Covid-19-induced economic uncertainties: ‘Salaries to have more variable, profit-linked pay’

An increasing number of companies are rejigging salary structures, across the board, to lower the fixed component and raise the performance-based variable component. In these uncertain times, organisations are looking to link salaries to the performance of both the individual and the business.

As Amit Vadera, AVP, TeamLease Services observed, the pandemic has accelerated the shift to linking pay with performance. “The variable part of the salary is becoming bigger with employees being judged on their KRAs and paid accordingly,” Vadera said.

Viswanath PS, CFO, Randstad India, pointed out that companies can no longer afford to pay the salaries they used to because the pandemic has disrupted earnings. He cited a March report from Deloitte which found that nearly a fourth of companies surveyed had changed their salary structures to raise the share of performance-linked pay.

Hitherto, HR consultants explain, this structure was reserved typically for those working in sales or senior management or where there were stiff business or financial targets. But now it’s the rule rather than the exception. Siddhartha Gupta, CEO, Mercer Mettl told FE given business risks are rising especially due to Covid-19-induced economic uncertainties, the performance-linked pay structure is the preferred option. In his view the performance of the business is now being aligned with individual remuneration and an individual’s performance with profits.

As Randstad’s Vishwanath put it, there is a shift taking place from “pay for presence in office” to “pay for performance”.

“Earlier people could do some work from nine to five and get paid but now measurable productivity is key,” he said.

Consultants say companies need to keep their costs variable to the extent possible so that they have the flexibility to negotiate the ups and downs. As a result, when revenues are up, people are better rewarded but when business is bad due to reasons beyond control, the costs are kept in check.

Krishna Prasad, senior director HR (India & APAC), Skillsoft believes there is a need to redefine some of the existing practices and processes and that changing pay structures are a part of it. “It’s not how much an employee receives, it is also about how a performing employee be rewarded differently. This also addresses the employee engagement quotient,” Prasad explained.

Consultants believe the new model is a win-win for both organisations and employees and should not be seen as a cost-cutting exercise. “It isn’t that organisations don’t want to pay people but that they now want to reward them according to their productivity and performance. From an employee’s perspective those who are hard-working and high performers have nothing to worry about. In fact, it gives them room to earn more than they would have earlier,” Vadera pointed out.