The future of Compensation and Benefits

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C&B is one of the most dynamic fields in HR, constantly evolving into something new. From a fairly simple start up-to the early ops- when it was viewed primarily as a tax-avoidance and maintenance function – it has now become a visible tool for talent management and performance management while of course continuing to play an important role in compliance and governance.

To more fully understand how C&B is going to transform in the coming years, we first take a look at what’s happening on the macro talent landscape.

Increasing focus on skill acquisition and development, as opposed to mere qualification acquisition. While some students will continue to chase certain qualifications for reasons of status and recognition (the classic conundrum of parents pushing for engineering and medicine!), there are increasingly courses available that address specific skill needs and play to individual strengths. Mass customisation has come to education as well – thankfully – and there is a surfeit of choice.

Greater accessibility of these education options at different stages in the career life cycle: Coursera, Lynda, Udemy, Khan Academy and several others have effectively democratized education and made it available to all. Education is now no longer something that you “finish” with before you start working.

Careers are shortening. Most of us will not retire from employment at age 60 years. Paradoxically, we will retire from employment well before that age, while we will ironically continue to work well past that age! Look around you and you will see people working well into their 70s and 80s – as long in fact as their health will permit.

Improved standards of health and sanitation mean that people will live longer. This has two implications:

  • A general trend is that as people live longer, marriages/ longer-term personal commitments get delayed and the birthrate falls. A classic example is Japan, where 26% of the population is now above age 65 years and 33% above age 60 years.
  • People will have more than one career in a lifetime, owing to choices being available and also skills going obsolete over time (stenography was a viable career choice until the early 90s; no one really studies it now, but a large number of secretaries are super skilled at power-point and excel, and that’s just for starters).

The rethink of the classical organization paradigm. Organizations are already moving to flatter and non- hierarchically structures, experimenting with matrix and team organizations to better serve customer needs. Semco from Brazil was a pioneer in this area in the 90s and the practice is spreading more widely: selection interviewing by a peer group, internal transparency on salaries, etc are all forcing clarity in C&B principles.

Globalisation of careers: every career will have at least 1 or 2 jobs outside the home country, for reasons of enhancing experience, increasing the stickiness of talent and improved succession planning.

Simplification of tax codes in various countries is resulting in easier compliance and governance and elimination of the need for complex C&B structures.

The sum total of all these changes- taking their interplay into account as well – is going to result in several deep-seated changes in C&B practice:

Transparent pricing of skills and capabilities, over mere qualifications. As proficiency in skills becomes more granular and visible, organizations will need to better price the value of these skills via the contributions that these skills make to business performance. Higher visibility of pricing decisions will drive skill demand.

Governmental initiatives like Skill India – a great and overdue initiative – will also have to take note of these pricing decisions and tailor their offerings accordingly.

A much-neglected area of C&B practice currently in the Indian context – pricing of the skills acquired by students in ITIs is – may become high impact, especially in technology-intensive sectors like automobiles and engineering.

Superior skill acquisition will demand differentiation. This is an area that requires serious attention. While every individual and organization agrees in principle that differentiation (not discrimination) is desirable and rewards superior performance, there is a great deal of debate on what constitutes a superior performance, what drives it and what constitutes a fair differentiation. To be sure, the nature of the capability or skill drives the degree of differentiation: a great strategist may be worth 10x of a good strategist, but a great mechanic may be worth, say 2x of a good mechanic. That said, performance management and assessment systems are not transparent enough (very generally speaking) to support such decisions. This is an area where C&B could deliver huge value. 

Variability will increase. Especially in capability driven occupations (as opposed to pure skill-based occupations), the trend will be towards 100% variability. If that sounds extreme, consider this: certain executive search firms already remunerate their senior employees on a 100% variable basis. The individuals in question draw a monthly amount, yes, but this is adjusted against the earnings that their activities generate for the business on an ongoing basis.

Tenures will become less important. This is already the case – people are not rewarded for length of service alone – but the length of service continues to play some role on an informal basis. As people switch careers every 4-5 years, this will become increasingly irrelevant. C&B will have to focus on the here and now of what is offered to the business by the individual and the value of that offer.

C&B will need to continually stay abreast of international trends to reward international talent globally. Indian C&B has some unique features driven by a high domestic inflation rate and an implicit assumption that salaries must increase annually. This is not a universal truth and companies will start moving away from this model over time. There is also an expectation that compensation must increase when you go abroad, and further increase when you come back. The reality is that markets with a high inflation rate revise more frequently and those with a low inflation rate tend to revise less.

Tax codes will continue to be simplified and aim at the greater expansion of a taxpayer base. Accordingly, it is possible that at some time in the future, we may see a situation where a remuneration package has 2 or at the most three elements of pay in it- one fixed, one variable, and one retirement benefit. This will probably hit old economy companies the hardest as they will need to transition the quickest to manage their talent.

The function is headed towards more exciting and turbulent times and represents one of the more exciting spaces to watch in the HR function in the near future.

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Sameer Nagarajan, Ex-Vice President, Head- Human Resources, Dabur International Limited. He completed an MBA in HR from XLRI Jamshedpur in 1988 and has a proven track record in Strategic Business Partnering and leading teams to deliver organizational outcomes. He is particularly interested in Organisation Efficiency and Talent Management with a specific focus on Capability Development and Leadership Development and has a wide intercultural experience spanning Asia and Europe.

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