring ways to attract and retain talent. Many are looking to differentiate pay more highly for their HiPos as well as exploring separate bonuses for such individuals.</p><p>On the other hand, many are struggling to get workers back to office. To enable this, one company offers rental support to those living within a 30-minute (weekday) drive to office, or those moving back from their home-towns. Attrition has perked up across the board, especially within the IT function. It has also accelerated in industries such as pharmaceuticals, where it had all but gone away during the pandemic. (This was thanks to the promise of secure jobs, no salary cuts and the fact that pharma workers rightly believed that their work was ‘making a difference’.) For now, however, much of this up-tick is of the ‘desirable’ kind: one company reports that ‘healthy’ attrition accounted for about two-thirds of this year’s ~23% attrition rate.</p><p>At the same time, a few of our members – but almost no manufacturers – see moonlighting as an issue of concern to them. However, most believe that employment models will continue to evolve, and moonlighting, particularly if safeguarded by confidentiality agreements, could soon become a viable option for many employees across sectors.</p>
<p>Compensation is a critical factor in any individual’s choice of career path, particularly at the junior levels. As the new financial year approaches, HR heads must contend with compensation-related issues, particularly in terms of increments. At the same time, with attrition elevated across sectors, many are still struggling to hire or retain talent. A recent India CHRO Forum session in Mumbai, organised as a free-wheeling peer-to-peer exchange, brought out learnings, perspectives and best practices. This paper summarises these discussions.</p><h2>Trends in the Manufacturing Sector…</h2><p>Variable pay in the manufacturing sector tends to stay within well-defined bands. However, pay hikes are becoming bigger, with job-switchers often expecting 50-60% increases. The sector is finding it harder than ever to attract and retain IT, R&D and engineering talent, primarily owing to rising competition, both from direct competitors and from IT companies. The most commonly-cited HR issues in manufacturing pertain to demands for flexible hours and hybrid work.</p><p>Pay hikes in FY24 are expected to average 9-10.5%, excluding the blue-collar segment. Top talent may receive hikes of up to 25% while low performers are likely to receive 4-6% increases. There will also be a strong focus on retention; some organisations are even looking to issue bonds mandating a minimum of 3-4 years of service as a means to retain talent. One company takes a more holistic approach to retention: it leverages its strong employer brand, focusing on its large homegrown management cadre and prioritising internal succession.</p><h2>…Financial Services…</h2><p>For financial services firms, market conditions have tilted sharply in favour of employees and talent is in short supply. Given the rising focus on digitalisation, technology and digital are particularly ‘hot’ skills, attracting 70-80% pay hikes. Yet, while it remains a challenge to hire new workers, attrition rates are down from ~20% during the pandemic to ~13-14% today. Further, variable pay ratios, which stood at about 2x the long-term average in FY22, have fallen to 1.5x this year (FY23). The majority of BFSI companies expect only limited increases in their overall wage bill this year. Wealth-management companies are an exception, with many firms seeing their competitors offering up to 200% pay hikes to new joinees.</p><p>BFSIs follow a strong pay-for-performance philosophy, but some are tinkering with these models at the edges. One asset management company has adopted a two-fold approach: it gives performance-based merit increases while correcting salaries for those who have been promoted internally to match market levels. It expects to keep most increments in the 9-10% range, leaving bandwidth both to reward high performers and to make any internal adjustments. Partly as a result, attrition is down from 18-19% in 2020 to 16% currently. However, for many businesses, compensation is not the <em>only</em> – or even the <em>main</em> – solution to the problem of attrition. Younger workers, in particular, have some very specific expectations of their organisation, which requires businesses to take a very different tack with them. Another AMC follows a strategy of hiring disproportionately from tier-2 colleges, grooming and training them, and paying out additional benefits for staying with the company for more than 3 years.</p><p>Insurance companies are seeing high rates of churn, particularly in the sales, investment and actuarial functions. One major life insurer has built its compensation strategy around differentiating pay for HiPos, giving them increments that are ~8-10% higher than those paid to average performers. Additionally, anticipating potential challenges, it has bumped up the base salaries of its feet-on-street workers to match the overall (company-wide) median.</p><h2>…and Further Afield</h2><p>Firms across sectors are exploring ways to attract and retain talent. Many are looking to differentiate pay more highly for their HiPos as well as exploring separate bonuses for such individuals.</p><p>On the other hand, many are struggling to get workers back to office. To enable this, one company offers rental support to those living within a 30-minute (weekday) drive to office, or those moving back from their home-towns. Attrition has perked up across the board, especially within the IT function. It has also accelerated in industries such as pharmaceuticals, where it had all but gone away during the pandemic. (This was thanks to the promise of secure jobs, no salary cuts and the fact that pharma workers rightly believed that their work was ‘making a difference’.) For now, however, much of this up-tick is of the ‘desirable’ kind: one company reports that ‘healthy’ attrition accounted for about two-thirds of this year’s ~23% attrition rate.</p><p>At the same time, a few of our members – but almost no manufacturers – see moonlighting as an issue of concern to them. However, most believe that employment models will continue to evolve, and moonlighting, particularly if safeguarded by confidentiality agreements, could soon become a viable option for many employees across sectors.</p>
