Right Rewards for Retention 

The post pandemic recovery by organizations in India saw an acceleration towards digitization. Hybrid working models and need for faster and easy access to information led to the development of several digital platforms. Not just this, the Tech industry expanded beyond the Products, Services, Ecommerce and Captive organizations. The birth of new Tech & Product organizations made technology a horizontal cutting across industries.

This created a high demand for technology talent in India and raised the attrition numbers. Organizations invested in technology talent (hired, upskilled, reskilled) and made all attempts to retain them. In 2022, the attrition and movement of talent resulted in compensation numbers surging high. When there was a flush of investments, organizations were only concerned about retaining talent at any cost. However, in 2023 it is important for organizations to take a holistic rewards approach for retention. A holistic approach includes Contractual, Experiential and Emotional aspects bringing together the elements of Compensation, Benefits, Careers, Wellbeing and Purpose.

At the Contractual level, the compensation needs should be aligned with the right specialization and percentile position in the market. Best in class benefits which are valued help create the right value proposition to retain talent.

Experiential aspect would include showing career alignment for the employees to the larger work done by the organization and also it is important to define career ladders with clear visibility for progression. Wellbeing is another critical experiential aspect which creates significant impact for retention. Wellbeing initiates to address employee lifestyle and work-related challenges. The Emotional aspect would require communication of the organizations purpose and an alignment with the individual’s aspiration.

The holistic rewards approach help create a better employee experience (EX), by retaining the right talent and delivering their best performance.

Mercer recommends analyzing employees based on three sharp lenses to arrive at the retention framework. These 3 lenses are Performance, Specialization and Criticality.

01 Performance: Performance lens refer to retaining the TOP performers based on last 2- or 3-years performance ratings and the performance management system can be a crucial input for it to happen. The recommendation from the HR team on behavioral inputs are also critical.

02 Specialization: The specialization lens refers niche skills and are based on the market demand. The identification of skills which are very niche and in demand, as per the market data, is an important step. Additionally, new age skills and skills that are new to the organization’s tech road map should also be considered.

03 Criticality:  Criticality refers to employees who are critical to the project or assignment and the identification of talent who have the core competency to perform the job effectively and efficiently. Recommendations from Business leaders form an important input.

While working with the retention framework, it is also important that retention has to be carefully examined using employee personas. These personas can be based on performance shown and skills possessed. While “TOP Performers & High Demand / Niche skilled” employees are definitely personas to be focussed, “Solid Contributors” (or the massive middles) are important for smooth running of business, hence targeted retention measures on “solid contributors” are also essential.

Numbers 01 & 02 indicate the top performers while 03 belong to the solid contributors and 04 indicates those with high demand skills. The order of priority to retain can vary for every organization.

A more detailed approach to look at employee persona-based retention is to combine the above two (Performance & Skills), with defined attributes, such as longevity in the organization, background of changing jobs and those who wanted to prove themselves in the organization year on year.

Based on these, the personas for employees can be defined as Starters (new joiners), Free Agents (those who have the background of changing jobs frequently), Long term Loyals, Strivers (those who want to prove their performance and grow) and Managerial Core. These personas can be combined as shown below:

The reward tools for retention can be monetary (cash) and non-monetary (including new age benefits, flexibility in policies, wellbeing, showing career progression and lot more). The need is to brand the organization, communicate more with a targeted messaging to the employees. The focus on this section should be more on cash-based retention schemes, however, some organizations do combine cash with equity (RSU/ESOPs) in these retention approaches to show effectiveness.

01 Performance Based Payouts: It is based on performance ratings - higher % of bonus offered to employees with higher performance ratings. The bonus paid can be a booster in case there’s a consistent high performance over 2 to 3 years. This approach will need to be aligned with the organization policies and should ensure continuous intervention for 2-3 years.

02 Retention & Sign on bonus: Retention bonus refers to the lump sum amount given after completion of certain tenure for existing employees – usually 12- 18 months. Typically, 10% -20% of CTC for entry level IC’s (individual contributors) & entry level managers and 10%- 25% for mid-level managers and mid to Sr. level Individual contributors.

Sign on bonus is also a lump sum amount paid to new joiners post completion of certain tenure in the organization – 6 to 12 months typically. These bonus elements are not tied with performance of the employee.

03 Guaranteed & staggered bonus: Guaranteed Bonus is a fixed percentage of overall bonus paid unconditionally while the remaining is paid based on performance or target achievement. Moreover, staggered bonus payout is the payment of variable pay to employees in a staggered manner ranging over a certain tenure.

04 Market Based Adjustment:  Market based adjustments require identifying the gap to market and aligning the salaries at the time of joining / acquisition. These adjustments can be given as an increase in CTC (cost to company) often referred as skill premiums or added as a plug-in component called skill allowance. Market based adjustments can also be conducted in case of major movements are observed in market compensation These are dependent on skill differentials offered in the market.

05 Differential positioning: This refers to positioning of compensation points for hot/ critical roles in the organization higher than other roles. This ensures having a differentiated compensation positioning for critical roles as P66 or P75 compared to rest at P50 and this approach is also dependent on compensation movements seen in the market.

The retention tools can be effective if practiced at the right frequency and with the right intend. Below are some illustrations of how these can be practiced.

Additionally, the retention tools can also be applied to employee personas as shown below to ensure effective retention. This is an illustration and a similar one can be proposed based on an understanding of the individual organizations personas and focus areas.

The year 2023 has already shown signs of being different from the previous years. There is no rush to hire for growth or attrition. The attrition numbers for organizations have come down (much within the 20% for Hi-tech sector). Growth from an India perspective looks promising with organizations focused on moving jobs to India, for best cost control and governance. This will lead to a planned and better approach to hiring.  

The possible signs of a slowdown have made organizations to cut down on budgets including merit increases and discretionary spends. This means that the available budgets will need to be focused on right hiring and right retention. Proper frameworks and approaches will help organizations to leverage the budgets efficiently for retaining the right talent.

This point of view paper focusses on cash-based retention programs executed over 1 to 3 years. It does not cover Equity as an LTI instrument, while some organizations do combine & practice equity (RSU/ESOP) in lieu of cash for retention using approaches discussed in this paper.