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MUMBAI : Companies are cracking the whip on poor performers as they prioritize their funds amid fears of a global recession and cost pressures.

Consulting firms working on compensation structures for Indian employers say the differentiation between the groups will get sharper when rolling out rewards with key skills set to become the differentiator in some cases.

“During the two years of the pandemic, companies found it tough to demarcate between employees. So, for example, in 2022, those who ‘often did not meet expectations’ and ‘did not meet expectations’ got 0.3X and 0.1X hike of the colleague who ‘met expectations’," said Roopank Chaudhary, a partner for human capital solutions at Aon in India.

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However, Chaudhary said that if a recession happens, the bell curve on which employee ratings are plotted “will get more aggressive".

“The 0.3X will become 0.2X, and the absolute bottom end may not even get 0.1X the hike," he said.

According to Aon, top performers got 1.7X the hike of their counterparts who met their target.

The financial sector, fast-moving consumer goods, information technology (IT) and e-commerce companies are estimated to turn stricter with bottom performers.

“The high performers can get 2X the average hikes, and the bottom 2-3% will get churned out," said Praveen Purohit, deputy chief HR officer at Vedanta Group.

Purohit explained that there is a dip every couple of years in the commodities sector, forcing companies to retain their focus on top talents.

However, consulting firm Deloitte noted that India Inc. would look into the employees’ skill-sets while plotting their rewards as some skills are more desirable than the others.

“Performance-based differentiation has been a decade-long trend, but the focus we feel is also a lot more on skill-based differentiation now—most organizations are struggling to hire and retain a fairly common set of skills and for most employees, possessing that skill-set really makes the difference. Performance on the job can often be a secondary factor,“ said Anandorup Ghose, a partner at Deloitte India.

The tussle to draw a sharper difference between employees comes amid inflation rising to 7% in August.

As a result, there is a strong chance of the central bank hiking the repo rate by another 50-basis point (bps) in the September policy, which could hurt growth.

After two years of the covid pandemic, data sciences is one of the most coveted skill-sets as companies digitize their processes and customer-facing platforms.

Consultants say for sectors like IT, which incur almost 65-70% of their expenses in wage costs, rising inflation is a big worry. On average, wage costs as a share of revenue rose from 54.3% in the March quarter to 55.2% in the June quarter. Quarterly bonuses and benefits have already taken the hit of margin pressure.

The HR head of one of the largest insurance companies said the company would give a 100% bonus to top performers while those who fall below their targets may get just 20%. “There will not be a huge gap between our best and the lower order, but bonus, long-term incentives for seniors and promotions for juniors will be the differentiator," said the Mumbai-based HR head who did not want to be named.

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ABOUT THE AUTHOR

Devina Sengupta

Devina Sengupta reports on the shifts in India Inc’s workplaces, HR policies and writes about the developments at India’s biggest conglomerates. Her stories over the last decade have been picked up and followed by Indian and international news outlets. She joined Mint in 2022 and previously worked with The Economic Times and DNA-Money.
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
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