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TeamLease Compensation & Total Rewards Trends Report

The document discusses the evolving trends in compensation and total rewards in India, highlighting a shift from traditional salary increments to a blended approach of fixed and variable pay, alongside increased spending on employee recognition and benefits. New-age companies are innovating with diverse compensation structures that include flexible benefits, as these are perceived to enhance employee value significantly. However, a disconnect exists between employee expectations and employer offerings, emphasizing the need for alignment and personalization of benefits to improve retention and satisfaction.

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COMPENSATION AND TOTAL REWARDS TRENDS TM decide.do Analytics Solution Provider
• A radical compensation mix - comprising between 60% and 40% fixed-to-variable and between 38% and 85% intangible -to-tangible - is ushering in the Total Rewards era in India • The age of plain salary increments is long dead, and the last 7 years have brought rapid transformation in Compensation diversification and personalization • A holistic employee perspective has upped spending on recognition to 52% of benefits budgets and on privileges to 55%, with new-age businesses bringing fun, finance and wellness together • From flex-time at Flipkart, recreational games at Snapdeal and fitness programs at Fitbit, to flex-time at Flipkart, recreational games at Snapdeal and fitness programs at Fitbit, to ‘Compressed workweeks’ at Facebook and Elder Care Assistance at Wipro, new-age companies innovate way better • As a critical component of Total Rewards, Flexi-benefits are fast gaining currency thanks to personalization, higher perceived value and better tax benefits • While the actual cost of flex-benefits is 10% - 15% of salary employees perceive them to be adding 42% to their compensation package, because flex-benefits save substantial tax and potentially increase take-home pay • With nil impact of GST on gifts and perquisites, and little impact on most other components flexi-benefits potentially increase net income for employees by 28% • Gifts and perquisites above INR 4,999 are taxed as per the income tax law and only financial benefits as insurance and travel, among the many flex-benefits components, attract 12% - 18% GST KEY TAKEAWAYS Trends, Employer considerations and Taxation
• Sectors employing a bigger pool of mid-level professionals have a rationalized compensation and rewards structure, and hierarchical profiling shows up sharp increase in variable pay higher up the hierarchy • BFSI, Telecommunications, IT, E-commerce and FMCD/G, belong in the category of sectors that have rationalized C&B structures; Healthcare & Pharmaceuticals, Manufacturing and BPO/ITeS have wider organizational bases and a plethora of options; KPO, Retail, Media & Entertainment and Travel & Tourism have lean but innovative structures • While organizations are taking active measures to retain critical talent substantial mismatch between employee and employer expectations at both the talent acquisition and retention phases diminishes economic value to both • Employers have an “attraction disconnect”, a lopsided view of employee expectations during acquisition, and a “retention disconnect”, fairly appropriate yet diluted understanding during the retention phase; Employee carry liberal benefits expectations throughout the lifecycle and have substantially low satisfaction levels on compensation and benefits • Organizations need to be honest with their intent, put earnest effort and prioritize on - aligning rewards with business obj ectives, communicating effectively and personalization, in that order • Compensation and Benefits need to be structured to have a cultural fit, be personalized, voluntary and convenient, and with the leadership participating; and avoid a force-fit, with insincere, apathetic and cumbersome programs that do not walk the talk KEY TAKEAWAYS Organizational, Government Initiatives and Employee Satisfaction
COMPENSATION TRENDS the evolution of payout attributes Pay for Performance The Emergence of Total Rewards Employee Value Proposition & emergence of short-term & long-term variable pay The rise of non- cash benefits Flexible rewards program & customized compensation 2010-11 2011-12 2012-13 2014-15 2016-17 10.60% 10.50% 10.40% 10.30% 10.20% 10.10% 10.00% 9.90% 9.80% 9.70% 2013 2014 2015 2016 2017 10.3% 10.5% 10.4% 10.0% 10.0% 1990s Low Cash Benefits 2000s Medium Cash Benefits 2010s High Cash Valued Benefits Future Flexible Benefits Plain old salary increments are not exciting anymore and so have plateaued over the last 5 years … As employers take a holistic view of talent engagement compensation trends have rapidly transformed and Total Rewards have risen in popularity Total Rewards Strategy: Compensation -> f {Variable Pay; Fixed Pay; Tangibles; Intangibles} Compensation, Benefits, Work-Life, Performance & Recognition Development & Career Opportunities Attract Motivate Retain Organizational Structure, Business Strategy, Human Resource Strategy Employees Satisfaction & Engagement Business Performance & Results The Total Rewards Model
2016-17 100% 76% 80% 35% 85% 37% 2014-15 100% 72% 76% 41% 85% 34% 2012-13 100% 70% 54% 35% 86% 32% 2011 100% 67% 65% 40% 76% 33% 2010 100% 65% 70% 51% 57% 13% Benefit Type Group Medical Insurance Corporate Floater Prevalence Facilitate parent's coverage Parent's coverage @100% employer sponsored Room rent restrictions Co-pay on claims Benefit Types COMPENSATION TRENDS the evolution of health benefits Government employee health insurance Employer and Employee statutory contribution (EPF) 1950’s 1970’s Defined benefits (Gratuity) Rural Schemes: • Below the poverty line • Labour health insurance 1980’s Urban employee basic medical insurance scheme (individual mediclaim) 1990’s Budgetary support to rural medical infrastructure 2000’s Liberalization of insurance industry: expansion of group medical plan to Corporate India 20082020 Cover for a majority of the formally employed urban population Introduction of stand-alone health insurers to expand urban & rural schemes Health / MedicaI benefits are a mainstay of India’s Benefit System; and employers have innovated to make this a very valuable benefit component .. .. On the other hand, the benefits basket has also expanded and diverse components have gained prominence
