Entry Bonus to Retirement Plans-Ingenious Ways of Hiring Talent (30.01.2008)

By P. Sreevalsan Menon 

The Mumbai-based stock brokerage firm Indiainfoline poaches four top officials from Singapore-based brokerage firm CLSA by offering a signing bonus of Rs 44 crore. The London-based infrastructure company GNR hires most of its people for a new airport project including the head of operations with a substantial 'golden hello'.

Companies that experience a severe talent shortage in senior positions, at a time when they are in a dynamic growth phase, are pulling out all stops to fill them up. Across India, only one out of three vacant posts gets filled and it demands much more than the negotiating skills of HR teams. A reason why huge 'sign-on' bonuses have become the order of the day.

Invented and introduced during the Y2K era by ingenious managers, this tool is being used to clinch the deal today. While headhunters call it guarantee money, the 'golden hello' is sometimes as high as 10 per cent of one's annual salary or in the range of Rs 10 lakh-Rs 50 lakh. It is as high as Rs 4-5 crore for a senior position. Once you enter, companies dangle another carrot; employee stock option plans (ESOPs). In fact, after the government allowed software companies listed on overseas stock exchanges to issue American Depository Shares (ADS)-backed stock options to their employees, many corporates jumped on the bandwagon.

To attract the best and the brightest, a leading IT company got listed on the NASDAQ and issued ADS-linked stock option plan. Says Aditya Narayan Mishra, general manager, Ma Foi Management Consultants: "Overseas listing and higher stock valuations directly translate to greater value of stocks held by employees."

Companies are also keen to set precedence by handing over bigger exit packages on retirement. When Tata Sons wanted to reward TCS head S. Ramadorai, it gave a commitment to take care of his needs in the retired years. For this, the board approved a Rs 3-crore pension for him. Says Anand Varadarajan, partner of ESP Group, an HR consultancy firm: "Pension is seen as a loyalty measure. In many organisations, on completion of 10 years one gets a substantial jump in the pension amount."

It has been observed that in certain companies key people are promoted to the next band just before retirement. This increases their basic salary, resulting in increased pension. For long-serving senior employees, companies provide additional facilities such as medical expenses for self and spouse till a certain period. Even after the death of self/spouse, medical expenses may be borne in full or in part. Some perks like permission to use the clubs/resorts/holiday homes where the company has membership are also extended.

Many HR managers say entry bonus and pension plans are increasingly becoming a part of the overall retaining strategy. Says Rajeev Gupta, vice-president, Fujitsu Consulting India: "More than salary, it is something else. Who doesn't love to hear these words and if one doesn't work for money describe in 50 words what does one work for?"

Entry bonus, pension plans, soft perks-all contribute to keeping the talent engaged effectively. Anil Noronha, senior vice-president and HR head, Ashok Piramal Group says that he might provide an entry bonus selectively for key leadership positions. "Context matters while deciding on the entry bonus. It is used as an exception depending on a potential employee's needs at that given time," he says.

The major objective of the pension or retirement plans is to generate a steady monthly income. Many companies also attach the stocks and share-value to it. Pension plans are ideally linked to the salary component and the shareholdings. A component like medical coverage could be an attraction for the senior management staff. The pension could either be monthly or lump sum.

According to Anand, an entry bonus most probably helps in getting/buying a new house. "Though employees may not inquire much about the pension plan when they join, this gains importance as you stay put in the company and look to be rewarded for your loyalty," he says.

Says Rajeev Gupta: "We probably need to change the definition of retirement plans. Retirement may not be always at 65; it could even be five years from the joining date. This would make retirement plans serve their purpose in retaining people."

According to Noronha, the notion of what constitutes a fair compensation is rapidly changing. In hot sectors, compensation moves up by an average 15 per cent a year, but actual wage bills of companies probably double in less than three years. That is because of the limited talent pool, especially at middle management and above, coupled with high attrition.

ESOPs, gratuity and leave encashment plans at a level that are better than the market norm form an integral part of a value proposition at almost all levels. These days aspirants ask questions about pension or retirement benefits before joining a company. "Annual salary increases will rarely lead to the kind of wealth creation that a good ESOPs plan. At more senior levels people definitely are aware and want to know if companies offer such plans. Flexible gratuity plans is another area of interest," says Noronha.

Finally, the sustainability of bonus or pension plans will depend on two factors. If the business continues to grow at reasonable pace and other organisation continue to aggressively recruit talent, the organisations will have no option but to develop high walls so that employees cannot be lured away. Says Gupta: "We are of the view that we would be in line with the industry. However, it is evident that the cost advantage of India is getting eroded. Sooner or later all organisations have to establish and operate within a framework of core values and business needs."

As India powers to become one of the top five economies, the dream jobs list is getting longer every day and corporates are struggling to find and retain talent. While job dissatisfaction, career growth or pursuit of higher education are oft-cited secondary reasons for leaving organisations, the fact remains that executives are increasingly getting restless, especially in the hi-tech industry. This leads to a situation where many change their jobs for the sake of change, fully aware and confident of managing associated risks.

HR managers say they face fresh challenges when it comes to devising a satisfactory package for a CEO. Noronha says that apart from great negotiating skills, providing flexibility that meets the employees' unique needs within the organisation framework is key. "Throw rigidity out of the window during salary negotiations, as that may put off potentially good leaders at the fag end of the hiring process," he says.

Says Gupta: "A CEO would look at something more than a high salary package with the typical heads and perquisites." Some aspect of a CEO's salary could be based on revenue growth and incremental profitability. Soft perks include travelling on select premium airline, the car type and free membership in an elite club; indirect corporate perks include tax-free housing loans and high medical insurance for family.

One could also link a CEO's salary to the shares of the company. The challenge is to make him an investor. The more he invests in the organisation the more he reaps. The toughest challenge today would be satisfying the CEO's 'esteem and self actualisation needs'.

A noticeable change, according to HR managers, is that today employees at all levels want to contribute and do engaging work. Fixed notions on retirement and policies do not work. This phenomenon is largely due to the exciting opportunities an emerging economy provides. No wonder then attrition at leadership levels in Asia is the highest considering we make the highest investment in leadership learning and development.

Research shows that people stay in organisations for reasons such as a chance to learn and grow, a good boss, and a meaningful and challenging work environment. Professionals in the middle management levels, particularly with 2-4 years of experience, are more focused on self-growth and the reasons for job dissatisfaction are not driven by salary and perks, but mainly by lack of exposure and development in the job. Beyond that, building a loyal workforce includes things like flexibility, fun on the job, and the feeling of being respected.

Back