VARIABLE PAY – INDIA STORY 2015~16
Variable pay, also known as performance pay, is used to
recognize & reward employee’s contribution - which is above
and beyond their normal job requirements and is linked with
pre-defined performance parameters like – sales, quality,
productivity, profitability etc.
In the Indian scenario, variable pay started being talked
about since early 1990’s and at current stage organizations
are in catching-up mode vis-à-vis western world. Even PSU’s
as directed by last pay commission are moving towards
linking part of their pay with performance of the company.
Most Representative Variable Pay Band
Junior Level
10% ~ 15% of CTC
Middle Level
15% ~ 20% of CTC
Senior Level
20% ~ 30% of CTC
Top Level
25% + ; Additionally Stocks (ESOP) as
additional performance incentives.
Generic Level-wise Variable Pay Range for FY 2015~16
In some sectors variable pay has become a popular mode of
compensation & is perceived modern. This is more so in the
increasingly competitive business environment, where
companies are looking to maintain their fixed costs and
increase the variable payouts - as it is linked & paid out on
the achievement of defined & agreed Targets/ KRAs/
Results.
Companies use variable pay to drive performance culture
and leverage it to attract and retain talented employees. In
the current scenario, “talent” prefers to join organizations
where they will be differentiated for their performance from
others - and are suitably rewarded.
With respect to the “India Positioning & Story” on variable
pay - a recent cross industry variable pay study conducted at
Omam Consultants indicates that the employees are
expected to get average variable pay of 17.4%, which is an
increase of around 0.4% percent compared to an actual
average variable pay of 17% percent in 2014~15.
At Omam Consultants, we have been working on the
variable pay trends across industry verticals, which is
summarized and presented in a grid below – this grid
provides at-a-glance comparison of variable pay across
sectors for FY 2014~15 and FY 2015~16 :
0.7%
Consumer Business
0.4%
Industry /Sector
Pharma, Life
Sciences & Healthcare
Infrastructure &
Real Estate
0.4%
0.6%
20.1%
19.4%
19.6%
19.2%
18.7%
18.3%
18.2%
17.6%
Research &
Development
0.4%
17.6%
17.2%
Ites
ITIT&&ITES
0.4%
17.5%
17.1%
Engineering &
Manufacturing
Auto and
Auto Ancillary
Chemical &
Fertilizers
17.0%
16.7%
0.3%
16.7%
16.5%
16.5%
16.3%
0.2%
0.2%
Retail
0.3%
16.3%
16.0%
Power &
Natural resources
0.3%
16.2%
15.9%
0.4%
Media & Advertising
Overall
Industry
0.4%
0.0%
5.0%
16.1%
15.7%
15.6%
15.3%
0.3%
Logistics & Shipping
17.4%
17.0%
10.0% 15.0% 20.0% 25.0%
Variable Pay % as of Total Cost
to Company (TCC)
50P
90P
AVG
38.1
34.5
29.4
23.6
22.1
17.6
13.6
7.5
JM
13.5
17.5
22.1
24.3
24.2
16.5
14.8
10.2
MM
SM
TM
Our study revealed that focus of most of the Organizations is
employee and organizational performance.
Sectors like BFSI, Consumer Business, Infrastructure, R&D
led the table in FY 2014~15 and would continue to pay
higher payouts in FY 2015~16 as well.
Industry sectors like Pharma, Consumer Business and
Banking will continue to roll out annual average variable pay
at high figures ranging from 18.7% to 20.1% for FY 2015~16
and other sectors like Engineering, Infrastructure, R&D and
Retail too will roll out annual average variable pay from
16.3% to 18.2% for FY 2015~16.
Oil & Gas and related sectors like EPC have become
cautious and might go softer on their earlier projections of
high variable pay.
Average variable pay (%) 2015-16
Average variable pay (%) 2014-15
Banking and
Financial Services
10P
Another interesting trend that has been noticed - is how
companies are now choosing to deviate from the
fundamental policy of “one size fits all” approach. Instead,
they are now focusing on tailor-made reward strategies. Over
the past years, we’ve witnessed how the difference between
the rewards offered to average employees vis-a-vis a top
performer has been growing significantly in terms of
percentages and actual quantum.
Sectors like infrastructure, manufacturing, e-commerce, and
financial services are expected to receive significant
investment, fueling job creation; but would create imbalance
in the talent availability – which in-turn will increase pay
levels, especially for skilled employees. In such a scenario
Organizations will look out for cost efficiencies & differentiate
employee rewards based on performance.
We at Omam, suggest that Organizations should implement
strategies specific to levels/ industry they belong to. Also,
rather than focus on variable payouts alone, companies
should take a holistic view on total rewards package and
focus on strategies to attract & retain employees.