Wednesday, October 15, 2008

How Much Did You Say Your Rent Was???

During one of my assignments involving compensation structuring, I was intrigued by this one question, How does one fix the Employee’s Basic Salary?

One could take an ideological (or rather Historical!!!) standpoint on the matter. Basic pay is a measure of how much the person’s skills are worth in the market. But then again, this is an idea which has outlived it’s time for reasons beyond my understanding. In the current market scenario, where employees decide to switch careers based on a few thousand rupees, Basic Pay will not count for much. Frankly, how many of us find ourselves taking pride at how high our Basic Pay is?
I will take a shot at explaining the process of structuring pay in an organisation. I will assume that there is adequate knowledge of existing compensation levels. So you know how much Mr Ganesh is being paid. You also know how (the compensation structure!) he is being paid?

If the company is in the process of carrying out a compensation review, it would be ideal to decide the strategic market positioning initially. This would give you a fair idea of how much Mr. Ganesh is to be paid.

Tax Saving Components

The Indian government has given the C&B Manager a slew of compensation components to choose from with regards to compensation structure. More popular among these being Telephone Expenses, Medicals, Conveyance, LTA, etc
The first step would be add to the potpourri all components for maximum tax saving. Most of them would have an upper limit, which is exempt from tax. More than this and the employer/employee would be liable to pay tax, IT or FBT.

Basic Pay
There are certain components which are calculated as a percentage of the Basic Pay, as per existing legal statutes. These would include the House Rent Allowance, Provident Fund and Gratuity. The next step thus, would be to fix the Basic Pay.

Now things get interesting. Say we fix the basic at about 40% of Cash to Company. Atleast everyone in the industry seems to. Time to take a different path.

Why can’t the basic be lower?
Lesser the Basic, Lesser the HRA. Lesser the HRA, Lesser the tax savings. Again, this being contingent on the actual rent being paid by the employee. For the purpose of this discussion, we will assume that the employee utilizes his full HRA.

Why can’t the basic be as high as possible then?
More the Basic, More the Retirals. More savings, but also a smaller pay cheque. It is possible for an employee to increase the statutory 12% contribution to the Provident Fund. In which case he would greatly reduce the taxable salary and increase his savings. It must be highlighted here, that the basic impacts both tax and savings. But the savings would take the spotlight, for the simple fact that the employee has freedom to increase his contribution to PF. Now if I were a newbie into the industry, I really would like a fat pay cheque at the end of the month. I would not be thinking about retirement now.

Provident Fund
The employee exercises a lot of freedom regarding his PF contribution. He is allowed by law to apportion a larger percentage of his CTC to PF, though the company is not bound to match the employee’s contribution. Hence, an HR consultant has another reason to lower the Basic.

An employee is eligible for gratuity only on completion of 5 years in his company. Again considering the amount of employee turnover witnessed by companies these days. This component becomes almost ineffectual.

Special Allowance
So now, we have two balancing forces. In comes a third player, Special Allowance. Special Allowance is usually the balancing figure in the CTC. It plays the role of rounding out the final CTC. Apart from Basic, Special Allowance is the only taxable amount. The consultant then faces the dilemma of structuring compensation based on future savings for the employee. In which case, he would increase the Basic.

Coming back to the Rent
Now we have more arguments in favour of lowering the Basic. The only factor coming in the way of relegating the Basic to a measly 2% of CTC would be the HRA. The Basic should be high enough to just accommodate the Rent the employee pays.

There are grades in the organisation which witness a higher turnover. The gratuity would not make a difference for these employees. If the organisation has the HR Payroll processing department to carry out the operation, it is imperative that they enquire about each employee’s house rent!!! This would enable them to fix the basic and hence the entire compensation structure.

If we are looking at employees going for the long haul, the gratuity would make a huge difference. But then again, 5 years in the current job market is a lifetime!

Dummies' guide to setting your goals

' .. and one last thing. Tomorrow is the deadline for submitting your goals. Just write up 5-6 goals and send them to me. I know I totally forgot about it........'

Let's face it. A lot of us have mentors or bosses who think that we can churn up our individual yearly goals like bullet ridden chevrons on a Powerpoint template. It definitely isn't that easy. Or is it?

The foundation of any performance management system is a well written goal. Without that, there's nothing you are working to achieve and thus nothing to measure your performance with. Giving a set of poorly defined goals is definitely not about cheating the system. It could in fact, be cheating you of that long-deserved promotion.

