Pay an ineffective retention tool: PwC

Employees prize job satisfaction and career growth.

A new study by PricewaterhouseCoopers (PwC) of long-term incentive plans of leading companies in India shows that 89 per cent do not rate compensation as one of the two most effective tools for retention.

Instead, they rated 'job satisfaction' and 'career growth' as the two most effective retention tools for their organization. In fact, 35 per cent of the companies surveyed rated compensation among the two least effective tools for retention.

Fifty-two per cent of the companies were in ITeS, 16 per cent in banking, 12 per cent each in IT and consulting, and eight per cent in insurance.

They were rated on their use of long-term cash-based and equity-based plans such as employee stock option plans , employee stock purchase plans, restricted stock unit plans and phantom stock.

The study found that long-term incentives or LTIs are favoured by more and more companies, as they struggle and retain talent to support their growth: 72 per cent of the companies offer at least one type of LTI to attract, retain and motivate employees.

Organisations are focusing most on their middle management. The thinking behind this is that it is this that constitutes the leadership pipeline; companies are therefore willingly investing in and nurturing them.

Eighty-nine per cent of companies offering cash-based LTIs offer it to middle management, and 78 per cent of companies offering cash-based LTIs offer it to junior management.

For top management and senior management there is a focus on equity-based plans, whereas LTIs for middle and junior levels are more cash-based. Fifty-nine per cent of companies offer equity-based LTIs to top management, as against 25 per cent offering cash; whereas for junior management, 29 per cent offer cash-based LTIs and none offer equity. In middle management, 34 per cent of companies offer equity and 34 per cent offer cash-based plans.

Smart companies take a holistic view in identifying their critical talent, by developing a robust and structured process to assess performance and potential.

Eligibility for long-term reward is based on a combination of performance and assessment of potential. While 42 per cent of firms use performance and other measures to determine eligibility, only two firms had structured processes to assess potential.

An important finding was that compared to global trends, in India there is a weak linkage between long-term reward and overall business results. The annual bonuses awarded by companies have a far better linkage with company performance, as compared to LTIs, which are seen to be de-linked from performance.