LTI 18% 30% 37% 41% STI 27% 18% 16% 20% Total Fixed Pay 55% 52% 48% 38% Manufacturing FMCG/Pharma Services IT/ITeS Pay Mix (%) LTI 3.0 14.1 15.5 10.8 STI 9.5 11.4 11.3 13.6 Total Fixed Pay 25.6 33.3 36.6 22.4 Manufacturing FMCG/Pharma Services IT/ITeS CEOs Compensation (med i an - INR lac per month) Compensation (C E O v ers u s C X O ) THE STATE OF THE COMPENSATION AND REWARDS ART profiling hierarchies Considerations: Compensation Practices: Fixed pay, Variable pay, Short term incentives , Long term incentives Work-Life Programs: Workplace flexibility, Paid and unpaid time off, Health and well-being, Caring for dependents, Financial support & Community involvement Benefits programs: Insurance, retirement, disability and community involvement types of practices 30.0%20.0%10.0%0.0% 23.6% 22.8% 20.7% 20.4% 15.5% 15.1% 11.3% 11.2% 10.8% 10.6% Projected (2017-18) Actual (2016-17) Avg. Variable Pay 121086420 Ind Jr. Mgt Mid Mgt Sr. Mgt CXO 8.9 9.3 9.9 9.4 9.8 10.2 10.6 10.3 10.3 10.7 10.9 11 10.2 10.6 10.7 10.4 10.0 10.3 10.6 9.2 2017 2016 2015 2014 120%100%80%60%40%20%0% CXO CEO Total Fixed Pay Annual Incentive LTI Salary Increase Avg. Increment by performance 11.0%10.0%9.0%8.0% Performance 9.1% 9.0% 9.8% 10.3% 10.5% 80%60%40%20%0% 28% 32% 40% 25% 25% 50% 24% 21% 55% 22% 18% 60% 18% 12% 70% Long Term Inc Annual Bonus Fixed Compensation Mix Variable pay and long term incentives gain more currency as one goes up the hierarchy … Executive compensation is heavily loaded with these components; and they comprise almost half the total compensation, right at the top 32%22%46% 24%19%57%
Today 25% - 30% 18% - 20% 10% - 12% Earlier 18% - 20% 10% - 12% 05% - 08% Management Levels Sr. Mgt. Middle Mgt. Jr. Mgt. Variable Trends Pay by Hierarchy WHAT’S TRENDING Fixed versus Variable, Cash versus Kind, Tangible versus Intangible All the way from Tangible through Emotional, benefits are varied and suit different employee profiles and needs .. .. There is a substantial spread, today, to choose from Pay Increase / Variable Payout by Performance A B C 26% 12% 130% 100% 6% 70% Performance Band % Benefits Spend PRIVILEGES Unlimited Holidays | Sabbaticals Accommodation | Conveyance Bonuses RECOGNITION Performance based promotions | Public Recognition Achiever Awards | Formal Appreciation 55% 52% Incentives Bonuses Theme Events Sports Activities Counseling Unstructured Time 85% 65% 38% Tangible [Cash/Kind] Semi-tangible [Symbolic] Intangible [Emotional] Compressed workweek | Job Sharing Modified Retirement | Child Care Assistance | Elder Care Assistance Employee Stock Purchase Program | Education Assistance (For Higher studies) | Service Awards | Flex time/remote work | Mentoring/development programs | Give Them A Gift Card | Company swag | Group Mediclaim / Insurance Scheme | Personal Accident/Insurance Scheme | Company Leased Accommodation
FLEXI-PAY / FLEXIBLE BENEFIT PLAN AND TAX IMPLICATIONS [GST and IT] Flexible Benefits [definition] trade one element of a rewards package for another Personalization, Higher Perceived Value for employees and Lower costs for employers, and Better Tax Benefits are why flexi-benefits are becoming extremely popular The Benefits most important for Employees Healthcare Plan Pay Raise Performance Bonus Vacation Time Maternity, Paternity & Adoption Leave Professional development or educational benefits 43% 12% 26% 2% 5% 12% The case for Flexi Benefits • Should recognize diverse needs • Should improve relations • Should make the most of tax breaks How Flexi is beneficial • Cost saving increases take-home • Value of money employee decides allocation • Tax-free benefits helps not to shed additional lump-sum tax amount • Retention due to personalization Flexible Benefits Categories • Tax efficient benefits • Insurance Benefits • Health care benefits • House rent allowance • Leave travel allowance • Risk benefits • Retirement benefits • Leave benefits • Family Benefits • Other Benefits Perceived Value: nearly 42% of compensation package Actual worth: about 10% - 15% of salary Cost to Business: up to 25% of total HR Budget
FLEXI-PAY / FLEXIBLE BENEFIT PLAN AND TAX IMPLICATIONS [GST and IT] Implication (Employer) • No withholding tax liability • No GST implications • Withholding liability arises • No GST implications • Withholding liability arises • No GST implications • Withholding liability arises • No GST implications Implication (Employee) Exempt under the income-tax law Taxable as perquisite under the income-tax law Taxable as perquisite under the income-tax law Taxable as perquisite under the income-tax law Transaction Gift below Rs.5,000 given to employees Gift exceeding Rs.4,999 but restricted to Rs.50,000 Perquisites forming part of employment contract /cost to company & provided to all the employees Gift exceeding Rs.50,000 given to employees Benefits & Taxes Taxable salary in Scenario 1 I 450000 I 180000 I 118200 I 0 I 0 I 0 I 0 I 0 I 0 I 0 I 21600 I 769800 I 57820 I 889580 Scenario 1 I 450000 I 360000 I 118200 I 19200 I 0 I 0 I 0 I 0 I 0 I 0 I 0 I 947400 Scenario 2 I 450000 I 360000 I 13600 I 0 I 1200 I 12000 I 32400 I 15000 I 13200 I 50000 I 0 I 947400 Taxable salary in Scenario 2 I 450000 I 180000 I 13600 I 0 I 0 I 0 I 0 I 0 I 0 I 25000 I 21600 I 690200 I 41900 I 905500 CTC Break-up Basic Salary HRA Special Allowance Transport Allowance Education Allowance Telephone Reimbursement Fuel & Driver Reimbursement Medical Reimbursement Meal / Shopping Coupons LTA PF Employee Contribution Total CTC/Net Taxable Salary Less: Tax Liability Net Take home Taxation implication of Flexi Benefits No No 5% No No No Housing Meals Cab Service Vehicles Health Care Other benefits 12-18% No No 12-18% 5% No Financial Service (Insurance, Investment funds) Education Residential accommodation Business Class air travel Train Fare Pension Application of GST