So, what should go into your goals- here's a quick guide. First, consider the different aspects that your company gives importance to. They could be among Client Service, Industry knowledge, Service Area expertise, Developing the practice, Developing the firm and Developing yourself. Some firms do give a lot of importance on learning while some others take into account your participation in firm initiatives and CSR work. Once you have this list, mark off the few you would like to focus on. While this largely depends on the company you work for, make sure you have a decent coverage of the different elements.

Now you apply the age old formula - SMART. Remember to add in information on how you would be able to measure you against your goal. For those of you who have no clue or need a quick refresher:

S- Specific- Always make sure your goal is specific and to the point. Mention the exact area of development, how you would work towards it and how it is going to be useful. Example: I will help in building the organisation by participating in recruitment activities to ensure the best talent is attracted and recruited. I will participate in at least 3 recruiting initiatives in the next one year.

M- Measurable- Like I mentioned earlier, quantify your goal in some form. Make sure that it is easy to measure your work and performance. Wherever it makes sense, add a number - number of online courses, clients, activites, deliverables, anything.

A- Attainable- Let's play a little safe. Don't go about promising the earth, the moon and the 800 billion stars. Ensure your goal is attainable, if you can stretch a little. Be practical and see that they are not entirely out of each.

R- Realistic - Honestly, can we do this? Is it too less? Is it too much? Do we have the commitment to get through it? Your goals have to be realistic and reasonable. If you make people laugh at your goals, you should have the confidence and responsibility to achieve them and have the last laugh.

T- Time bound- All goals need to have a timeline to it. While most goal setting processes occur yearly, feel free to have time lines for a part of or the entire goal. If you think you can sell 5 of those X-ray machines in 1 month, go ahead and put it in there.

Lastly, make sure that your goals are your own. Add in a personal dream like taking a class in Diversity or interviewing at your alma mater and experience the joy as you work towards it.

Monday, October 06, 2008

Why not Paid Holidays instead of Closed Holidays?

In India, we have a system of closed holidays. Typically 12 days in a year. Out of these 3 are Government Holidays, viz. Republic Day, Independence Day and Gandhi Jayanti. If as an employer you require your employees to report to work during a national holiday, you need to seek advance permission from the Labour commissioner. Now, leaving these 3, and Labour day the other 8 are religious holidays. Religious holidays of those religion which most of the workforce follow.

All of the above are also paid holidays. The employee draws a salary even though the office is closed. But typically, for a lot of these holidays, the purpose of the holiday is lost. "Kal chutti hai". "Kis baat ki pata nahin per kal chutti hai". This is the typical workforce response. Now, instead of giving a holiday for Navroz, when the majority of your workforce is non-parsee, or not giving a holiday for Id, when there are substantial number of employees who are muslims, really doesn't make sense.

At the same time not everyone celebrates Ganesh Utsav or Durga Puja. A better proposition would be to give 8 days of paid leave per employee per year. The employee can choose when to avail that. Also, the paid leave policy could be made transferable. So, if I see that I am not going to use my paid holidays for this year, I should be allowed to transfer it to a colleague who needs that holiday. Maybe for medical or personal reason. This would also go a long way in enhancing employee morale.

There are of course some shortcomings for this idea:
  1. If your work depends on the work of others, this system may not work. If the critical operator is on leave, it doesn't make sense for the rest to be at work and not do anything productive. But at the same time, this ensures that the system becomes process dependent and doesn't remain person dependent
  2. For working mothers, this may not be a very great option. Schools will not and can not have the concept of paid holidays. So, schools will choose those 8 days to close. Working mothers will have to make arrangement for baby-sitting on those days
  3. If certain religious holidays (like Holi) lead to large scale disruption of normal city life, then this concept would not work. Most people would choose to stay away from work rather than venture out and risk getting assaulted by revelers
But the advantages of this, other than the ones already mentioned would be:
  1. This takes care of every religious denomination and also the atheists. No one feels excluded as every employee can choose which festivals to celebrate and which not to. This will serve as a morale booster
  2. Typically it has been observed that when the festivals are on a Thursday or Tuesday, there is a marked decrease in attendance on Friday and Monday. This will help in curbing that trend
  3. A longer vacation period for employees
Well, the merits and demerits are open to debate. Nor would this system suit all workplaces. But at the same time, this idea needs to be thoroughly examined before either implementing or rejecting it.

Its high time Performance appraisal systems became more transparent...Some simple guidelines!

