I have no idea.
Tuesday, April 16, 2013
Friday, April 10, 2009
What happens to Market Competitive pay during recession?
Whether we like it or not, recession surely has/is going to have a certain impact on our compensation levels, particularly of those who are in a strong bargaining position.
Even before I entered the HR department, I always questioned - why do all HR policies designed in favor of the organization and not the individual, why is the benefit of doubt not given to the employee, why do I have to accept standard offer letters? I realized quickly that it's the difference in negotiating power leading to such situation.
A common trend in B-school campuses is that if the last batch is paid Rs.X then the current batch will Rs.X+y, even while the last batch guy is still working for the same salary and waiting for his first appraisal (this is because of the cycle - consider this: Generally campus placements happen a month or two or even more in Engg colleges and there will be a month or two after finishing college before joining, next year the company comes around the same time to the campus and by that time the guy who joined in the last batch would've worked for not more than 10 months at the most).
This has been the cause for heart burn for many alums, who work hard for getting in to the dream firms and despite their working hard for 10 months, the junior guy is gonna earn more than him. This will continue even after the annual raise sometimes as the annual raise could be less than the increase in campus offers. I had seen one alum who is now with a bank behave very nicely as long as he was doing cv reviews and later act horribly during the placement week. I can understand his behavior quite well now.
Coming to the issue of recession, this year average salaries across campuses have fallen dramatically and surely those who didn't get admission last year are celebrating this year, similar to the joy of those who didn't invest in the market last year as they had no clue about it - they are better off without the prized admission/investment.
But then the student on the campus is asking what went wrong? what mistake of mine is causing the trouble, how can the astro-charts of so many students didn't predict this doom, can we this is an accident and we will be normal again after sometime? My answer is NO, it will not be normal for this batch after sometime. This batch will have to work much more harder than others to make it to the half way mark, forget about raising the bar but then is life all about raising the bar all the time; may be sometimes it is just enjoying the challenging journey. If you are a better person, you are better off than many others with more money, surely.
Coming to the point mentioned in the title, because of the doom predictions, all the analysts have been conservative and in fact so negative that they cut down growth, profitability and demand projections that companies that were recruiting aggressively yesterday realised suddenly that they are over-manned, they have surplus. Manpower is something that you cannot put in cold-storage for sometime and there is no proven "convenience yield" except in IT services where the "Ramalinga Rajus" of the Indian IT services have mastered the art of billin the client based on head count rather than on the value delivered.
So suddenly Competitive Pay in India nose-dives and everyone is worried if he is gonna be next in line to receive the pink-slip. But thankfully Indian culture (which has a heavy dose of lethargy that is projected as something else) demands that you be sympathetic to the bread-winner and questions the focus on bottom-line. Even the stock market these days is rejoicing about lesser than expected losses if not the more than expected profits. So you wouldn't be able to secretly enjoy the sadistic happiness of "My friend got fired but I'm not, you see," likes.
The reaction of different sectors, functions and market forces has clearly shown that Market is rational only when it is stable but then if it is stable it is not market. To sum up, Market that always tries to be rational is always irrational and reacts wildly to negative news and acts exuberantly to positive news and it is only the guy who got more than what he expected who feels that Market is rational and competitive, ask those who managed to get placed this year.
Even before I entered the HR department, I always questioned - why do all HR policies designed in favor of the organization and not the individual, why is the benefit of doubt not given to the employee, why do I have to accept standard offer letters? I realized quickly that it's the difference in negotiating power leading to such situation.
A common trend in B-school campuses is that if the last batch is paid Rs.X then the current batch will Rs.X+y, even while the last batch guy is still working for the same salary and waiting for his first appraisal (this is because of the cycle - consider this: Generally campus placements happen a month or two or even more in Engg colleges and there will be a month or two after finishing college before joining, next year the company comes around the same time to the campus and by that time the guy who joined in the last batch would've worked for not more than 10 months at the most).
This has been the cause for heart burn for many alums, who work hard for getting in to the dream firms and despite their working hard for 10 months, the junior guy is gonna earn more than him. This will continue even after the annual raise sometimes as the annual raise could be less than the increase in campus offers. I had seen one alum who is now with a bank behave very nicely as long as he was doing cv reviews and later act horribly during the placement week. I can understand his behavior quite well now.
Coming to the issue of recession, this year average salaries across campuses have fallen dramatically and surely those who didn't get admission last year are celebrating this year, similar to the joy of those who didn't invest in the market last year as they had no clue about it - they are better off without the prized admission/investment.
