The wage bill of leading companies (that make up the index of BSE 500) rose by 16 per cent in FY 13, while their revenue was up by 11 per cent and profit by 7 per cent ( Business Line, June 30 2013). Worse, sectors at the bottom of the profitability table had to bear the maximum hikes. For example, computer education sector witnessed the highest increase in wage bills (38 per cent) despite a substantial decline in revenue and profitability. Telecom, refineries and mining were other sectors that took a hit on account of wage hikes. Recent monetary tightening measures by RBI to tame the rupee slide will put further pressure on the margins of India Inc by raising the cost of borrowing.
Ideally, compensation of a worker – skilled or otherwise – should be equal to its marginal productivity, or at least have some correspondence with its productivity growth. Ignoring this would adversely affect the cost competitiveness of businesses in domestic and overseas markets.
However, in practice, wage is determined by supply of and demand for a worker, more so in the case of skilled or high-skilled workers. According to a recent Boston Consulting Group (BCG) report, only 17 per cent of those joining the workforce are skilled. Out of that, only 5 per cent are high-skilled, while 64 per cent are very low-skilled. No surprise, over 65 per cent of Indian firms face difficulty in finding suitably skilled personnel.
Yet, there is always pressure to raise the compensation of employees each year. Poaching of talented employees is a common threat for all corporates. Thus, not matching wage hikes in line with the industry average will see the quality workers leaving their employers. Their replacement often costs 15-50 per cent higher, in addition to the extra cost in terms of time and money on new recruits.
On an average, to recruit one skilled worker involves scrutinising as many as 100 CVs and 2-6 months of lead-time. Therefore, corporates go for salary hikes to retain their skilled employees, even when there is little financial justification.
Picking the right persond
Since wages cannot be brought down in line with the financial performance of a company, it makes sense to attempt raising the productivity of employees to match the rising compensation. Raising people’s productivity remains largely a human resource (HR) issue for India Inc, at least in the short run until supply (of skilled workers) situation improves.
Further, frequent job change by young employees (who have high expectations in terms of monetary and non-monetary rewards) is a reality that corporates have to live with. India Inc should devise ways to maximise gains from its increasingly short-tenured employees, by having focused goals and clear expectations.
It would help to encourage the formation of an alumni network of current and former employees. Such networks will help corporates in understanding the emerging industry trends, sharing ‘competitive information’ or rehiring.
Firms should select employees who are self-driven and love their jobs, rather than want any job or what they can get at campus placements. An employee in love with his job will always be more productive, irrespective of the tenure of his or her stay at an organisation. It would be quite difficult to find such employees, though.
Corporates should engage executive search firms specialised in designing customised tests and interviews to judge the suitability of candidates for specific roles. In addition, given the collaborative role of social media of sharing knowledge, comfort with social media can be an added advantage.
A recent employee engagement survey of Indian corporates indicates that on the average, only 9 per cent of employees remain actively engaged, compared to 33 per cent as actively disengaged.
Actively engaged employees are supposed to be the growth and innovation drivers in any organisation and a key determinant of productivity growth.
HR ISSUES
To improve employee engagement, firms can devise HR policies in a way that gives sufficient autonomy of function especially to their talented young employees. Here, the control-freak micro-managers will need to forgo their traditional management style for one suited to a flatter, less hierarchical work environment. A non-transparent and subjective appraisal system drives talented employees out of an organisation depending upon the job market situation. Firms thus need to ensure objectivity and fairness in performance appraisal system to check rising attrition among their high skilled personnel.
Further, corporates need to provide visible growth opportunities and regular training for upgradation of skills of the high performance employees. Many talented skilled youths leave their jobs not because of monetary reasons but when they think, they are not growing or acquiring new skills (as compared to their peers) that will affect their future marketability or simply because they are underutilised.
Many firms believe that spending on training of employees is wasteful expenditure, as other firms will poach their trained employees. As a result, they postpone it for the good times when financials are favourable, with negative consequences for growth of people’s productivity.In the long run, increasing the supply of skilled workers, will keep the wages under control.
However, expenditure on training of personnel as a percentage of revenue remains abysmally low (0.05 per cent) in India’s manufacturing sector. This is somewhat higher at 0.25 per cent in the services sector but still very low given the challenges of operating in a globalised business environment.
SKILL DEVELOPMENT
Given the nature and scale of the problem of skill deficit, efforts of the National Skills Development Council (NSDC) will not be sufficient. It is time corporates, especially large ones, got into education and skill development in a big way. The Government can encourage their efforts by making expenditure on training and skill upgradation as part of expenditure on CSR activities. In a talent-deficit, service-oriented economy like ours, it is indeed a CSR activity. Many of our graduates suffer from unemployability, as there is a clear disconnect between formal education and industry requirement, mainly caused by non-involvement of corporates in the design of educational curriculum.
Involvement of India Inc can address this problem, in addition to inducing existing educational institutions to adjust their course curriculum in line with the requirements of the job market. However, in the short-run, better talent management is the key to survive in a period of rising wages and almost stagnant productivity.
(Singh is Group Economist of a corporate house. Prasad is a change management professional. The views are personal.)