Campus aftershock: Firms forced to redraw pay structures

Mumbai: Even as graduating MBAs fling their hats high to symbolise their placement success, companies are putting their thinking caps back.

Why? It might have been a bumper year for the MBAs bagging mouth-watering
salaries, but companies are now trying hard to maintain salary equivalence amongst the existing employees.

“Companies have hiked salaries by 10-20% for entry-level management trainees (MTs). The existing employees’ salaries will be hiked in accordance with their performance and experience,” says Varda Pendse, director, Cerebrus Consultants.

Take the Indian Institute of Management-Ahmedabad (IIM-A), where the average salaries to MTs increased by 23% from Rs 7.8 lakh in 2005 to Rs 9.72 lakh in 2006. In effect, an existing employee hired last year at Rs 7.8 lakh will have a little math to do about his salary raise.

Ideally, his salary should be raised by 43% to maintain at least a 20% difference between him and his junior. So the company will have to revamp packages across the board to maintain parity.

It may sound hunky-dory, but the reality is different. “It may be a good deal compared to freshers. Our salaries are being hiked; but proportionately, our two-year experience should also be compensated adequately, which is not happening,” says Chandan Churiwal, a 2004 alumnus of IIM-Bangalore.

Not wanting this molehill to turn into a mountain, companies are wielding different strategies. Like increasing the variable component in the recruits’ compensation to ensure a linkage between performance and pay, adequately compensating the old boys on the basis of performance; putting in place more rigid selection procedures and scaling down to second-rung institutes that come cheaper.

Kotak Securities ensures that its new recruits’ pay packets have a high variable component. “If we pay an MT Rs 3.5 lakh, he could look at Rs 6 lakh if he is a good performer. We place emphasis on performance and award bonuses accordingly,” says

Anil D’Souza, vice-president and head, human resources, Kotak Securities. He feels the existing employees have to be paid something more attractive than what is being offered to the newcomers. That’s why, depending on the institute they hire, Kotak’s offerings range from Rs 2 lakh to Rs 8 lakh.

This year, Heinz hired MTs, and enhanced its annual compensation almost 33% from less than Rs 2 lakh last year. After probation, it’s strictly pay for performance.

“Experience alone doesn’t differentiate salary levels. Employees are set specific measurable goals, which are captured in their performance management and development process, so that they know exactly what is expected from them,” says V Mohan, vice-president, HR, legal and company secretary, Heinz. With a mix of fixed and variable pay, new recruits and veterans have to deliver results to be eligible for a generous bonus.

Tata AIG Life, on the other hand, has awarded a handsome compensation to tide over the inflated salaries offered to MTs. “We’ve taken care of our earlier batches, respecting seniority. If one talent group has really become expensive, then we do specific salary corrections to retain them,” says Vikram Tandon, director, HR, Tata AIG Life.

However, many employees feel the difference is not too much. “It depends on the rating and performance appraisal. But the difference is not that huge and it doesn’t compensate for that extra one or two years’ experience,” says an IIM-Indore alumnus.

As a result, the attrition rates are inching up. A 2004 IIM graduate working with a leading private Indian bank says, “Within the first year, 40-50% of my batchmates changed their jobs due to the parity issue. By the second year, about 15-20% were on their third job.”

That’s why many companies are forsaking their hiring options from premier institutes to the second and third rung. Dhananjay Bansod, HR head, Deloitte Haskin and Sells attributes it to the MBA fever and a robust economy. “In a global environment, there is a need for a better horse powered mind to be able to grapple with that,” he says.

Many companies including Kotak and Cerebrus have hired largely from smaller institutes like Symbiosis in Pune, Welingkar in Mumbai and Management Development Institute, Gurgaon. According to Kotak’s D’Souza, his company, which once hired 17 MTs, signed 120 this year.

Pendse believes that students from second-rung institutes are equally good. She says,

“Often, their profile is better than the average profile of the first rung institutes.”
D’Souza adds, “You see the hunger in them to prove themselves as they don’t have a pedigree.”

Unlike the top-rung students whose priorities include consulting and overseas jobs, the second-tier alumni are more amenable to even sales or product management offers.

Such dissonance issues even out in the first couple of years, feel companies. “After that, it’s how fast you can run. More than the pedigree, the performance differentiates the employees,” says D’Souza.

Clearly, despite the salary euphoria, it all boils down to living up to the money they make. “Otherwise they won’t survive,” warns Pendse.