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SALARY Trimming The Middle Like the svelte model on this page, corporate India is proving to be flab-conscious-especially around the middle. Need proof? Take a look at the middle-manager compensation for 1999-2000. By BT-OMAM
Research Project It is that time of the year again when you take your best suit out of the closet, put on a bright smile, wish your boss good morning every day, and look busy at the workplace. All, of course, in the hope that when the next round of annual increments are announced four months from now, you somehow end up on top of the heap. But if last year's pay packets are anything to go by, then let your best suit be, keep that grouchy look on your face, and just don't bother wishing that twerp. Suits and smiles, folks, don't bottomlines make. Like every year, this time too, BT commissioned the Delhi-based human resources consultancy firm Omam Consultants to conduct the salary survey, focusing on 100 key companies drawn from 14 industry sectors. And the fourth of the salary sweep-in the past year, BT has surveyed the 1999-2000 compensation of the trainee and junior managers, and on the campus-reveals that the slice of the compensation cake for the corporate colonels, as compared to the one cut for foot soldiers, is still thin. Compared to the 1997-98 levels, the average annual salary of the middle managers-at Rs 6, 41,433 for the upper rung* and Rs 4,67,308 for the lower*-rose by a modest 11 and 10 per cent, respectively. Junior execs actually fared better, with a healthy 20 per cent hike for the upper level and a handsome 32 per cent for the lower one, as thrown up by the third survey (Compensation For Competence, BT, April 22, 2000). Don't lose heart, though. It is not really a case of the unwanted middle. Over 1996-98, corporate India has already been through the bloodletting exercise that pared its ranks, flattened its layers, and jettisoned the deadwood. Rather, this is the era of right-sized pay packets, which reflect the general economy and market trends, the fortunes of the particular sector, the corporate climate and, of course, the all-important individual set of competencies and the level of performance. Says Anita Ramachandran, CEO at Mumbai-based hr and compensation consultancy firm, Cerebrus: ''The compensation at this level, which typically consists of functional heads or their immediate juniors, is market-, sector-, and individual performance-driven. However, push factors like corporate restructuring and the need for retention in some sectors are also important, as this level is always prone to poaching. But the era of blind hikes is truly over.'' In Rough Times Ramachandran is right. Take a look at the economy. Just when it seemed that the GDP was set to chug along nicely at a 6.5 per cent growth rate, there's been a slump in demand. Inflation, which the Finance Ministry assured would never cross the 7 per cent mark, is romping closer to 8 per cent. The result? Corporations in general are bracing up for a bad fiscal end. But what does the current slump have to do with last year's compensation? you ask. Well, companies are just like consumers. If they see a rough patch coming up ahead, they want to slow down on spendings. And the salary bill, say, in a Fast Moving Consumer Goods (FMCG) company could be as much as 10-15 per cent of its annual revenues. Points out Yash Yadav, Director (Human Resources), Goodyear India: ''The 10-11 per cent hikes are enough to neutralise the rise in the cost of living. Anything more would have to be justified by the sectoral, company, and of course, individual performance.'' That explains why the middlers in profitable sectors like infotech and FMCG take home fatter pay cheques. The Omam study shows an 18 per cent rise in compensation for the upper rung of middle managers in the FMCG sector. Industry experts put the figures even higher. Says Mahendra Swarup, Executive Director (HR), Pepsi India: ''While the average cost of living-linked raises may not have been spectacular, sectors like FMCG and infotech are steadily maintaining their pace of growth, and offering handsome topline salaries.'' Similarly, in sectors plagued by low growth or a spate of restructuring, the salaries are correspondingly lower. In the textile industry, for example, payouts were up by a paltry 4 per cent for the upper level and stagnant at the lower level. Underscores Vivek Shrivastav, consultant at compensation consultancy Watson Wyatt: ''In sectors like engineering or textiles, where there is no growth, or those like power, where the future is totally uncertain, the salaries have actually taken a tumble.'' Sectoral fortunes apart, both company and individual performance count when it comes to cranking compensation up. At times, even when the sectoral performance has been average, individual companies have bucked the trend and rewarded their employees generously. For example, the telecom sector, which has shown a salary growth of between 16 and 14 per cent for the upper and lower levels in the Omam survey, has companies like Escotel Mobile Communications rewarding middle managers with hikes ranging between 20 and 25 per cent. Explains Rajan Dutta, Chief (HR & TQM), Escotel: ''We pay for inflation cover, market adjustment, company performance, and individual skills and positions. Together, we beat the industry average.'' Pharma transnational Becton-Dickinson (BD), has comfortably beaten the sectoral hike of 12 and 11 per cent, as revealed in the Omam survey, with 15 per cent-plus raises, driven by company and individual performance. And according to the company hr Head, Yogesh Gautam, who now looks after the Asia-Pacific region after having relocated to Singapore, the actual raises are even more, as variable or performance pay has not been factored in. Says Gautam: ''We use our own industry and skill benchmarks for attracting and retaining talent, which make it necessary for us to operate at the top end of the salary market.'' Gautam