THE STATE OF THE COMPENSATION AND REWARDS ART profiling sectors Dearness Allowance Performance Bonus Travel Leaves Furnishing Paid Vacations Special Allowance Transportation Variable Pay House/Car Loan Conveyance Allowance Commission Basic Salary Housing ESOP Healthcare & Pharma Leave Personal Health Care Flexi-time Paid Days Off Group Mediclaim Insurance Performance based incentives Personal Accident Insurance ESOP Provident Fund Car Allowance Employee Referral Bonus ATM & Concierge facilities Gratuity Educational Benefits Flexible Salary Benefits Maternity Leave BPO / ITeS Leave Travel & Daily Allowance Retirals Sales Incentive Variable Pay Employee Wellbeing Accident & Life Insurance Flexible Compensation Structure Hospitalization Insurance Company Car Sign On Bonus & Retention Hardship Allowance Rewards Recognition International Travel Assistance Domestic Travel Assistance Relocation Assistance Manufacturing Traditional organizations from mature sectors seem to offer a plethora of options in the Compensation & Benefits mix, to cater to a broad-based workforce
THE STATE OF THE COMPENSATION AND REWARDS ART profiling sectors Superannuation fund Salary Allowances Leave Travel Allowances Provident fund Gratuity fund E - Commerce New economy businesses have rationalized the benefits mix by stripping it of those elements that employees perceive as irrelevant Annual bonus Personal Health Care Car Allowance Provident Fund Maternity Leave Paid vacations Club Membership Transportation Mobile Allowances HRA Non-monetary benefits Travel Leaves Non-monetary benefits BFSI Medical Reimbursements PF/Gratuity Company parties Insurance (Health & Eye) Phones/ Laptop Leaves (Sick, holiday/personal) Special Allowance Bonus/Short & Long Term Incentives Sales Incentive Telecommunication HRA/LTA/ Conveyance Clothes Retirement Programs Insurance Benefits Retirement Benefits Rewards & Pay-at-risk Policies Compensation Structure & Related Benefits Health, Wellness & Diversity Work Pattern, Redundancy & Retrenchment FMCG & FMCD Company cars Paid Holidays Employee Referral Bonus Club Memberships Holiday Homes Gym Membership Free meals Variable Pay Chauffeur Assistance Information Technology
THE STATE OF THE COMPENSATION AND REWARDS ART profiling sectors Businesses that are seen to be fun places to work at have rather lean compensation & benefits structures KPO Paid Vacation Paid Sick Leave Fitness Membership Life Insurance PMI or Private Medical Insurance Media & Entertainment Cheers to Peers: Peer recognition Sher of the Month Jaldi 5 – New comer recognition Travel & Tourism Higher salaries in foreign airlines Packaged Holidays Incentives during tourist peak season Free travel for employees and their families Retail Core Benefits Health insurance Medical, Dental and Vision Vacation days Paid sick leave
HOW THE REWARD VALUE-RETENTION RELATIONSHIP FARES TODAY TACTICS • Pay employees above the labor market • Provide more incentive/bonus opportunities • Let key employees know they’re essential to the business • Create flextime/telecommuting opportunities • Create a succession plan to replace key individuals • Discuss with key employees their future opportunities within the organization • Provide cash bonuses for retaining key employees • Provide meaningful and enriching job designs for key employees • Provide key employees with stock options/equity awards • Create an extensive benefit package Acquire Train Time Economic Value ReturnsInvest Attraction Disconnect and Retention Disconnect are the engagement disruptions that occur during the talent acquisition and retention phases, respectively. 1 Base pay / Salary 1 2 Career Adv Opportunity 2 3 Confidence in Leadership 0 4 Job Security 0 5 Length of Commute 0 6 Relationship with Mgr 3 7 Manage Work Related Stress 4 Retention Disconnect Attraction Disconnect 1 Base pay / Salary 2 2 Job Security 7 3 Career Adv Opportunity 1 4 L&D Opportunities 6 5 Challenging Work 3 6 ‘Good Employer’ reputation 4 7 Vacation / Paid Time Off 0 Engage | Recognize | Develop | Lead Engagement Value Onboard • Leadership Accessibility 72.3% • Accelerated Career Development Opportunities 70.7% • International Assignments 53.1% • Discretionary incentive pool 40.3% • Additional learning & development opportunities 31.4% • Retention bonuses for a specified period 26.2% • Discretionary Stock options 20.5% • Split Salary increase budget 2.1% 72.3% 70.7% 53.1% 40.3% 31.4% 26.2% 20.5% 2.1% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% • Employee Ranking • Attribute • Employer Ranking Mismatch between employee-employer expectations adversely affects engagement
HOW THE REWARD VALUE-RETENTION RELATIONSHIP FARES TODAY The Employee Point of view Recommendation Maternity / Paternity Benefits, Performance Bonus, Stock Options motivate 55% Satisfaction Custom / Flexi Rewards, Flexi Work, WFH and Insurance 68% Retention Health / Wellness, Financial Benefits help loyalty for 57% Engagement Rewards, Perks, Paid Time Off drive engagement for 61% Attraction 74% want benefit programs to join Although businesses are able to achieve stated objectives with their current C & B initiatives, employee satisfaction levels are seen to be poor .. .. Total Rewards are an imminent need of today’s unsatisfied talent Compensation Effectiveness 48% 52% 60% 52% 48% 40% Junior Middle Senior Compensation Satisfaction 23% 21% 23% 21% 16% 77% 79% 77% 79% 84% 120% 100% 80% 60% 40% 20% 0% Stock optionsOpportunities for variable pay Base rate of payBeing paid competitively with the local market Compensation/ pay overall Agree Disagree Benefit Satisfaction 33% 27% 29% 31% 28% 25% 21% 23% 71% 68% 66% 65% 64% 57% 52% 51% 120% 100% 80% 60% 40% 20% 0% Defined benefit pension plans Wellness programsFamily-friendly benefits, such as domestic partnership benefits, subsidized child care, scholarships Defined contribution plans, such as 401(k) and 403(b) plans Flexibility to balance life and work issues Health care/ medical benefits Benefits overallPaid time off
