Article (January-2022)

Articles

Riddles of Restructurings the Remuneration Package

Pramod Kumar Tripathi

Designation : -   AGM - HR

Organization : -  Bajaj Energy Limited

01-Jan-2022

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1. At the threshold of the Covid Pandemic had disrupted the business balances of a logistic company, M/s Highway Cargo Movers Pvt. Ltd. and finally the Management team of Highway cargo decided to restructure employees' salary without focusing on various facets of its consequence. The basis of rethinking for re-structuring the compensation package by the Management took place, when the attrition rate shoot up drastically from 3-4% to 22% during the last 3 Month. Tejinder Kalsi, the HR head being asked to identify the reasons, take remedial measures and execute the recruitment & selection process at the earliest so that the business is hampered since many employees have already left the Co.

Tejinder was aware about the situation but his voices were not heard by senior leaders. The HR Head Tejinder advised 03 options viz-incentive scheme, restructuring of compensation for senior employees, withholding of annual increment if required, it should be very minimal level. The above suggestions were turned down. The Highway Cargo had gained profits year by year and the employees were very happy and productive due to rationalised compensation & benefits policy of the Co. The story tells that the management had neither reduced the head-counts during the pandemic nor taken any financial restraints which were against the employees. They only decided to draw a new salary components/structure by increasing the variable pay & reducing the fixed pay, which further increased the discontentment amongst the employees. Probably this is the main reason for shoot up of Attrition rate. The Company has taken a very fast and steady step without taking a deep dive into other aspects which could largely impact the employees' morale and their financial planning. Here, company needs to follow the right approach to arrive at the right decision with help of right person which compact the bonding and affects the less and carry the legacy of best place to work for. It is sure that the employees will not expect more packages, seeing the situation of other industries due to Covid pandemic effects. Without exhaustive home work on salary Issue, the management had implemented the new one (Increased Variable & decreased the Fixed Pay) and employees got dis-satisfied and they started leaving the organisation.

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2. The proportion of fixed to variable pay determined by the level of the employees in an organisation and the accountability involved to their  jobs, probably M/s Highway adopted or formulated earlier the compensation packages in same pattern. The ratio of fixed to variable component, as a custom, varies based on role the employee plays. As a practice/rule, the employees involved in the sales, generally have a higher variable than the employees in the operational role of the Co. In Indian business context, for the sales team the ratio of fixed to variable pay can be 60:40, while in the European countries it is seen as 30:70. Other than sales role employees, many companies usually chart out 80:20 ratios reliant on the individual achievement of his or her objectives/KRA. Though, a role that defines profitability of either SBU or an organisation might warrant a ratio of as much as 60:40. Widespread rule warrants that the variable pay is directly proportional to the level or accountabilities owing to the contribution an employee is capable to make the profits or progression of the organisation. Concern mostly arises when the performance cannot be measured against the revenue generation. Conversely, the statistic is that variable pay does act as a performance savoury. The variable pay could be different in different organisations. For some companies, it is a form of dropping the tax burden of employees and for others, non-monitory incentives. Also, some companies have schemes of profit sharing to keep the motivation levels of employees elevated in height. M/s Highway had to adopt a ratio of 80:20 which could have a long impact on his employees or the Company could adopt a ratio of 75:25 for fixed is to variable. At junior level, variable pay ranges should be from 10% to 15% of the fixed pay. However, for employees working in the sales department, variable pay plus sale incentives may range from 30% to 40%. At the middle level, it ranges from 15% to 30%, and at the senior level, it is typically between 30% to 50%.
3. Tejinder has played his role in a very structured way. He has done his role as HR head, in a very polite and professional manner by suggesting those three options seeing the currents pulse of employees of the organisation though, the higher management has not accepted or bothered to evaluate, examine the suggestion and finally turned down. There are so many factors that may be involved to diffuse the suggestion of Tejinder by management; it could be his previous outlook, grey areas of his previous performance & most genuinely the currents financial position of the Co. etc.

The senior member could be asked of his team to formulate and present a more competitive compensation structure as the management desired to keep the operational costs low and business turnover high with low attrition rate and must think how justice could be done to both sets of outlook (employer & employees). A massive communication be given regarding the new pay packages and feedback from each portfolio (from senior level to junior level) could be obtained prior to enforcing the new one.

4. The important step needs to take is to identify and to form experienced team for the compensation reform process. The next step should be for them to do exhaustive research - of the current & future pay structure based on the roles and performance of employees, Thereafter, a detailed report of remuneration package of each category of employee will help the team, to analyze the total operational cost of the organisation with respect to its employees. Set aside the cost under each head will give them an idea of what exactly each employee is receiving from the organisation currently and how the same can be structured better & acceptable to employee. Lastly, the team has to do a broad homework to find out the salary structure of other Co. and the benefits they are providing to their employees. This will help them to evaluate if the organisation is giving a modest salary, scale up employee anticipations as well as understand the menace of attrition if needs are not being met.

An organisation can design the best plan, but if employees do not understand how it works to their benefit and what is expected of them, it will fail.