But then the student on the campus is asking what went wrong? what mistake of mine is causing the trouble, how can the astro-charts of so many students didn't predict this doom, can we this is an accident and we will be normal again after sometime? My answer is NO, it will not be normal for this batch after sometime. This batch will have to work much more harder than others to make it to the half way mark, forget about raising the bar but then is life all about raising the bar all the time; may be sometimes it is just enjoying the challenging journey. If you are a better person, you are better off than many others with more money, surely.
Coming to the point mentioned in the title, because of the doom predictions, all the analysts have been conservative and in fact so negative that they cut down growth, profitability and demand projections that companies that were recruiting aggressively yesterday realised suddenly that they are over-manned, they have surplus. Manpower is something that you cannot put in cold-storage for sometime and there is no proven "convenience yield" except in IT services where the "Ramalinga Rajus" of the Indian IT services have mastered the art of billin the client based on head count rather than on the value delivered.
So suddenly Competitive Pay in India nose-dives and everyone is worried if he is gonna be next in line to receive the pink-slip. But thankfully Indian culture (which has a heavy dose of lethargy that is projected as something else) demands that you be sympathetic to the bread-winner and questions the focus on bottom-line. Even the stock market these days is rejoicing about lesser than expected losses if not the more than expected profits. So you wouldn't be able to secretly enjoy the sadistic happiness of "My friend got fired but I'm not, you see," likes.
The reaction of different sectors, functions and market forces has clearly shown that Market is rational only when it is stable but then if it is stable it is not market. To sum up, Market that always tries to be rational is always irrational and reacts wildly to negative news and acts exuberantly to positive news and it is only the guy who got more than what he expected who feels that Market is rational and competitive, ask those who managed to get placed this year.
Sunday, September 7, 2008
Mkt competitive pay - Does it work? - Depends on the market !!
And in India ( a developing mkt), it doesn't work.
In developed mkt we see have seen that salary rises for last few years has been nominal, in single digits, maybe just a few % points more than inflation. But in India the avg has been ~15% with mid-to-higher management levels witnessing 40%+ levels. More so in lateral hiring a doubling of pay is more of a norm! Thus in India atleast, we are still living a self fulfilling aspect of a short-on-talent and long-on-demand job mkt scenario.
Add to it the recent inflation and we see India witnessing the proverbial wage-price spiral! Given we are stil developing, we need to be aware that this mkt competitive pay concept is not at all working in India at the moment. A few more points to explain the current conundrum:
Firstly, compensation, is just a hygiene factor. What makes people stay in firms is content, people & lifestyle. These 3 things these days define the expectations of a successful, commited employee.
Secondly, India will continue to have the low-cost advantage for maybe next 5-10 years more before we get globally aligned and our job mkt matures.
Lastly, India is the next growth engine for the world (along with China or even Middle east) and its sectors like Retail, Financial and other professional services, IT (yes, scope still remains in applications in bio & energy domains) would continue to defy the norms of a mature job mkt. The War for Talent is on and so the exuberence will continue for some more time to come...
In developed mkt we see have seen that salary rises for last few years has been nominal, in single digits, maybe just a few % points more than inflation. But in India the avg has been ~15% with mid-to-higher management levels witnessing 40%+ levels. More so in lateral hiring a doubling of pay is more of a norm! Thus in India atleast, we are still living a self fulfilling aspect of a short-on-talent and long-on-demand job mkt scenario.
Add to it the recent inflation and we see India witnessing the proverbial wage-price spiral! Given we are stil developing, we need to be aware that this mkt competitive pay concept is not at all working in India at the moment. A few more points to explain the current conundrum:
Firstly, compensation, is just a hygiene factor. What makes people stay in firms is content, people & lifestyle. These 3 things these days define the expectations of a successful, commited employee.
Secondly, India will continue to have the low-cost advantage for maybe next 5-10 years more before we get globally aligned and our job mkt matures.
Lastly, India is the next growth engine for the world (along with China or even Middle east) and its sectors like Retail, Financial and other professional services, IT (yes, scope still remains in applications in bio & energy domains) would continue to defy the norms of a mature job mkt. The War for Talent is on and so the exuberence will continue for some more time to come...
Friday, September 5, 2008
Market competitve pay and its dynamics
In todays world of rising attrition and increasing employee demands, I feel that market competitive pay makes sense. That can be said atleast of some industries. I work in marketing research and in similar industries wherein employee talent rather that employee numbers make more of a difference, i feel that this system might work a lot for corporations. In our industry, talented employees are generally the drivers for firms, as clients are always demanding and performance is guaranteed only with a quality workforce. We get direct client feedback, as well as cases where particular employees are demanded for by the clients. Hence in such cases the job satisfacion is immense, be it any organization. This does not change with different organizations, as your quality of work travels by word of mouth. In such as case, companies can lose employees easily purely on the basis of the remuneration that is awarded. And with the options available, it is easier to switch between jobs and find the satisfaction levels that are desired. The present jobs are also much more stressful. I spend almost regular 15 hour days regularly, and hence if i feel that the pay package does not match that which is given in the market, I would definitely be pushed to take a call.