BEYOND HYPE AND HYPERBOLE what works and what doesn’t Employers should not be (seen to be) faking it. Honest intent and earnest effort are a prerequisite to making C & B strategies work Fair, Merit based compensation Benefits Stability Work/Life Balance Clear, Honest, Focused communication with management and team Respect Empowerment Meaningful & Challenging work Training & Development Growth Opportunities - Promotion or New Skills Support Recognition No Attraction / Appreciation Benefit inadequacy (e.g. Insurance) Lack of Budget Discipline Inability / Unwillingness Informal rewards/benefits programs Gray Areas/Partial Flexibility 10% 20% 30% 40% Compensation Effectiveness Human Capital Strategy Employee Engagement Talent Attraction Productivity Increase Execution Customization Effective & Consistent Comm Align with Biz Objectives 100% 80% 60% 40% 20% 0% 25% 50% 87% Apathy Insincerity Force-fit All talk – no walk Cumbersome Voluntary Personalized, Need-basedCulture-fit Leadership Participation Convenient The bed rock of Employee Satisfaction
WHAT TALENT WANTS survey across age, qualification, profession and cities Total Rewards – Indispensable Elements 87%• Personalized Healthcare / Insurance 62%• Flexi-time / Vacation / Telecommuting 36%• Innovative Rewards 29%• Maternity & Paternity Leave / Child-care 44%• Wellness Programs / Mentoring / Counseling 67%• Career Advancement Opportunities The desired workplace Environment 42%• Relaxed / Open plan offices 37%• In-office recreation/gym / Creche 63%• No / Casual dress codes 26%• Sports / Events / Theme parties 55%• Menu options at the party 19%• Coffee / Drinks within arms-length Preferred Rewards & Recognition 1 Cash rewards for Incentives 2 Appreciation from Management 3 Holidays & Experiences 4 Performance Based Promotions 5 Public recognition of achievements 6 Fair, merit based promotions Ranking by C&B Options 1 Fair/Competitive Salary 2 Personalized Healthcare Benefits 3 Flexible Hours/WFH Options 4 Rewards & Performance Bonuses 5 Career-oriented Learning Opportunities 6 Short/Long Term Incentives 7 Liberal Leave/Holiday/Vacation Policies 8 Health & Wellness Programs
ANNEXURECompensation Structures, Components and Elements
TYPE OF SALARY STRUCTURE BY INDUSTRY BROADBANDS Health & Pharma Hospitality TRADITIONAL Retail Power & Energy Agriculture MARKET-BASED IT & ITeS BPO BFSI E-commerce Electronics OTHER FMCG FMCD Manufacturing & Engineering NO FORMAL STRUCTURE Manufacturing Textile Engineering Automobile STEP STRUCTURES Construction & Real Estate Infrastructure Based on industry structures, market forces and environmental influences industries have tailored their salary structures into one of six types
COMPENSATION STRUCTURES IN INDIA Basic Salary Special Allow. Variable Pay Retirements Benefits EVOLVED Basic Salary Special Allow. LTA Medical Housing Conveyance Variable Pay Retirements Benefits OPTIMIZED Basic Salary Flex. Plan LTA Medical Allowances Housing Conveyance Variable Pay Retirements Benefits FLEXIBLE Basic Salary COLA/DA Personal Pay Special Allow. LTA Medical Edu Allow. Bonus/Ex-gratia Housing Conveyance Variable Pay Retirements Benefits TRADITIONAL Broadly, C & B strategies fall into one of four types based on their adaptation to market realities, and the degree to which they have evolved
ELEMENTS AND COMPONENTS OF TOTAL REWARDS Components of Total Rewards Elements of Total Rewards The typical components and the building blocks of a Total Rewards C & B strategy Component – A Basic Salary Component – B Allowances/Reimbursements: SA/HRA/LTA etc. Component – C Variable Pay: PLB/AB/Ex-gratia etc. Component – D Retirals: PF/Gratuity/Superannuation Component – E Valued Perquisites: Company Car / Mobile Reimbursements / Lunch Sub Allow etc. Work-Life Integration Performance Management Talent Development Rewards & Recognition Compensation Benefits 16% 16% 16% 16% 36%
PREVALENT PRACTICE PREVALANCE OF VARIABLE PAY PLANS Team Awards 33.6% Special recognition awards 59.0% Functional/Business unit 50.7% Organisational 62.9% Individual performance awards 85.6% LONG TERM INCENTIVE PLAN percent of the companies have LTI plan 46.4% percent of these companies extend LTI plans across all levels and rest at select management levels 55.0% GRATUITY AND SUPERANNUATION POLICY percent of the companies have superannuation policy 41.7% percent of these companies manage superannuation fund in-house and rest through third party 60.2% percent of the companies manage gratuity fund in-house and rest through third party 68.1% MEDICAL INSURANCE COVERAGE Employee only 15.7% Employee & spouse 17.4% Employee, spouse and dependent children 28.9% Employee, spouse, dependent children and dependent parents/ inlaws 38.0% INSURANCE POLICY percent of the companies have life insurance policy 72.8% percent of the companies have accident insurance policy 79.6% percent of the companies have medical insurance policy 100.0% LEAVE ENCASHMENT POLICY percent of the companies allow leave encashment during tenure and after separation 39% percent of the companies allow leave encashment only after separation 61% CAR POLICY percent of the companies have company leased and rest have company owned car option 68% years is the average car replacement period 4-5
BEATING THE CONVENTION what rewards do new age businesses dole out New-age businesses have arrived at a relatively better balance of value and excitement in their benefits package .. .. They bring elements of fun, financial innovation and work-life balance, together All the above elements listed in the word-clouds are practices in some of the best start-up unicorns and acclaimed new-age businesses CHILD CARE ASSISTANCE COMPRESSED WORKWEEK JOB S H A R I N G ELDER CARE ASSISTANCE M O D I F I E D RETIREMENT EDUCATION ASSISTANCE (FOR HIGHER STUDIES) GIVE THEM A GIFT CARD COMPANY SWAG EMPLOYEE S T O C K PURCHASE PROGRAM CORPORATE CREDIT CARD SERVICE AWARDS RECREATIONALGAMES F L E X T I M E / REMOTE W O R K PERSONAL ACCIDENT / INSURANCE S C H E M E BROAD BANDING MENTORING/ DEVELOPMENT PROGRAMS FITNESSPROGRAMS COMPANY LEASED ACCOMMODATION
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TeamLease Compensation & Total Rewards Trends Report

  • 1.
