The India Story…..Unfolding12th April, 2012

Muninder AnandDirector – Information Product Solutions

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Point for Discussion

Section 1: Changing Landscapes

Section 2: Salary Increase Trends

Section 3: Compensation Mix Trends and Benefits

Section 4: Demographic Reward Drivers and Expatriate Salary Models

Section 5: Conclusion

Changing Landscapes: Business, Leadership and HR

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Source: Conference Board 2011 global survey of 704 CEOs

Current Business EnvironmentCEOs rank talent as #2 business challenge: Business growth and Innovation both dependent on talent

1

2

3

4

5

Business growth

Talent

Cost optimization

Innovation

Government regulation

Rank

Importance-adjusted top three strategies

Score

1.65

.74

.72

.70

.59

“Strategy and operational decisions are important, but defining bets are made on people.”Greg Summer, CEO. PerkinElmer

“Consensus among CEOs is clear: having the right talent will make a critical difference in executing against any of today’s business challenges”Rebecca Ray, Ph.D., The Conference Board.

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“We are looking to increase our headcount to 150,000 people in the next couple of years. Rapid growth would merely be an understatement.”

Global Head of HR , Consulting, Technology & Outsourcing Company

“In the next three years our business in India will be as large as what we are globally now.”

Global Head of HR , Generics Pharmaceutical Company

“We can grow as fast as we want, we have a supply constraint. ”Chief Executive Officer, Beverage Company

Recent leadership conversations…

“Imagine a company with 15000 employees, born yesterday, with no context or history. We are looking to redefine ourselves towards 2015 without any correlation with our as-is state”

Chief Executive Officer , Generics Pharmaceutical Company

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Leadership Imperatives

• How do people experience you?

• How do they experience themselves when they are with you?

• What’s the new leadership model?

• Where are your next 100 leaders going to be come from?

80% companies looking towards changes in their leadership development programs

Only 17% companies are confident about pipeline of future leaders, retaining leadership talent

The art of leadership is creating a world that people want to belong to

IQ + Technical skills + Emotional intelligence

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Leadership ImperativesMapping Emotional Intelligence

Emotional Intelligence

Self Awareness

Social Skills

Self Regulation

Empathy

Motivation

Thirst for Constructive criticismRealistic self assessment and interest in feedbackSense of humour

TrustIntegrityAbility to deal with ambiguity

A passion for work and new challengesUnflagging energy to improveOptimism in the face of failure

Expertise in attracting and retaining talentAbility to develop othersSensitivity to cross cultural differences and diversity

Effectiveness in leading changePersuasiveness Expertise in leading and building teams

Emotional Intelligence

* Daniel Goleman EI model

Macro Economic Outlook : World and Asia Pacific

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Global and regional GDPModerate growth of 4%-5% forecasted for Asia

GDP - Global and Regional

Source: IMA September 2011

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2008 2009 2010 2011 2012Perc

enta

ge (%

)

US Europe Asia Pacific World

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Indian EconomyBalancing inflation & growth

10.4%

6.9%7.6%

9.0%

12.0%

7.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%R

eal G

DP

Gro

wth

(%)

5.0%

7.0%

9.0%

11.0%

13.0%

Infla

tion

(%)

GDP Growth 10.4% 6.9% 7.6%

Inflation 12.0% 9.0% 7.0%

2010 (Actual) 2011 (Estimated) 2012 (Forecast)

Source: IMA September 2011

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Trends : High-Tech and ITeS Industries

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Hi-Tech Industry in India

• M&A have continued to be a strong

trend for expanding business areas and

talent potential

• The ‘build versus buy decisions’ are

being based on more mature models of

skill tracking, incumbent level skill

accounting and time to time evaluation

of skill expertise

• Management of overall costs of

business has come into focus:

– Entry level salaries

– Talent segmentation

– Differential Rewards

Overall Trends• Product companies tend to pay a

higher differential over services companies at higher levels

• Semi-conductor companies continue to pay a premium at all levels

• What’s HOT in 2012 for Technology ?– Trendy 3D with its rising popularity

– Cloud Computing -‘King of data’integrating with business systems and applications to strengthen their responsiveness to user needs, streamline workflows & reduce costs

