Will Future Group’s new salary structure pay off?

Kishore Biyani-led Future Group is now giving high-performing employees even more than 100% of their variable pay

Kishore Biyani, group chief executive officer, Future Group. Photo: Abhijit Bhatlekar/Mint
Kishore Biyani, group chief executive officer, Future Group. Photo: Abhijit Bhatlekar/Mint

Employees at Future Group are starting to ask one another: “Tera speed kya hai?” (What’s your speed?)

The question has become popular after the company designed an app called “FutureBytes” which counts the ability to measure the speed at which staff work as a key feature.

The app has a needle hovering from -25 up to 100 and colleagues can use it to rate the people they have worked with based on the speed of completion of any task.

This speedometer is an indication of the performance-oriented culture Future Group wants to drive in the 40,000-strong organization, much like the start-ups of today.

“We may be a 16-year old organization, but we need to be as agile as a start-up, be it the speed at which we act or how imaginative we can get in our solutions and ideas. Speed and imagination are now the essence of everything that we do,” said Kishore Biyani, the retail conglomerate’s group chief executive officer.

To reflect the culture it is trying to drive, Future Group has been making changes to its salary structure over the last two years, with the latest being an increase in the upper limit on the variable pay one can earn.

For instance, the best-performing employees at the company could earlier earn 100% of the variable pay they were eligible for. But to be able to distinguish between the better performers, it is now giving employees even more than 100% of their variable pay.

It rewarded employees with as much as 125% of the variable pay for the first time in April.

“We want variable pay to become a true measure of the performance, that’s why we are increasing the weightage given to it,” said Kaustubh Sonalkar, group chief people officer of Future Group.

Some industry watchers gave the move a thumbs-up.

“This is a good move, as it provides the opportunity to significantly enhance rewards as performance increases. We find organizations very often go all the way up to 2x their target award at top performance,” said Anandorup Ghose, head of the talent and reward unit at Aon Services India Pvt. Ltd.

The move comes at a time when Biyani is trying to grow his company’s revenue tenfold to Rs.20,000 crore by 2021. Earlier in the year, Biyani made holacracy his management mantra and adopted the organizational structure popularized by Zappos in which roles are flexible, authority is distributed, structures change and the rules, which are clearly laid out, are the same for everyone.

Since then, the company has democratized the power structure.

“We have increased the number of people with responsibilities. The idea is to increase ownership, empower role-holders in such a way that it is not based on hierarchy but roles they play in the holacratic organization design,” said Sonalkar.

But curiously, the company has also capped the quantum of variable pay given to all employees at 15% of total salary.

Every company earmarks certain part of the salary as variable pay to employees. That can vary from 10-20% for junior and mid-management and about 40-50% for the top management. But a lot of the times, even within a level, employees don’t get the same proportion of variable pay.

“Through negotiations, people come in with different proportions of variable pay,” said Sonalkar.

Earlier, variable pay could account for anywhere from 5-50% of the salary, so that even when someone is a great performer and gets 100% of the variable pay, they may end up making less overall, as the quantity of variable pay is itself small, Sonalkar explained.

He added that they arrived at the 15% figure after calculating the average variable pay that employees earned.

Ghose, who found the move interesting, said: “It seems to give out a message that all employees are on the same boat.”

However, he added that 15% variable pay for senior management is below what the market pays.

In 2015, the company also undertook a couple of more changes which are not very common. Last year, it rolled out uniform hikes of 10% to all the employees, from salesmen to the CXOs.

“We took the upper limit of hike employees can earn and gave all employees the same hike. We did this keeping in mind the rising inflation. For everyone, prices have gone up the same amount, so a standard amount of hike is required these days,” Sonalkar said.

Many experts said the move seemed counter-intuitive, highlighting that the impact of inflation is inversely correlated with salaries.

In other words, executives who earn more have a smaller part of their earnings and savings affected due to inflation as opposed to people who earn less. For them, the savings potential is materially affected by inflation.

In value retail, the average hike for 2016 was expected to be around 9-9.5%, added Ghose.

Two years ago, the group—which includes listed entities such as Future Retail Ltd, Future Lifestyle Fashions Ltd and Future Consumer Enterprise Ltd—also did away with the bell curve method of rating performance, where a certain proportion of employees had to be forcefully designated as low, average and high performers.

Droves of companies in India and around the world, from Accenture Plc. to Microsoft Corp. to Infosys Ltd, have been doing away with the bell curve and moving to a frequent feedback-based mechanism to rate performance.

At Future Group, after dumping the bell curve, it felt the need to roll out special bonuses for select top performers. It will identify the top 15% of the organization and give them 15% of their salary as a potential bonus in addition to a salary hike.

“This is to nudge people with potential towards better performance,” said Sonalkar.

But the company needs to be cautious while doing this.

Usually, a scoring system for potential could be unfair unless it is backed up by a rigorous and scientific process of assessment across the board, experts said.