  • 2.
    • A radicalcompensation mix - comprising between 60% and 40% fixed-to-variable and between 38% and 85% intangible -to-tangible - is ushering in the Total Rewards era in India • The age of plain salary increments is long dead, and the last 7 years have brought rapid transformation in Compensation diversification and personalization • A holistic employee perspective has upped spending on recognition to 52% of benefits budgets and on privileges to 55%, with new-age businesses bringing fun, finance and wellness together • From flex-time at Flipkart, recreational games at Snapdeal and fitness programs at Fitbit, to flex-time at Flipkart, recreational games at Snapdeal and fitness programs at Fitbit, to ‘Compressed workweeks’ at Facebook and Elder Care Assistance at Wipro, new-age companies innovate way better • As a critical component of Total Rewards, Flexi-benefits are fast gaining currency thanks to personalization, higher perceived value and better tax benefits • While the actual cost of flex-benefits is 10% - 15% of salary employees perceive them to be adding 42% to their compensation package, because flex-benefits save substantial tax and potentially increase take-home pay • With nil impact of GST on gifts and perquisites, and little impact on most other components flexi-benefits potentially increase net income for employees by 28% • Gifts and perquisites above INR 4,999 are taxed as per the income tax law and only financial benefits as insurance and travel, among the many flex-benefits components, attract 12% - 18% GST KEY TAKEAWAYS Trends, Employer considerations and Taxation
  • 3.
    • Sectors employinga bigger pool of mid-level professionals have a rationalized compensation and rewards structure, and hierarchical profiling shows up sharp increase in variable pay higher up the hierarchy • BFSI, Telecommunications, IT, E-commerce and FMCD/G, belong in the category of sectors that have rationalized C&B structures; Healthcare & Pharmaceuticals, Manufacturing and BPO/ITeS have wider organizational bases and a plethora of options; KPO, Retail, Media & Entertainment and Travel & Tourism have lean but innovative structures • While organizations are taking active measures to retain critical talent substantial mismatch between employee and employer expectations at both the talent acquisition and retention phases diminishes economic value to both • Employers have an “attraction disconnect”, a lopsided view of employee expectations during acquisition, and a “retention disconnect”, fairly appropriate yet diluted understanding during the retention phase; Employee carry liberal benefits expectations throughout the lifecycle and have substantially low satisfaction levels on compensation and benefits • Organizations need to be honest with their intent, put earnest effort and prioritize on - aligning rewards with business obj ectives, communicating effectively and personalization, in that order • Compensation and Benefits need to be structured to have a cultural fit, be personalized, voluntary and convenient, and with the leadership participating; and avoid a force-fit, with insincere, apathetic and cumbersome programs that do not walk the talk KEY TAKEAWAYS Organizational, Government Initiatives and Employee Satisfaction
  • 4.
    COMPENSATION TRENDS the evolutionof payout attributes Pay for Performance The Emergence of Total Rewards Employee Value Proposition & emergence of short-term & long-term variable pay The rise of non- cash benefits Flexible rewards program & customized compensation 2010-11 2011-12 2012-13 2014-15 2016-17 10.60% 10.50% 10.40% 10.30% 10.20% 10.10% 10.00% 9.90% 9.80% 9.70% 2013 2014 2015 2016 2017 10.3% 10.5% 10.4% 10.0% 10.0% 1990s Low Cash Benefits 2000s Medium Cash Benefits 2010s High Cash Valued Benefits Future Flexible Benefits Plain old salary increments are not exciting anymore and so have plateaued over the last 5 years … As employers take a holistic view of talent engagement compensation trends have rapidly transformed and Total Rewards have risen in popularity Total Rewards Strategy: Compensation -> f {Variable Pay; Fixed Pay; Tangibles; Intangibles} Compensation, Benefits, Work-Life, Performance & Recognition Development & Career Opportunities Attract Motivate Retain Organizational Structure, Business Strategy, Human Resource Strategy Employees Satisfaction & Engagement Business Performance & Results The Total Rewards Model
  • 5.
    2016-17 100% 76% 80% 35% 85% 37% 2014-15 100% 72% 76% 41% 85% 34% 2012-13 100% 70% 54% 35% 86% 32% 2011 100% 67% 65% 40% 76% 33% 2010 100% 65% 70% 51% 57% 13% Benefit Type Group MedicalInsurance Corporate Floater Prevalence Facilitate parent's coverage Parent's coverage @100% employer sponsored Room rent restrictions Co-pay on claims Benefit Types COMPENSATION TRENDS the evolution of health benefits Government employee health insurance Employer and Employee statutory contribution (EPF) 1950’s 1970’s Defined benefits (Gratuity) Rural Schemes: • Below the poverty line • Labour health insurance 1980’s Urban employee basic medical insurance scheme (individual mediclaim) 1990’s Budgetary support to rural medical infrastructure 2000’s Liberalization of insurance industry: expansion of group medical plan to Corporate India 20082020 Cover for a majority of the formally employed urban population Introduction of stand-alone health insurers to expand urban & rural schemes Health / MedicaI benefits are a mainstay of India’s Benefit System; and employers have innovated to make this a very valuable benefit component .. .. On the other hand, the benefits basket has also expanded and diverse components have gained prominence
  • 6.
