Mint explainer: How companies are altering compensation to retain staff

Companies are revising their variable pay structure and implementing long-term incentive plans to reduce costs. l. (Photo: iStock)
Companies are revising their variable pay structure and implementing long-term incentive plans to reduce costs. l. (Photo: iStock)

Summary

  • There are some companies that are contemplating increasing the variable pay component to make performance more competitive.

India Inc is restructuring compensation and benefits despite the decrease in attrition rates across all sectors. The reason for this is that retaining high-performing employees remains a challenge at all levels of the hierarchy. Companies are revising their variable pay structure and implementing long-term incentive plans to reduce costs. Mint explores this growing trend among corporates.

How is your variable pay changing?

Manufacturing firms like Japanese tyre manufacturer Yokohama Rubber Co. have removed variable pay from junior levels, while insurance sector is seeing a rejig in the variable pay mix. Some have removed the success of the company as a parameter while rolling out variable pay. These firms think the young workforce may not have the line of sight and see the impact on the larger picture and hence should be evaluated on their own and team's performance. However, there are some companies that are contemplating increasing the variable pay component to make performance more competitive.

Long-term incentives in startup sector?

Startups are pivoting from cash bonuses to stock options and other long-term incentives to retain talent as they look to extend their runway amid a tight fundraising market. The balance sheets of many edtech, software, and fintech startups remain strained despite multiple rounds of layoffs to save costs. While some startups are shifting to restricted stock units (RSUs), others are increasing targets and asking their leaders to forgo incentives.

Is rising employee cost a factor?

From the second half of FY22 until FY23 beginning , companies were on a hiring frenzy . But as markets became sluggish, companies were forced to reckon the impact of the negotiations and counter offers on balance sheets. According to a Mint analysis, in the fiscal first quarter, wage costs as a share of revenue increased for -Tata Consultancy Services (TCS), HCL Technologies and Wipro, reaching their highest in at least five years. The impact was on lower hikes and drop in variable payouts. The counter offers reduced and firms focussed on upping learning programs , skill development courses in AL/ML to rein in on attrition.

Is it helping bring down attrition?

While attrition has come down significantly, companies are still grappling to hold on to high performers. They are offering more than the median range and options to work on innovative projects. The promotions in many firms are no longer tenure based but focussed only on the growth of this exclusive set of executives. The attrition in lower ranks, continues to worry companies since hiring from the market remains an expensive proposition. LTIs are helping senior management to stay for a longer period.

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