I also think in a way, it is the way companies strategize. Some of the players in the market use that as a basic calling card. Their competency is the fact that they govern market pay and make their pay the comparable base. So although you might go for such companies, some thought is also given to the quality of work that is provided. But these are only a few cases. In most of the cases today, a large chunk of employees work for better remunerations and also decide on career paths on the sam factor. With the huge demand for quality labor in India, it has become a different scene from about 5-10 years back when you would think thrice before thinking of a switch.
In conclusion, with today's market dynamics it is important to go by market based pay. Quite a few industries are there where employees are driven purely by pay, as other factors that add to the job such as quality, satisfaction, learning etc. are minimal. Hence here i feel that market based pay works out as an important strategy. With jobs that are more involving and are more satisfying, one can do without this philosophy, but i think in many cases it might just backfire if you stay away from market competitive pay.
I also think in a way, it is the way companies strategize. Some of the players in the market use that as a basic calling card. Their competency is the fact that they govern market pay and make their pay the comparable base. So although you might go for such companies, some thought is also given to the quality of work that is provided. But these are only a few cases. In most of the cases today, a large chunk of employees work for better remunerations and also decide on career paths on the sam factor. With the huge demand for quality labor in India, it has become a different scene from about 5-10 years back when you would think thrice before thinking of a switch.
In conclusion, with today's market dynamics it is important to go by market based pay. Quite a few industries are there where employees are driven purely by pay, as other factors that add to the job such as quality, satisfaction, learning etc. are minimal. Hence here i feel that market based pay works out as an important strategy. With jobs that are more involving and are more satisfying, one can do without this philosophy, but i think in many cases it might just backfire if you stay away from market competitive pay.
Tuesday, September 2, 2008
It depends on the market.....
A recent survey among the HBS Graduating class brought some interesting findings. Around 80% of the graduating class voted that they are happy with a salary of $100,000 if their peers are getting a salary of $80,000. But they are not happy with a salary of $120,000, if their counterparts are getting $140,000. This implies , it is not the absolute value of the salary that alone is sufficient but what matters more is how it is compared , vis a vis others. And this brings in “Market Competitive Pay".
Take the example of a homogenous set of employers; say Big-4 consulting firms or top-5 Indian IT Companies. These organisations are similar to a great extent, in terms of work environment, organisational structure, line of business and the skills they look for in an employee. Here market competitive pay becomes paramount importance if the organisation wants to retain its key employees. The other thing that works for employees here is the liquidity of their skills in the job market. An employee can demand a competitive pay package as other organisations need the skill set he possess and might pay him. This can be best described as a free market scenario for both employees and employers and Market competitive Pay is most prevalent here. If an employer cannot pay the industry bench mark levels, he won’t be able to retain its key employees. He cannot also pay significantly ahead of its peers as the line of business and the bottom lines are more or less same for them. No employee can also demand a pay package, comparably higher than his counter parts, because, the employer can find a substitute of his skill sets in a lesser price. The whole system leads to equilibrium in compensation which may be described as Market Competitive pay.
But things are not quite similar for the programmer of an out dated programming language. If there are not too many players in the market to recruit him for his skills, he cannot really demand a competitive package. Here the employer has the freedom to decide the salary. Now consider the case of a top notch neurosurgeon or country’s best criminal lawyer. There are not too many substitutes for his skills. So the employer may have to pay him significantly higher than the market to recruit & retain him as he is the critical success factor to his business and a very specific asset to the organisation with no immediate substitutes. What we can conclude here is market competitive pay does not work, in an oligopositic or monopolistic market. This can be vindicated if we take the case of IT Product companies like Google and Microsoft who thrives on innovation. They tend to pay significantly ahead of the market as they need the best of the talent pool and the bottom line of the business supports it.
To sum the above discussion, Market competitive Pay package works in a Free Job where there are immediate substitutes avaialble for both employers and employees available. But it is not seen incase of a monopolistic / oligopolistic market, where the substitutes are scarce.