    LTI 18% 30% 37% 41% STI 27% 18% 16% 20% Total Fixed Pay 55% 52% 48% 38% Manufacturing FMCG/Pharma Services IT/ITeS PayMix (%) LTI 3.0 14.1 15.5 10.8 STI 9.5 11.4 11.3 13.6 Total Fixed Pay 25.6 33.3 36.6 22.4 Manufacturing FMCG/Pharma Services IT/ITeS CEOs Compensation (med i an - INR lac per month) Compensation (C E O v ers u s C X O ) THE STATE OF THE COMPENSATION AND REWARDS ART profiling hierarchies Considerations: Compensation Practices: Fixed pay, Variable pay, Short term incentives , Long term incentives Work-Life Programs: Workplace flexibility, Paid and unpaid time off, Health and well-being, Caring for dependents, Financial support & Community involvement Benefits programs: Insurance, retirement, disability and community involvement types of practices 30.0%20.0%10.0%0.0% 23.6% 22.8% 20.7% 20.4% 15.5% 15.1% 11.3% 11.2% 10.8% 10.6% Projected (2017-18) Actual (2016-17) Avg. Variable Pay 121086420 Ind Jr. Mgt Mid Mgt Sr. Mgt CXO 8.9 9.3 9.9 9.4 9.8 10.2 10.6 10.3 10.3 10.7 10.9 11 10.2 10.6 10.7 10.4 10.0 10.3 10.6 9.2 2017 2016 2015 2014 120%100%80%60%40%20%0% CXO CEO Total Fixed Pay Annual Incentive LTI Salary Increase Avg. Increment by performance 11.0%10.0%9.0%8.0% Performance 9.1% 9.0% 9.8% 10.3% 10.5% 80%60%40%20%0% 28% 32% 40% 25% 25% 50% 24% 21% 55% 22% 18% 60% 18% 12% 70% Long Term Inc Annual Bonus Fixed Compensation Mix Variable pay and long term incentives gain more currency as one goes up the hierarchy … Executive compensation is heavily loaded with these components; and they comprise almost half the total compensation, right at the top 32%22%46% 24%19%57%
  • 7.
    Today 25% - 30% 18%- 20% 10% - 12% Earlier 18% - 20% 10% - 12% 05% - 08% Management Levels Sr. Mgt. Middle Mgt. Jr. Mgt. Variable Trends Pay by Hierarchy WHAT’S TRENDING Fixed versus Variable, Cash versus Kind, Tangible versus Intangible All the way from Tangible through Emotional, benefits are varied and suit different employee profiles and needs .. .. There is a substantial spread, today, to choose from Pay Increase / Variable Payout by Performance A B C 26% 12% 130% 100% 6% 70% Performance Band % Benefits Spend PRIVILEGES Unlimited Holidays | Sabbaticals Accommodation | Conveyance Bonuses RECOGNITION Performance based promotions | Public Recognition Achiever Awards | Formal Appreciation 55% 52% Incentives Bonuses Theme Events Sports Activities Counseling Unstructured Time 85% 65% 38% Tangible [Cash/Kind] Semi-tangible [Symbolic] Intangible [Emotional] Compressed workweek | Job Sharing Modified Retirement | Child Care Assistance | Elder Care Assistance Employee Stock Purchase Program | Education Assistance (For Higher studies) | Service Awards | Flex time/remote work | Mentoring/development programs | Give Them A Gift Card | Company swag | Group Mediclaim / Insurance Scheme | Personal Accident/Insurance Scheme | Company Leased Accommodation
  • 8.
    FLEXI-PAY / FLEXIBLEBENEFIT PLAN AND TAX IMPLICATIONS [GST and IT] Flexible Benefits [definition] trade one element of a rewards package for another Personalization, Higher Perceived Value for employees and Lower costs for employers, and Better Tax Benefits are why flexi-benefits are becoming extremely popular The Benefits most important for Employees Healthcare Plan Pay Raise Performance Bonus Vacation Time Maternity, Paternity & Adoption Leave Professional development or educational benefits 43% 12% 26% 2% 5% 12% The case for Flexi Benefits • Should recognize diverse needs • Should improve relations • Should make the most of tax breaks How Flexi is beneficial • Cost saving increases take-home • Value of money employee decides allocation • Tax-free benefits helps not to shed additional lump-sum tax amount • Retention due to personalization Flexible Benefits Categories • Tax efficient benefits • Insurance Benefits • Health care benefits • House rent allowance • Leave travel allowance • Risk benefits • Retirement benefits • Leave benefits • Family Benefits • Other Benefits Perceived Value: nearly 42% of compensation package Actual worth: about 10% - 15% of salary Cost to Business: up to 25% of total HR Budget
  • 9.
    FLEXI-PAY / FLEXIBLEBENEFIT PLAN AND TAX IMPLICATIONS [GST and IT] Implication (Employer) • No withholding tax liability • No GST implications • Withholding liability arises • No GST implications • Withholding liability arises • No GST implications • Withholding liability arises • No GST implications Implication (Employee) Exempt under the income-tax law Taxable as perquisite under the income-tax law Taxable as perquisite under the income-tax law Taxable as perquisite under the income-tax law Transaction Gift below Rs.5,000 given to employees Gift exceeding Rs.4,999 but restricted to Rs.50,000 Perquisites forming part of employment contract /cost to company & provided to all the employees Gift exceeding Rs.50,000 given to employees Benefits & Taxes Taxable salary in Scenario 1 I 450000 I 180000 I 118200 I 0 I 0 I 0 I 0 I 0 I 0 I 0 I 21600 I 769800 I 57820 I 889580 Scenario 1 I 450000 I 360000 I 118200 I 19200 I 0 I 0 I 0 I 0 I 0 I 0 I 0 I 947400 Scenario 2 I 450000 I 360000 I 13600 I 0 I 1200 I 12000 I 32400 I 15000 I 13200 I 50000 I 0 I 947400 Taxable salary in Scenario 2 I 450000 I 180000 I 13600 I 0 I 0 I 0 I 0 I 0 I 0 I 25000 I 21600 I 690200 I 41900 I 905500 CTC Break-up Basic Salary HRA Special Allowance Transport Allowance Education Allowance Telephone Reimbursement Fuel & Driver Reimbursement Medical Reimbursement Meal / Shopping Coupons LTA PF Employee Contribution Total CTC/Net Taxable Salary Less: Tax Liability Net Take home Taxation implication of Flexi Benefits No No 5% No No No Housing Meals Cab Service Vehicles Health Care Other benefits 12-18% No No 12-18% 5% No Financial Service (Insurance, Investment funds) Education Residential accommodation Business Class air travel Train Fare Pension Application of GST
  • 10.