Segment Trends

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People

• Virtualization and work load management

• Talent segmentation and differential rewards strategies

Process

• Focus on process re-engineering to improve the efficiency levels and achieve a higher return on investment at lower costs

• Cutting down on cycle time

Client

• Aligning business units to client verticals for better delivery

• Organization re-structuring based on lines of business

• Improving customer focus

Revenue Focus

• Infrastructure Consolidation: Shifting fixed costs into variable costs

• Extending the business value proposition to expand the scope of business

What are the Focus Areas ?Balanced Score Card of major IT firms

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ITeS Industry in India

• Geographical diversification

• Consolidation of Firms to gain larger market share

• Leverage Emerging Technologies

• Improving Employability in workforce

• Leveraging “Domestic” demand

– Telecom

– Aviation

– Utilities

• Movement to Tier 2/3 cities

Overall Trends

• Large Third party players will

outperform the smaller companies

Captives will evolve

– “either-or” choice by parent

organization will be captive for

value add “and” third party

provider for outsourcing base

transactions

Segment Trends

“How best can the industry turn the current challenges into opportunities and embark on the path of becoming an industry worth $225 billion by 2020” ?

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Salary Increase Trends

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Salary increases – 2010 to 2012 forecastsAll Industries- India amongst countries with highest increases

0

2

4

6

8

10

12

14

NZ JP AU TW SG HK KR MY TH PH ID CN IN VN

Bas

e Sa

lary

Incr

ease

%

2010 2011 2012Sources: 2011Total Remuneration Surveys and Market Pulse Surveys

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Salary Increase forecast across industries over the yearsAll Industries - on Annual Guaranteed Cash

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Sala

ry in

crea

se (%

)

All Industry 13.0% 9.0% 11.0% 12.0% 12.0%

Consumer 14.0% 11.5% 10.1% 12.0% 12.0%

Chemical 13.0% 8.0% 12.0% 13.0% 12.2%

Pharma 13.1% 12.0% 12.0% 12.7% 12.8%

Auto 15.0% 10.0% 12.5% 13.4% 14.3%

ITeS 12.0% 9.0% 10.0% 11.5% 11.3%

Hitech 14.0% 6.0% 9.1% 11.0% 11.0%

2008 2009 2010 2011 2012

Source: IN TRS (2010, 2011)

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Hi Tech segment wise salary increase trendsServices more optimistic on salary increase

11.40%

10.40%

11.70%11.50%

12.00%12.70%

Semiconductor Product Majors Services Majors

2011 2012

Source: Mercer’s India 2011 Hi-Tech Non-Executive Remuneration Survey (Jan)

Higher salary increase

forecasted for Non-sales

individual contributors in

services in comparison with the

sales individual contributors

At higher levels, product

companies tend to pay higher

differential over services

companies

A premium is paid by semi-

conductor organizations in

the Hi-Tech industry

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8.8%10.0% 10.0% 10.00%

11.50% 11.30%12.0% 12.1% 12.0%

25P Median 75P

2010 (Actual) 2011 (Actual) 2012 (Forecast)

ITeS industry salary increase trendsConservative for 2012

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2011 (Actual)

9.0%

11.3%

12.0%

10.0%

12.1%

13.4%

25P

Median

75P

Third Party Captive2012 (Forecast)

9.0%

10.3%

11.9%

10.0%

11.9%

13.0%

25P

Median

75P

ITeS industry salary increase trendsCaptives continue to project higher salary increases

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Compensation Mix and Variable Pay Trends

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Compensation mixHigher percentage of variable pay in the Hi-Tech industry

90%

85%

85%

85%

10%

15%

15%

15%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Prof-Non Sales

Prof-Sales

Mgmt-Non Sales

Mgmt-Sales

Fixed Variable

All Industries

90%

67%

85%

65%

10%

33%

15%

35%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Prof-Non Sales

Prof-Sales

Mgmt-Non Sales

Mgmt-Sales

Fixed Variable

Hitech

Source: Mercer’s 2011 India All Industry TRS (Mar 2012) Source: Mercer’s 2011 Hi-Tech Survey (Jan 2012)

