Recession: How Flexible Compensation and Rewards Strategies Help

Recently, I met a HR friend of mine who works for a renowned IT services firm in India. As its so usual these days, our talk slowly drifted into the realms of the economic slowdown and its impact. In spite of the tremendous beating that the services industries had taken during the year, his company continued to make profits without resorting to any sort of extensive layoffs or fancy cost cutting measures.

More interestingly the company managed to dole out bonuses to all employees ( around 50, 000 of them) during the worst quarter. Apparently the company made some significant changes in its compensation structure just before the slowdown set in - i.by increasing the proportion of the incentive pay in the overall salary lay out.

This was followed by major changes in the job descriptions of all leaders in the organization - which included improving team performance, increasing the Utilization Rates ( a major parameter which depicts the exact proportion of employees engaged in software development work - closely linked to Productivity), and fostering Innovation ( Bright Ideas for Dark Days!).

The above is a good example of how an adaptive Compensation Strategy has helped organizations successfully tide over tough times.

Here are some lessons that the Recession has reinforced on Compensation Managers:

• Customer Value: A good compensation and reward strategy should inspire employees to enhance customer value ( and Shareholder Value). This, perhaps is the ultimate aim of such strategies.
• Performance Oriented: Organizations today are highly performance oriented; hence a compensation strategy that is not visibly Performance Linked would fail to attract, retain or motivate employees.
• Flexibility: Though compensation strategies are expected to be robust and closely linked to the organizational goals, its also essential that such plans are also flexible enough to handle external situations which may be totally outside the control of the firm.
• Communication and Trust: Also its important that employees are aware of their organization's compensation rationale and that they are taken into confidence before any significant changes are planned in the overall pay structure. Such Transparency will breed trust and avoid the unnecessary rumours that often make their rounds during tough times.