Short term incentives are here to stay post Covid-19 pandemic: Study

Short term incentives are here to stay, even post the Covid-19 pandemic in a bid to retain talent.

According to a recent Mercer India study, Indian organisations have taken progressive incentive-based measures to attract and retain talent during the Covid-19 pandemic.

As per the study, 97 per cent organisations have an active short-term incentive plan for in-year performance recognition.

The study titled ‘Leveraging Incentives for Competitive Advantage’ was conducted in the current financial year and covered 41 organisations (representing over 3 lakh employees) pan-India. It included corporates across industries such as consumer, chemicals, life sciences, IT services and Internet-based/ e-commerce industries.

The objective of this maiden study by Mercer India was "to understand structural nuances of the incentive structure of organisations and gauge how they are designing their incentive plans, especially post-pandemic," it said.

Findings

As per the study, as work dynamics and employee expectations evolve, respondents stated that it was imperative that the human resources team structure the short-term and long-term incentive plans to ensure that the incentives were "aspirational, sizeable, and fair and simple, while also being achievable."

Mansee Singhal, Sr Principal, Rewards Consulting Leader India, Mercer India said, “What is clearly observable from the study, as well as our extensive conversations with our clients across industries, is that there is a distinct correlation of the pay structure with the evolution of the organisation."

"In its initial years, the focus of the organisation is on Base Pay and Long Term Incentives to cater to short-term realities around talent attraction as well as build on long-term growth expectations of the organisation," Singhal said.

Singhal further added, “Ultimately, incentives should be based on the back of a clear, transparent process of individual and organisational performance assessment – failing this, even the most creative plan design will not yield the appropriate outcomes.”

The pay structure of an organisation becomes more well-rounded as the organisation grows and matures – both in terms of business models, cash flow consistency as well as people practices.

With this, the Base Pay will serve as the anchor for driving competitiveness and based on the position of employees within the organisation, along with Short Term Incentives recognising in-year performance differentiations and Long Term Incentives, enable multiple mid-term objectives such as retention, core performance goals achievement etc.

While the Variable Pay is largely determined by both the company’s and individual employee’s performance (88 per cent and 82 per cent respectively), the employee’s performance primarily defined the sales incentive payout to the tune of 71 per cent, according to the report.

"As is prevalent in most cases, revenue and profits were performance metrics determining variable payout, while commission-based and quota-based payouts were the most sought after sales incentives," it added.

Team performance is increasingly becoming one of the key parameters for assessing performance. Though the study advised organisations to define what a “team” is with caution.

Objectives for long term incentives

In terms of long term incentives, the most prevalent objectives of offering long term incentives include employee retention and enabling wealth creation for employees.

However, the study further observed that organisations were progressively moving away from hierarchy for eligibility.

"New-age organisations and startups seem to be following differentiated practices, such as discretionary grants, ESOPs, appraisal-based grants etc. primarily for ring-fencing critical talent and providing liquidity to employees," the report said.