    THE STATE OFTHE COMPENSATION AND REWARDS ART profiling sectors Dearness Allowance Performance Bonus Travel Leaves Furnishing Paid Vacations Special Allowance Transportation Variable Pay House/Car Loan Conveyance Allowance Commission Basic Salary Housing ESOP Healthcare & Pharma Leave Personal Health Care Flexi-time Paid Days Off Group Mediclaim Insurance Performance based incentives Personal Accident Insurance ESOP Provident Fund Car Allowance Employee Referral Bonus ATM & Concierge facilities Gratuity Educational Benefits Flexible Salary Benefits Maternity Leave BPO / ITeS Leave Travel & Daily Allowance Retirals Sales Incentive Variable Pay Employee Wellbeing Accident & Life Insurance Flexible Compensation Structure Hospitalization Insurance Company Car Sign On Bonus & Retention Hardship Allowance Rewards Recognition International Travel Assistance Domestic Travel Assistance Relocation Assistance Manufacturing Traditional organizations from mature sectors seem to offer a plethora of options in the Compensation & Benefits mix, to cater to a broad-based workforce
  • 11.
    THE STATE OFTHE COMPENSATION AND REWARDS ART profiling sectors Superannuation fund Salary Allowances Leave Travel Allowances Provident fund Gratuity fund E - Commerce New economy businesses have rationalized the benefits mix by stripping it of those elements that employees perceive as irrelevant Annual bonus Personal Health Care Car Allowance Provident Fund Maternity Leave Paid vacations Club Membership Transportation Mobile Allowances HRA Non-monetary benefits Travel Leaves Non-monetary benefits BFSI Medical Reimbursements PF/Gratuity Company parties Insurance (Health & Eye) Phones/ Laptop Leaves (Sick, holiday/personal) Special Allowance Bonus/Short & Long Term Incentives Sales Incentive Telecommunication HRA/LTA/ Conveyance Clothes Retirement Programs Insurance Benefits Retirement Benefits Rewards & Pay-at-risk Policies Compensation Structure & Related Benefits Health, Wellness & Diversity Work Pattern, Redundancy & Retrenchment FMCG & FMCD Company cars Paid Holidays Employee Referral Bonus Club Memberships Holiday Homes Gym Membership Free meals Variable Pay Chauffeur Assistance Information Technology
  • 12.
    THE STATE OFTHE COMPENSATION AND REWARDS ART profiling sectors Businesses that are seen to be fun places to work at have rather lean compensation & benefits structures KPO Paid Vacation Paid Sick Leave Fitness Membership Life Insurance PMI or Private Medical Insurance Media & Entertainment Cheers to Peers: Peer recognition Sher of the Month Jaldi 5 – New comer recognition Travel & Tourism Higher salaries in foreign airlines Packaged Holidays Incentives during tourist peak season Free travel for employees and their families Retail Core Benefits Health insurance Medical, Dental and Vision Vacation days Paid sick leave
  • 13.
    HOW THE REWARDVALUE-RETENTION RELATIONSHIP FARES TODAY TACTICS • Pay employees above the labor market • Provide more incentive/bonus opportunities • Let key employees know they’re essential to the business • Create flextime/telecommuting opportunities • Create a succession plan to replace key individuals • Discuss with key employees their future opportunities within the organization • Provide cash bonuses for retaining key employees • Provide meaningful and enriching job designs for key employees • Provide key employees with stock options/equity awards • Create an extensive benefit package Acquire Train Time Economic Value ReturnsInvest Attraction Disconnect and Retention Disconnect are the engagement disruptions that occur during the talent acquisition and retention phases, respectively. 1 Base pay / Salary 1 2 Career Adv Opportunity 2 3 Confidence in Leadership 0 4 Job Security 0 5 Length of Commute 0 6 Relationship with Mgr 3 7 Manage Work Related Stress 4 Retention Disconnect Attraction Disconnect 1 Base pay / Salary 2 2 Job Security 7 3 Career Adv Opportunity 1 4 L&D Opportunities 6 5 Challenging Work 3 6 ‘Good Employer’ reputation 4 7 Vacation / Paid Time Off 0 Engage | Recognize | Develop | Lead Engagement Value Onboard • Leadership Accessibility 72.3% • Accelerated Career Development Opportunities 70.7% • International Assignments 53.1% • Discretionary incentive pool 40.3% • Additional learning & development opportunities 31.4% • Retention bonuses for a specified period 26.2% • Discretionary Stock options 20.5% • Split Salary increase budget 2.1% 72.3% 70.7% 53.1% 40.3% 31.4% 26.2% 20.5% 2.1% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% • Employee Ranking • Attribute • Employer Ranking Mismatch between employee-employer expectations adversely affects engagement
  • 14.
    HOW THE REWARDVALUE-RETENTION RELATIONSHIP FARES TODAY The Employee Point of view Recommendation Maternity / Paternity Benefits, Performance Bonus, Stock Options motivate 55% Satisfaction Custom / Flexi Rewards, Flexi Work, WFH and Insurance 68% Retention Health / Wellness, Financial Benefits help loyalty for 57% Engagement Rewards, Perks, Paid Time Off drive engagement for 61% Attraction 74% want benefit programs to join Although businesses are able to achieve stated objectives with their current C & B initiatives, employee satisfaction levels are seen to be poor .. .. Total Rewards are an imminent need of today’s unsatisfied talent Compensation Effectiveness 48% 52% 60% 52% 48% 40% Junior Middle Senior Compensation Satisfaction 23% 21% 23% 21% 16% 77% 79% 77% 79% 84% 120% 100% 80% 60% 40% 20% 0% Stock optionsOpportunities for variable pay Base rate of payBeing paid competitively with the local market Compensation/ pay overall Agree Disagree Benefit Satisfaction 33% 27% 29% 31% 28% 25% 21% 23% 71% 68% 66% 65% 64% 57% 52% 51% 120% 100% 80% 60% 40% 20% 0% Defined benefit pension plans Wellness programsFamily-friendly benefits, such as domestic partnership benefits, subsidized child care, scholarships Defined contribution plans, such as 401(k) and 403(b) plans Flexibility to balance life and work issues Health care/ medical benefits Benefits overallPaid time off
  • 15.
    BEYOND HYPE ANDHYPERBOLE what works and what doesn’t Employers should not be (seen to be) faking it. Honest intent and earnest effort are a prerequisite to making C & B strategies work Fair, Merit based compensation Benefits Stability Work/Life Balance Clear, Honest, Focused communication with management and team Respect Empowerment Meaningful & Challenging work Training & Development Growth Opportunities - Promotion or New Skills Support Recognition No Attraction / Appreciation Benefit inadequacy (e.g. Insurance) Lack of Budget Discipline Inability / Unwillingness Informal rewards/benefits programs Gray Areas/Partial Flexibility 10% 20% 30% 40% Compensation Effectiveness Human Capital Strategy Employee Engagement Talent Attraction Productivity Increase Execution Customization Effective & Consistent Comm Align with Biz Objectives 100% 80% 60% 40% 20% 0% 25% 50% 87% Apathy Insincerity Force-fit All talk – no walk Cumbersome Voluntary Personalized, Need-basedCulture-fit Leadership Participation Convenient The bed rock of Employee Satisfaction
  • 16.
