Wednesday, October 14, 2009

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Companies may switch to 'flexible' wage model to control costs

In their bid to maintain a tight lid on wage costs, pruned during the downturn, companies could move toward offering flexible employee benefits while restoring the compensation structure that had been changed as part of salary freezes.

While salary increments are beginning to be implemented as things look up, the sharp growth in benefit costs, mainly in double digits, could see more flexible benefit schemes where the costs are shared between the employer and employee, says consulting firm Watson Wyatt.

Watson Wyatt, which recently conducted an employee benefits trends survey across 12 countries in the Asia-Pacific region, including India, found that there is an increasing trend to provide flexible benefit programmes for employees where they can choose the benefits they value the most.

But the survey also threw up an interesting fact: China and India stand out as countries with the highest percentage of having corporate benefits strategy - 84% and 79%, respectively. The costs in providing benefits, however, are rising.

“It is very much the case that employers are facing double digit increases in healthcare costs and premiums in India,” said Kulin Patel, head of benefits practice in India, Watson Wyatt. “Among companies we have interacted with and collated data, we frequently hear of premium increases of 10% to 20%,” he said.

Watson Wyatt is one of the world’s leading business partner to most organisations on people and financial issues and has provided solutions to many Indian companies.

As the cost of group health insurance has jumped 15-20% in the past 12 months, cost-conscious managements are now asking employees to share rising health insurance bills, which were earlier footed entirely by companies, as part of employee benefits. While traditional benefits still dominate, flexible benefits scheme are gaining favour, said industry executives. According to Essar Group president (HR) Adil Malia, all compensation structures are market-focussed and dependant on the industry. “A structure for the oil and gas sector would be different than from that for a BPO business,” he said, adding that the performance-linked incentives and benefits would be linked to the performance of that company and the market. “We devise salaries such that 15-20% constitutes the variable component,” he said.

The Essar Group has diverse interests including steel, oil, power, shipping and BPO, but wages add up to only 2% of its total costs.

It is also seen that companies design benefits programmes to attract and retain people. Private medical insurance and additional annual leave and pension schemes are some of the most popular schemes. Retirement schemes, medical screening, life insurance, and company car feature are some of the benefits that companies could likely provide. While benefits like gratuity and provident fund are based on the basic salary element, overall value of benefits may be expressed as a percentage of the total cost-to-company.

The Watson survey said that as a percentage of payroll, 39% of the companies in India spend less than 10% of their payroll on benefits, while 35% spend over 20% of the payroll.

This means that there is a wide range of the benefit spend, compared to payroll, said Mr Patel. “It also means that there are more companies in India that provide less than 10% of payroll than in Asia Pacific. Despite this data, it was marked that employers felt that value of benefits were not undervalued as much as in other parts of Asia,” he added.


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