Something which will always lead to trouble in a performance appraisal system is if any one of the participant in the appraisal process is not honest. The appraisal system should be such that it is not unfair to the employee and should not be a weapon in the hands of the appraiser such that it is only based on his whims and fancies. A better approach should be to involve a larger number of people in the process or to take into account a larger time frame when conducting appraisals so that it becomes impartial. Some of the things that can be done here are:

1. 180, 270 or 360 degree appraisal programs so that the appraisal is not in the hands of a single person.
2. The organization looks at the performance of the employee over the last 3 years preceding the appraisal and if the employee has not been in the organization for so long then the total time frame is taken into account.
3. If an employee is not satisfied with the appraisal given then there should be grievance resolution mechanisms to sort out the concerns.
4. The appraiser can be asked to list out specific details of performance appraisal with examples relating to why such a rating was given.

Only when such steps are implemented to safeguard employees against the vindictive agenda of the superiors will the performance appraisal become a meaningful tool in the hands of the employer to ensure productivity and commitment from the employees.

Ritesh Sharan

What drives businesses to adopt Corporate Social Responsibility? And does it really matter what the secret agenda is?

Let’s first have a look at what the various definitions of CSR are in the context in which we are talking about it. These are the two definitions I would refer to in this article:

Corporate social responsibility (CSR)[1] is an expression used to describe what some see as a company’s obligation to be sensitive to the needs of all of the stakeholders in its business operations. A company’s stakeholders are all those who are influenced by, or can influence, a company’s decisions and actions. These can include employees, customers, suppliers, community organizations, subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, and shareholders

CSR[2] is concerned with treating the stakeholders of the firm ethically or in a responsible manner acceptable in civilized societies. Social includes economic responsibility. Stakeholders exist both within a firm and outside. The natural environment is a stakeholder. The wider aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for peoples both within and outside the corporation.

What is the first thing that strikes us here? In both these definitions we are looking at stakeholders. Not any particular (Specific) stakeholder. Both these and numerous other definitions focus on the entire gamut of stakeholders in the environment. Now the important question here is how does a company decide which stakeholder has to be given the maximum value. Or is it that all stakeholders will be given equal importance. Furthermore, if only some stakeholders are being given critical importance then what happens to the CSR philosophy. Does it become defunct for the organization or it still exists in a supposedly grotesque way. We will have a look at some answers as we go along.

Some firms believe in CSR. And they have been doing so even before the terms were coined. When we look at what the Tata’s have done in the city of Jamshedpur we can very well appreciate the fact that for some firms this entire discussion about CSR is utterly useless. They just do know what ignoring this concept means. It is in their blood and they really do not know how to work without this. Hats off to them first.

Then there are some Companies that are making profits and also contribute to some, although obviously not all, aspects of social development. They believe that surely every company should not be expected to be involved in every aspect of social development. That would be unproductive, not to mention a drain due to the costs. They believe that a firm needs to be involved in some aspects of these activities. What it provides the firm is visibility, it will make its products and services more attractive to consumers as a whole, therefore making the company more profitable. There will be increased costs to implement CSR, but the benefits are likely to far outweigh the costs.

Then there are the third types of companies which i am not really bothered about - the ones who do not understand this concept nor do they want to!! Realization will dawn one day, probably sooner than most of us realise - the day when the consumers ask a simple question Why?. Let’s wish them the best of luck and continue.

We are interested in the second category of companies and to a lesser extent the first ones because they are into CSR and we want to know what makes them do what they are doing.

Some critics of CSR, such as the economist Milton Friedman, argue that a corporation's principal purpose is to maximize returns to its shareholders, while obeying the laws of the countries within which it works. Others argue that the only reason corporations put in place social projects is utilitarian; that they see a commercial benefit in raising their reputation with the public or with government. The key challenge here is the rule of corporate law[1] that says that the organization should not do anything that decreases its profits. Because of this, it has become clear that a CSR activity generally can only be effective at achieving social or environmental outcomes if it succeeds in raking in profits. This requires that the resources applied to CSR activities must have a higher return than those resources could obtain if applied anywhere else. Though a strong logic, this means that the possible scope of CSR is drastically narrowed.