• Individual and company performance are primarily used to determine variable payouts

• As the level of employee increases, so does the weightage of company performance

• Variable pay is primarily paid out on an annual basis

• Where it paid out quarterly or semi-annually, it is for sales force earning sales incentives

The Need to Differentiate and Customize

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The need to differentiate and customizeBenefits - an answer to the need

• Need to relook at benefits keeping in mind the generational needs of the current workforce

• With compensation structures becoming standard and compensation costs becoming more competitive, benefits to become a strong differentiator

• A flexible and customized approach to benefits that provides “choice” to employees rather than a typical “one size fits all” approach

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Where do benefits fit in?Adding value to the total package…

• Reward budget not enough to “move the needle” on base pay

• Benefits as a retention tool

• A sustainable rewards practice

• The perceived value of benefits to the employee can be greater than the cost to the employer of providing it!

- Group buying power gives lower cost - Access to better terms and conditions- Status (higher benefits entitlements for top management)- Impact on productivity (wellness and medical check-up)- Impact on behaviours and long term cost (co-payments for healthcare)- Focused on specific employee needs (flex)

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Engagement

Attraction RetentionBenefits play a significant

role in employee62% 64%

Benefits fit in everywhere….

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Results of recent snapshot survey What benefits HR thinks will be important to employees…

Which group of benefits do you think has the highest

impact on employee satisfaction?

6

2

543

1 Flexible working arrangements

Term Life Insurance

Company car

Sabbatical leave

Health and Wellness benefits

Paternity leave

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# 1 Newer talent pools

89% of women who voluntarily leave their jobs — for

example to raise a child —want to go back to work but only 40% have

been able to find full-time, mainstream jobs.

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# 2 Increased mobility

Foreign nationals are authors of the majority of patent applications filed

by many US companies: 65% at Merck and 64% at GE and 60% at

Cisco

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# 3 Employability

Employability will continue to be a huge problem worldwide. Because of the uneven quality of education systems, only 25% of Indian and 20% of Russian professionals are currently considered employable by multinationals

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Demographics driving Rewards

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General Demographic Trends

Falling birth rates

Increasing life expectancy

2010 Managing Compensation and Benefits across Borders

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General Demographic Trends

Addition to the working age population by 2018 (Millions)

2010 Economic Trends - IBEF

Increasing Middle Class

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$$$$$$ ?

Talent flight risk - 54% seriously considering leaving

Source: Mercer’s What's Working Survey 2011

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54%

66%

54% 53%

44%39%

0%

10%

20%

30%

40%

50%

60%

70%

Allemployees

16-24 25-34 35-44 45-54 55-64

Gen Y

Gen Y poses a significant talent flight risk

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Pay is one of the top-ranked element of the deal, but satisfaction with it is down

Benefits more important to attraction and retention, but satisfaction with them slips

Retirement programs not a priority

Employees see gains in talent development

Views of senior management rise and 70% say company is well-managed

Increasing emphasis on ‘My Job’ and managers getimproved marks

Most say work load is reasonable and work/lifebalance is possible

One in two India workers is seriously considering leaving

Source: Mercer’s What’s Working™ survey

Reward drivers for different countriesWhat employees in India value most?

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#1Career Advancement

#2Base Pay

#3Training Opportunities

Reward drivers for different countriesWhat employees in India value most?

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What’s inside employees’ mindsMost important value proposition elements: Asia-Pacific

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Employee MobilityThe right People in the right Places & Roles at the right Cost for the right Time & Results

People

Place & Roles

Time & Result

Cost

Remuneration & Benefits

Talent Management

Return on Investment

Resource Planning

Effective mobility management requires the cooperation between business unit leaders, talent management, compensation and benefits, process and communication, third-party providers (including outsourcing) and of course the employee and their family.