    WHAT TALENT WANTS surveyacross age, qualification, profession and cities Total Rewards – Indispensable Elements 87%• Personalized Healthcare / Insurance 62%• Flexi-time / Vacation / Telecommuting 36%• Innovative Rewards 29%• Maternity & Paternity Leave / Child-care 44%• Wellness Programs / Mentoring / Counseling 67%• Career Advancement Opportunities The desired workplace Environment 42%• Relaxed / Open plan offices 37%• In-office recreation/gym / Creche 63%• No / Casual dress codes 26%• Sports / Events / Theme parties 55%• Menu options at the party 19%• Coffee / Drinks within arms-length Preferred Rewards & Recognition 1 Cash rewards for Incentives 2 Appreciation from Management 3 Holidays & Experiences 4 Performance Based Promotions 5 Public recognition of achievements 6 Fair, merit based promotions Ranking by C&B Options 1 Fair/Competitive Salary 2 Personalized Healthcare Benefits 3 Flexible Hours/WFH Options 4 Rewards & Performance Bonuses 5 Career-oriented Learning Opportunities 6 Short/Long Term Incentives 7 Liberal Leave/Holiday/Vacation Policies 8 Health & Wellness Programs
  • 17.
  • 18.
    TYPE OF SALARYSTRUCTURE BY INDUSTRY BROADBANDS Health & Pharma Hospitality TRADITIONAL Retail Power & Energy Agriculture MARKET-BASED IT & ITeS BPO BFSI E-commerce Electronics OTHER FMCG FMCD Manufacturing & Engineering NO FORMAL STRUCTURE Manufacturing Textile Engineering Automobile STEP STRUCTURES Construction & Real Estate Infrastructure Based on industry structures, market forces and environmental influences industries have tailored their salary structures into one of six types
  • 19.
    COMPENSATION STRUCTURES IN INDIA BasicSalary Special Allow. Variable Pay Retirements Benefits EVOLVED Basic Salary Special Allow. LTA Medical Housing Conveyance Variable Pay Retirements Benefits OPTIMIZED Basic Salary Flex. Plan LTA Medical Allowances Housing Conveyance Variable Pay Retirements Benefits FLEXIBLE Basic Salary COLA/DA Personal Pay Special Allow. LTA Medical Edu Allow. Bonus/Ex-gratia Housing Conveyance Variable Pay Retirements Benefits TRADITIONAL Broadly, C & B strategies fall into one of four types based on their adaptation to market realities, and the degree to which they have evolved
  • 20.
    ELEMENTS AND COMPONENTSOF TOTAL REWARDS Components of Total Rewards Elements of Total Rewards The typical components and the building blocks of a Total Rewards C & B strategy Component – A Basic Salary Component – B Allowances/Reimbursements: SA/HRA/LTA etc. Component – C Variable Pay: PLB/AB/Ex-gratia etc. Component – D Retirals: PF/Gratuity/Superannuation Component – E Valued Perquisites: Company Car / Mobile Reimbursements / Lunch Sub Allow etc. Work-Life Integration Performance Management Talent Development Rewards & Recognition Compensation Benefits 16% 16% 16% 16% 36%
  • 21.
    PREVALENT PRACTICE PREVALANCE OFVARIABLE PAY PLANS Team Awards 33.6% Special recognition awards 59.0% Functional/Business unit 50.7% Organisational 62.9% Individual performance awards 85.6% LONG TERM INCENTIVE PLAN percent of the companies have LTI plan 46.4% percent of these companies extend LTI plans across all levels and rest at select management levels 55.0% GRATUITY AND SUPERANNUATION POLICY percent of the companies have superannuation policy 41.7% percent of these companies manage superannuation fund in-house and rest through third party 60.2% percent of the companies manage gratuity fund in-house and rest through third party 68.1% MEDICAL INSURANCE COVERAGE Employee only 15.7% Employee & spouse 17.4% Employee, spouse and dependent children 28.9% Employee, spouse, dependent children and dependent parents/ inlaws 38.0% INSURANCE POLICY percent of the companies have life insurance policy 72.8% percent of the companies have accident insurance policy 79.6% percent of the companies have medical insurance policy 100.0% LEAVE ENCASHMENT POLICY percent of the companies allow leave encashment during tenure and after separation 39% percent of the companies allow leave encashment only after separation 61% CAR POLICY percent of the companies have company leased and rest have company owned car option 68% years is the average car replacement period 4-5
  • 22.
    BEATING THE CONVENTION whatrewards do new age businesses dole out New-age businesses have arrived at a relatively better balance of value and excitement in their benefits package .. .. They bring elements of fun, financial innovation and work-life balance, together All the above elements listed in the word-clouds are practices in some of the best start-up unicorns and acclaimed new-age businesses CHILD CARE ASSISTANCE COMPRESSED WORKWEEK JOB S H A R I N G ELDER CARE ASSISTANCE M O D I F I E D RETIREMENT EDUCATION ASSISTANCE (FOR HIGHER STUDIES) GIVE THEM A GIFT CARD COMPANY SWAG EMPLOYEE S T O C K PURCHASE PROGRAM CORPORATE CREDIT CARD SERVICE AWARDS RECREATIONALGAMES F L E X T I M E / REMOTE W O R K PERSONAL ACCIDENT / INSURANCE S C H E M E BROAD BANDING MENTORING/ DEVELOPMENT PROGRAMS FITNESSPROGRAMS COMPANY LEASED ACCOMMODATION
  • 23.
    Corporate Office 6th Floor,BMTC Commercial Complex, 80 Feet Road, Koramangala, Bangalore - 560 095, Karnataka, India Tel: + 91-80-3300 2345 Fax: + 91-80-3324 3001 Email: [email protected] Website: www.teamlease.com Follow Us