Also, this means that the stakeholders mentioned earlier are nothing but the primarily shareholders , the employees and to a certain extent the market and the rest have to deal with the remaining few scraps. But is this a problem? Let's be Honest - Definitely not. When we look at the various advantages accrued by the initiatives to the organization and to the stakeholders we see that it is definitely a win-win situation, even if the firm gains more than the others. When we take the example of ITC e-Choupal and look at the advantages it has given to the Indian farmers, we can really overlook the issue that in essence ITC is only trying to gain the suppliers market and strengthen its own distribution network for getting raw materials smoothly. Proponents of pure CSR might argue that the purpose behind the initiative should be development and not profit. But I would argue that it is better that the companies are doing something and getting returns in exchange while making a important contribution, than just keeping to their own and just sticking to the laws of the land while doing business.

They are the ones with the best of talent at their disposal which can be used effectively for such purposes and if they are making profits in a socially responsible manner they should be lauded and examples made of them. Let’s be happy that at least there is something that is making these firms do the work they are doing here.

Finally, lets face it - The Tata group of companies are a dream but the rest of the organizations are also not exactly nightmares. Let’s at least support them in their endeavours.

Ritesh Sharan




The hidden Costs of Business


Dhruv Sonthalia

Saket Sanganeria

Presenteeism is opposite of absenteeism, both are a headache for the industries. Absenteeism it refers to the absence from duty or obligation. The obvious reason for absenteeism seems illness or sickness but an employee may be absent due to many reasons. Some other reasons for regular absence are emotional problems, family problems, etc. Absenteeism cost mainly consists of payment paid in the form of wages to absent employees, additional overtime and temporary staff covers. It is estimated that the cost of absenteeism was around 12 billion pounds for United Kingdom for the year 2002. It is considered to be a major concern not only because of the actual absence of the employees, but also because the absence is without sufficient notice or justified using fake reasons.

However recently there has been a marked shift in discussion from absenteeism to presenteeism. Presenteeism is the complement of absenteeism. It refers to the problem off employees showing up for work but not being able to be fully productive because of ill-health or other problems. It is a concept close to employee engagement. Some researchers believe that the cost of presenteeism could be around 7-9 times more than that of absenteeism. Many Indian companies have also started to take note of this and are developing policies to solve it. Some believe that increasing number of days of sick leaves, better health insurance coverage and better work environment can help reduce this cost. But these are just some solutions which may or may not have the desirable effect on the cost of presenteeism.

A better understanding of the problem helps

Presenteeism exists in various forms. These forms have their specific modalities and reasons. Each of these problems give rise to a clear distinct situation. To help us appreciate the real face of the problem we need to look at it various forms in details

Working with illness

Working with illness or any other factor which hinder the performance of an employee is presenteeism. The fear of loss of income or employment on the part of the employee is a major cause of presenteeism. Many workers and employees come to work when they are ill – they work with headache, mental pressure, anxiety, and other undesirable conditions that impair their performance. The below par performance adds to cost for the employer and adds to the peril of employee. The effect may not be very serious for a person working manually on repetitive jobs. However, with the growth in contribution by the knowledge workforce the impact is much higher. Mental performance is the key to productivity and output here. Given the nature and requirement of the work, if the employee’s mind is not on the job or if he is unable to contribute his hundred percent he (she) becomes a liability to his (her) organization.

Erratic working hours and instability in work life balance

Erratic working hours give rise to presenteeism. Presently there has been a growing trend among white collar employees to devote extra hours to their work. Employees work in a culture where coming in early, working till late and battling illness is expected and required. This is done to enhance career prospects and sometimes demanded by the work culture in the organization. In many cases it has been found that the employer makes it clear to employees that working till late and reporting early is expected of them, as normal job requirement. Presenteeism disrupts the work life-balance and is like taxing the employee off his normal life. Both employer and employee are confusing between hard-work and over-work.

The rise of corporate work culture and specialisation in each field in India the problem of presenteeism is expected to engulf a large portion of the Indian economy. The transition phase is bound to demand its casualty. The employees moving towards the more organised fields are prone to presenteeism as they are ambitious and not shy to over-work. On the other hand, the managers and employers do not realise that this over work would come at a cost much higher that the revenue being generated from it. In an economy where unemployment is prevalent the employees don’t have much choice but to play by the rules formulated by the employers.

Employee disengagement and lack of motivation

Presenteeism can be viewed as a problem of employee disengagement. The productivity of the employee is low because they are not involved in the work they are doing and thinking about something else like a cricket match, a party or some personal problem. Some researchers also believe that other factors such as loss of productivity due to excess travelling (in cities like Mumbai and Bangalore) also contributes to presenteeism. However this is a controversial issue in the HR world.