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Parity among nationalities of expatriates

Equivalent pay with

peers in the company

Competitiveness with other

multinationals

Repatriation

Ease of administration

Program costs

Assignment Duration

Assignment Location

Assignees’ Nationality

Assignees’ Family

Assignment Cost Centre

Social Security & Retirals

Taxation

Split pay

The external factors such as market competitiveness, benchmark to peers, assignment administration and so on

The core factors, which are usually unique to the assignee and tend to differ for every assignment viz. assignment duration, assignee family requirements and so on

CostDetermining international compensation

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CostScientific build up

25,92,627TOTAL CTC (Net)

4,74,792Pli Payable

21,29,248Total Choice Pay

4,500Hosp Insurance

180Gpa Insurance

1,96,824Vehicle Emi

99,996Superannuation

5,000Gift Coupon

16,200Food Coupon

15,49,148Special Allowance

2,400Club Allowance

15,000Medical

2,40,000Fuel & maint-4w

13,52,534Total Base Pay

1,94,642PF + Gratuity

11,57,892Basic

Compensation (INR)India Compensation Components

67,83,808Gross CTC

49,40,019Net CTC

3,46,014Car

16,92,000Housing

3,09,378Cost of Living Allowance

25,92,627Base

Compensation (INR)

International Compensation components

Some Additional Benefits

• Medical (home country allowance will discontinue)

• Travel Insurance

• AD&D

• Spouse Allowance

• Relocation

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Time & resultInternational assignment and employee categorisation

International Assignments

• Long Term Assignment - Transfers of 1 to 5 years’ duration with essentially a managerial and business development purpose.

• Short Term Assignment - These assignments are usually single status foreign assignments lasting up to 12 months.

• Commuter Assignments - These assignments require the employee to carry out job related tasks by commuting every week or every two weeks

International Assignees

• Deputed Assignees – Employees sent abroad but still retain status as employees of home location.

• Short Term Assignees – Employees sent abroad for a period of less than or up to 12 months

• Third Country Nationals – Employees who are citizens of one country, hired by global headquarters, to work in a third country

• Global Nomad – Multicultural, global professionals who have no fixed home location

Contracts, compensation & benefits are allocated depending on the assignment type and the category of international assignments the employee falls under

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Expatriate Salary ModelsGlobal vs APAC

69.3

12.27 3.8 3.7 2.8

27.9

16.3

7 5.8 4.7 3.5

14.5

52.3

0

10

20

30

40

50

60

70

80

BalanceSheet (Home

based)

BalanceSheet (HQ

based)

Host Home Plus Host Plus Higher(Home or

Host)

Others

Worldwide

APAC

Source: Mercer’s 2011 Worldwide Survey of International Assignment Policies & Practices

Expatriate Remuneration Approach

Perc

enta

ge P

reva

lenc

e

Most preferred compensation approach

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Expatriate Salary DeliveryGlobal vs APAC

Expatriate remuneration delivery

Source: Mercer’s 2011 Worldwide Survey of International Assignment Policies & Practices

45%

19%

15%

16%

5%

Split between Home& Host currency

Pay in Homecurrency

Case by case

Pay in Host currency

Pay in third countrycurrency

40%16%

10%2%

32%

GlobalAPAC

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Potential Priorities for 2012 and Beyond

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Potential priorities for 2012 and beyondWhere to focus your efforts

• Communication up– Continuously remind global colleagues of

- The growth opportunities- The demand for talent- Employee priorities and expectations

• Global changes may not be relevant here– Increased variable pay to drive growth in flat markets– Maybe more emphasis on base pay required in growth markets

• Competition for talent from large locals– Do not try to outbid on compensation– Focus on non-financial components of package

- Training, career development, knowledge transfer, international assignments, equitable and transparent performance management

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• Talent management– Leadership development– Focus on the gaps and be targeted– Ensures more ROI

• Communication down– Talk to employees!– Encourage your leaders/managers to talk to employees– Educate and keep them informed– Create a relationship, not a transaction

• Get the basics right– Partnership between business and HR– Desired market position on compensation– Link compensation with development

Potential priorities for 2012 and beyondWhere to focus your efforts

muninder.anand@mercer.com