How to make a variable pay strategy work

Faculty at IIM-L will soon have a variable pay component added to its salary. Can variable pays be considered a long-term talent retention option?

In a first among the most prestigious management education fraternities in the country, Indian Institute of Management-Lucknow is adding a variable component to the salaries of its faculty members. According to a report by Economic Times this new component, which is being introduced in the next three months is a result of an exercise to attract the best brains of the industry.The article quotes institute’s Director Devi Singh, “If one achieves targets they could get 100% variable pay.” Singh further adds, “The aim is to make this field an attractive employment opportunity. Professors should not feel constrained and this step will encourage them to take up more projects.” To implement it, ‘targets’ of IIM-L faculty will also be quantified. The step seems to have drawn inspiration from corporate structures which are using variable pays to boost performance and productivity. Variable pays link an employee’s earning directly to his and the company’s performance, and help good performers take home a fatter pay cheque. They are used in tandem with fixed components and help companies in a number of ways:

1. Help recognize employee contribution towards company growth: Amid all retention and engagement talks, here is a hard hitting fact- companies are most interested in retaining good and high performers and constantly face challenge of offering growth opportunities to them. The amount of variable pay that an employee gets to take home entirely depends on some clear metrics like specific targets, skills, initiatives etc. It helps companies identify good and extraordinary performers and work on future requirements like succession planning or identifying leaders. Variable pay for faculty at IIM, Lucknow will be based on a certain number of research papers, participation in national policy, innovation in teaching methods, and helping with development programs.

2. Help in retaining and rewarding good performers: An article on the site itsmyascent.com quotes Sakaar Anand, Vice President – HR, CA Technologies India, “In markets like India which are fast losing the cost competitiveness and with double digit inflation, the variable pay holds a lot of importance." Fair hikes and pays, and challenging opportunities are an important factor in retention of good performers. This is where variable pays become a differentiator. Excluding variable pay, a faculty at IIM, Lucknow earns between 7 lakhs and 18 lakhs, while s/he can potentially earn between 25 lakhs and 60 lakhs including variable pay.

3. Boosts up company productivity: The extra earning opportunities go a long way in encouraging employees to push envelop and work toward achievement of organisational goals. It is a win-win situation for both the employee and the company. Since variable pays are related to company performance also, it doesn’t put extra financial pressure on companies during slowdown.

Variable pays are a smart move to provide employees a better chance to ‘perform and earn’ thus benefiting companies in terms of productivity and profits. However, they do not work in any and every situation. To make variable pays work, it is essential to know their pros and cons and have a plan B in place rather than relying on them to meet long term organisational goals. Following are two things an organisation should keep in mind about variable pay.

1. When a company is promising variable pay to its employees it is necessary to identify the metrics (such as targets, skills, new projects) that the company wants to link with this component of the salary. Employees should have a clear communication about what would fetch them an extra income and what will not.

2. Variable pays work as short-term retention strategy but they cannot be considered as the backbone of retention strategy. In the long-term employees get habitual of going that extra mile and slump in income (due to reasons such as low company income in a financial year) may de-motivate them.

HR - the third umpire in office romance

HR managers need to step in when office romance affects productivity and makes other workers uncomfortable

Astha Behl and Varun Varma both marketing executives in a Delhi-based media organisation, were at the wrong end of the stick when they decided to go public with their romance. Within weeks, friendly pestering by their peers made them staple of office gossip and two months later the HR head called them for a meeting. Behl says, “It wasn’t a disciplinary action. Still, we were taken aback when our team leader suggested that we move to different teams.” After a chat about the company’s office romance policies, the couple decided to accept the offer.

Office romance is prevalent in many places, though most companies are not against it according to a US survey conducted by the Society of Human Resource Management. Writer Tanya Farber quotes the survey in her article “Do Companies Have Office Romance Policies?”, in which she mentions that, only 13 per cent of companies have a workplace romance policy.

A February 2013 survey by CareerBuilders gives an idea of the prevalence of workplace romance. The survey reveals that almost 39 per cent of workers have dated a co-worker in their career. Out of this, almost 17 per cent workers admitted to dating their co-workers at least twice. In her article, Farber quotes an anonymous representative from Hagel and Company, a US human resource and payroll systems company, as saying that often HR managers regard a formal romance policy as being too intrusive towards employees’ personal lives. Policy or no policy, there is little doubt that workplace romance changes the team dynamics and the chemistry between team members. Depending on the people involved, it can cause a conflict of interest at the workplace thus requiring attention from HR. Though an official conversation may not be required with every couple in office, HR should be ready to take cognizance of situation in a few cases:

1. When romance goes against company’s policies:
Most of the Indian companies do not have stringent office romance policies. Often they do not approve of a romantic relationship between an employee and a reporting boss. This is fair considering the possibility of favouritism and sexual harassment concerns which may arise in case the relationship isn’t proved consensual. Such cases require clear conversation about company’s anti-sexual harassment and office-romance policy. An article on the website entrepreneur.com quotes workplace expert Di Ann Sanchez as saying that companies encourage signing of ‘love contract’ by the employees clearly stating that the relationship is consensual. To ensure fair treatment to every team member, a transfer option can be given to one of the two involved people.

2. Too much public display of affection:
Workplace romance between two people doesn’t become a discipline problem unless love birds do not make a spectacle of themselves by indulging in too much of public display of affection (PDA). In some cases, HR may need to remind employees to exhibit responsible behaviour in office. Cuddling, non-stop conversations and personal chemistry can make other workers uncomfortable. At this point, the HR needs to step in and have a conversation with the involved people and alert them against showing unprofessional behaviour in office. This extends to online behaviour as well. Constant chatting, texts, inappropriate emails from official email id etc also fall in this category.

3. When personal chemistry starts affecting professional goals:
The CareerBuilders study revealed that three in 10 office affairs result in marriage, but the fallout of the failure of other seven relationships cannot be ignored. Break-ups are the worst part of workplace affairs. Resulting bitterness and urge to avoid each other doesn’t only affect productivity of people involved but also makes the atmosphere uncomfortable for their peers and supervisors too. In some cases, one of the two involved members also quits the job thus causing the loss of a useful resource to the company. An HR professional needs to step up and handle such situations efficiently. Transfer option, counseling etc may come as a handy option in such cases. Similarly, cases where people start to badmouth their ex need immediate attention too.