After slowing recruitments and becoming frugal with pay hikes, companies are now looking at using the variable pay tool to cut costs.
MUMBAI: After slowing recruitments and becoming frugal with pay hikes, companies are now looking at using the variable pay tool to cut costs.
Variable pay is a component in the salary that’s linked to performance, both of the company and the individual. So, it isn’t a fixed payout and allows companies the flexibility to decide what percentage they want to part with.
With the global economic turmoil sending ripples of fear across companies, this component will become bigger but the payout will become smaller, much less than 100%, feel human resources consultants.
Yogesh Saigal, a New Delhi-based HR consultant, said, “Some companies give variable pay in January while others give it in April. This time, there won’t be full payout of the variable pay.”
In recent times, the fixed to variable ratio has started tilting in the favour of the latter. Ideally, the fixed to variable ratio should be 90:10. But recently, it has shifted to 80:20 and even 70:30. In some cases, especially in insurance firms and salaries of sales executives, the fixed to variable ratio is even 50:50.
When the going was good, the percentage of payout used to be pretty good, between 80% and 95%. “As the slowdown is hammering the margins of companies, variable pay will not be given in totality,” adds Saigal.
Marcel Parker, chairman of Bangalore-based HR consulting firm Ikya Human Capital Solutions, feels variable pay will remain popular among companies as a salary component. “But employees might get two-third or even half their target variable pay,” Parker says.
For example, if an employee’s cost-to-company (CTC) is, say, Rs 75,000 per month, and the fixed to variable ratio is 80:30, he would probably get just half or two- or one-third of the 30%, depending upon his company’s performance.
As if this isn’t enough, the payout will also suffer as companies raise the bar for an employee’s performance. “Companies, especially from the IT, banking, insurance and financial services domains, are weeding out employees on the basis of low performance.
They are raising the metrics through which good performance is measured. So it will be tougher for employees to get their share of the variable pay,” says Surabhi Mathur Gandhi, general manager (permanent staffing) at staffing firm TeamLease Services.
Not surprisingly, companies are mum on the issue of variable pay shrinking. An HR official of a financial services company in Mumbai says it’s early to comment on the changes in variable payouts. But the official admits, “Of course, it will be affected.”
g_priyanka@dnaindia.net
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