( the author of this post is an employee of a leading IT Consultancy firm in India)
Take the example of a homogenous set of employers; say Big-4 consulting firms or top-5 Indian IT Companies. These organisations are similar to a great extent, in terms of work environment, organisational structure, line of business and the skills they look for in an employee. Here market competitive pay becomes paramount importance if the organisation wants to retain its key employees. The other thing that works for employees here is the liquidity of their skills in the job market. An employee can demand a competitive pay package as other organisations need the skill set he possess and might pay him. This can be best described as a free market scenario for both employees and employers and Market competitive Pay is most prevalent here. If an employer cannot pay the industry bench mark levels, he won’t be able to retain its key employees. He cannot also pay significantly ahead of its peers as the line of business and the bottom lines are more or less same for them. No employee can also demand a pay package, comparably higher than his counter parts, because, the employer can find a substitute of his skill sets in a lesser price. The whole system leads to equilibrium in compensation which may be described as Market Competitive pay.
But things are not quite similar for the programmer of an out dated programming language. If there are not too many players in the market to recruit him for his skills, he cannot really demand a competitive package. Here the employer has the freedom to decide the salary. Now consider the case of a top notch neurosurgeon or country’s best criminal lawyer. There are not too many substitutes for his skills. So the employer may have to pay him significantly higher than the market to recruit & retain him as he is the critical success factor to his business and a very specific asset to the organisation with no immediate substitutes. What we can conclude here is market competitive pay does not work, in an oligopositic or monopolistic market. This can be vindicated if we take the case of IT Product companies like Google and Microsoft who thrives on innovation. They tend to pay significantly ahead of the market as they need the best of the talent pool and the bottom line of the business supports it.
To sum the above discussion, Market competitive Pay package works in a Free Job where there are immediate substitutes avaialble for both employers and employees available. But it is not seen incase of a monopolistic / oligopolistic market, where the substitutes are scarce.
( the author of this post is an employee of a leading IT Consultancy firm in India)
Retaining talent is more than just a matter of compensation
Having worked for an Indian IT major for close to 4 yrs, I can safely say Market Competitive Pay does not always work. I was offered a very lucrative package twice, but I declined to take up the offers simply because the trade off involved in terms of work profile and growth opportunities was too large.
As an employee, the work culture of an organisation, the job profile, learning and career growth opportunities which my workplace offers matters to me as much as, if not more than, my compensation structure. Pay is not the only factor.
While the jobs I was offered were paying almost 100% more than what I was earning at that time, I still decided to stick around. Factors like support of my co-workers; a healthy and competitive but non-threatening work atmosphere was what tilted my decision in the favour of not quitting.
But sadly this was not the case with some of my other colleagues who were swayed by the size of the package being offered. An year down the line those same people were back in the job market hunting for a new job. Dissatisfaction with the work culture was the primary reason cited when I asked them the Golden Question “Why so soon”. In such a scenario more than the employee it is the organisation who is loosing out, since they try to pay competitive and lucrative pay packages but do not follow it up a conducive work culture and other perks.
(the author of this post is a Senior Project Engineer in a leading IT company in India)
As an employee, the work culture of an organisation, the job profile, learning and career growth opportunities which my workplace offers matters to me as much as, if not more than, my compensation structure. Pay is not the only factor.
While the jobs I was offered were paying almost 100% more than what I was earning at that time, I still decided to stick around. Factors like support of my co-workers; a healthy and competitive but non-threatening work atmosphere was what tilted my decision in the favour of not quitting.
But sadly this was not the case with some of my other colleagues who were swayed by the size of the package being offered. An year down the line those same people were back in the job market hunting for a new job. Dissatisfaction with the work culture was the primary reason cited when I asked them the Golden Question “Why so soon”. In such a scenario more than the employee it is the organisation who is loosing out, since they try to pay competitive and lucrative pay packages but do not follow it up a conducive work culture and other perks.
(the author of this post is a Senior Project Engineer in a leading IT company in India)
Organisational need which decides.....
Being an owner of an SSI in a small town I believe market competitive pay doesn’t work much in our case. I may pay an employee more than the market if I am in need of that employee and if I believe that the employee does has the capability & experience to handle the work. In some cases where the employee is less experienced I would pay him below the market rates and would assure him of a pay hike as per his performance. We appoint accountants, production head (operations controller) – though it is not done on a very large scale but we do face a lot of competitions from other small industries in the same locality. We do not go for surveys but we do keep in mind what the other industries in the same area are paying. So for any particular job we look at the so called “market rates”, experience of the employee and my need for that employee before deciding his final salary. Therefore in our case its my need which plays a more important role in deciding whether I should pay the employee as per the market rates or not.
(the author of this post is the owner of a Refractory firm in Jharkand)
(the author of this post is the owner of a Refractory firm in Jharkand)
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