Absenteeism vs. Presenteeism

Presenteeism seems to be an absolute opposite of Absenteeism. Absenteeism leads to a direct and apparent increase in cost for the business but presenteeism is no lesser evil. It may be argued upon that due to absenteeism 100% of the worker’s productivity is lost each day as the worker is not on the job and thus the cost of absenteeism is more that presenteeism, but this is not true at all time. The cost here is hidden in the sense that sometimes the cost of low quality work is higher than no work. Working under illness, anxiety or without interest prolongs recovery. Proper rest and care are very important for fast and complete recovery and rejuvenation. Due to presenteeism, employees are devoid off the time and required rest. The ultimate suffering of the employees trickles down as huge cost to the enterprise.

Many companies have been formulating policies to tackle presenteeism. Some Indian companies have used traditional approaches like improving work life balance. However their initiatives are restricted to a few policies or programs which do not last more than six months. Recently things have started changing. Quite a few organizations are now enforcing policies which lay great emphasis on the health of its employees. Employees are also discouraged to come for work when they are sick. Other practices such as encouraging sick employees to work from home are also adopted.

Moving towards a solution

The root cause

The impact of presenteeism has plagued the work culture in public sector and government run organisations. Employees attend work for the sake of attendance and are least interested in the job at hand. The effect is felt on the overall performance of the enterprise. It was believed that the root cause was improper organizational structure and work culture being promoted in these organisations but now the experts accept that as the main focus is to control absenteeism, the problem of presenteeism has aggravated.

Importance of working environment

The trick in tackling employee presenteeism is to ensure a good working environment with employee friendly strategies in place, without encouraging useless absence from work and faking illness. Many employees at Google believe that it is the flexibility and financial security offered by the company keep the employees going as they can do their best without worrying about too many things. Thus promoting a work environment which encourages creativity and flexibility helps Google tackle the problem of presenteeism. This is an example which could be followed by other company.

Importance of work culture

Managing moral is also extremely critical for an organization. A firm which has a culture of promoting intense competition and politics would have a much greater cost of presenteeism than an organization which promotes working in teams. Thus the cost of presenteeism is to some extent dependent on the culture. Managers have to improve the work environment in order to solve the problem of decrease in productivity.

Path for managers

Indian economy needs to prevent presenteeism from stepping into the normal work culture of the economy. It is very easy to stop a disease from spreading than to eradicate it later. Once the total work culture starts indentifying it as a general necessity to step up in life and to meet the requirements of their work, it would be very difficult to break the shackles.

Change in approach

Presenteeism is largely based on the choice of the employer and employee regarding their work schedule. The first measure to solve the problem is the spread of awareness among the employer and employees the fact that presenteeism is indeed a cost that they cannot afford to bear. Once the enterprises start recognising the cost, steps would be taken to reduce it.

External pressure

A complete change in the work culture is not possible just through a spread of information. Government needs to give relaxation to employees in the form of extended leave during illness and regulation of erratic working hours. The same cannot be used for white collar employees. These employees need to understand that although there job structure is such that they do not have much power in their hands but they should demand professionalism from their employers regarding the fixation of office timings and the overall job structure.

Internal process backbone

The biggest implication of presenteeism for an HR manager is to ensure that data on absenteeism is collected and analysed in the correct way. The results should be strategically used. Managers should discourage ill employees from coming to work. A few organizations use flexi hours or give the option of working from home. These strategies have done wonders and reduced the cost of presenteeism.

The performance appraisals of managers should not only be based on the specific business performance but criterions such as absenteeism rate should be included to track absenteeism as well as presenteeism. This would seem strange as it would ideally increase presenteeism. However the managers would be required to keep a track of the health of the employees and this would be one of the criterions on which their performance will be evaluated.

Change in company policy to implement the change

Sick leaves have a huge impact on absenteeism as well as presenteeism. The high cost of presenteeism is primarily due to less number of days for which an employee can avail sick leave forcing him to come to work even if he is unwell. Thus companies can increase the number of days of sick leave. However this could lead to an increase in absenteeism. A solution to this problem could be having such a culture in place where an employees’ absence is not penalised. At the same time the office should be made an interesting place to work which would make him or her come to the office. A number of companies have increased their number of days for sick leave. Even governments are responding to presenteeism. Recently the state of San Francisco passed a regulation requiring organizations to give sick leaves and paid leaves.