is hardly off the mark. For, the third crucial compensation driver in the middle level seems to be retention pressure, or the lack of it. The middle level in most organisations forms the bedrock of senior management, and is nurtured in terms of investment in talent, which makes this rung extremely attractive to poaching from industry competitors, start-up companies and more recently, dotcoms (though that trend seems to have been reversed now). The Best And The Brightest Sectors known for attracting and developing talent such as FMCG, infotech, consumer durables, and diversified have all fallen prey to poaching, which in turn has pushed up salaries considerably for middle rankers here. For instance, consumer durables, after languishing for two years, has shown a growth of 12 and 9 per cent for lower and upper rungs, respectively, over 1998-99 levels. Underlines A. Rabindranath, Manager, Human Capital Services, Arthur Andersen: ''Sectors that are showing topline salary growth are those who were under pressure from dotcoms to protect their talent. The middle rankers are particularly vulnerable. But in sectors where the demand-supply equation of talent is reversed, there is little salary growth.'' A sector-wise analysis of middle level compensation says it all. In automobiles, the survey has thrown up paltry hikes of 7 and 5 per cent for the upper and lower levels of the middle management, respectively. A BT study of 356 corporate results for 1999-2000, did show a 36 per cent rise in profit margins among the auto companies, but it was not reflected in the compensation offered to their corporate colonels. However, the entry of transnationals and the consequent retention pressure in both the two- and four-wheeler segments could push up salaries in the next 18 months. Confirms A. Talukdar, Chief General Manager (Personnel and Administration), Maruti Udyog: ''Retention needs could make it imperative for us to pay higher salaries and remain competitive in terms of talent.'' Consumer durables-a transnational-studded, high-paying sector-rallied last year. Higher demand growth and better performance are the drivers, with the dotcom mania stripping the ranks, feels Y.V. Varma, Vice-President (HR), LG Electronics, which has offered hikes between 15 and 25 per cent this year. Says Varma: ''At LG, our middle-level managers are empowered to provide strategic as well as functional inputs. Hence, we cannot afford to lose them.'' In contrast, a surfeit of qualified managers in the recession-hit engineering industry has skewed the talent market. For the upper rung of the middle level, the average hike (as shown by the Omam survey) is 10 per cent, though for the lower level it is 12 per cent. Explains Aditya Jain, Executive Director (hr), Alstom Power: ''Shrinking margins do not leave room for big hikes. If there has been a restricted rise, it is because of the need to retain some of the trained managers.'' The middlers in FMCG sector are obviously an envied lot, blessed as they are with a rise of 18 per cent in the average pay of the upper level of middle managers. Curiously enough, though, the lower rungs have been rewarded with hikes of just 7 per cent. The cost of living-linked raise has been low this year because of low inflation, but skill and competency-based remuneration along with a need to retain talent, have pushed up upper-level compensation by more than 25 per cent, especially in Pepsi, points out Swaroop. The telecom sector has been fortunate because of demand growth and the consequent recovery-factors which have pushed salaries upwards. In contrast, the pharma sector, a strong player in the salary market in the past two years, is a laggard. Despite aggressive business performance, compensations here are up by12 per cent for the upper level and 11 per cent for the lower. The reason, says Becton-Dickinson's Gautam, could be that salaries in the domestic industry have finally begun to catch up with compensation levels of the transnational and, therefore, need no more adjustments. Salaries in the diversified sector have risen 15 per cent for the upper rungs and 8 per cent for the lower. The reason for upward revision: investment in talent by way of training and exposure, using distinct market benchmarks for each business and paying for unique competencies and skills. Says Santrupt Mishra, Group President (HR), A.V. Birla Group: ''The diversified segment represents a unique talent pool, vulnerable to poaching. Therefore, we must benchmark ourselves with the highest available standards to stay attractive.'' Rewarding Performers What the disparate compensation trends point to are the changes likely in future. A lot of non-infotech companies are experimenting with Employee Stock Option Plans (ESOPs) as a means to attract and reward talent. Perquisites could be done away with, as most of them no longer yield any tax benefits. By the end of the next performance cycle, the bulk of a manager's salary could be under two heads: a basic salary and a performance bonus. Performance pay, which currently is 10-15 per cent of the total compensation, could be doubled, with performance standards being made more defined and stringent. The idea is to reward performers, while weeding out those who are not. As a courtesy to their younger employees, a lot of companies would also want to experiment with flexible benefits such as the absence of superannuation, big house/small car or vice-versa combos. As Dhruv Prakash, Practice Leader, (People Value Management) at Noble & Hewitt, points out: ''The two key drivers of managerial compensation today are simplification of the structure and flexibility in the benefits basket, along with wealth-creation options like ESOPs.'' The idea is to give managers a basket of options from which to pick. How good that basket turns out to be will, of course, depend on whether or not you and your colleagues worked your girth off. -Project co-ordinated by Paroma Roy Chowdhury |
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