Here’s how companies are using variable pay/incentives to control attrition

Recent survey by KPMG on Annual compensation trends reveals that, 90% of companies have some form of performance-based compensation in place. While variable compensation has long been a staple of sales departments, companies are using this model to help control costs and incentivize sustainable high levels of performance throughout their organizations.  The study also found that the average variable pay component at the junior management level among information technology (IT) service companies is 10-12% of the salary. Other components like pay bonuses encourages employees to clearly demarcate goals and achieve better results thus keeping them focused and motivated towards the goals. Here are some short-Term Incentives provided by companies are:

variable pay incentives to control attrition
●    Annual Incentive Plan
●    Discretionary Bonus Plan
●    Spot Awards
●    Profit-Sharing Plan
●    Gain-Sharing Plans
●    Team/Small-Group Incentives
●    Retention Bonus
●    Project Bonus

Long-term incentive options offered by the companies are:

●    Stock Option
●    Restricted Stock
●    Phantom Stock
●    Stock Appreciation Right (SAR)
●    Long-Term Cash Plan
●    Performance Shares
●    Performance Units

Top 3 components for retaining top talent are including performance based variable pay(19.7%), 13.1% employees feel that recognition awards-cash/non/cash matters and only 11.8% believe that retention bonus play key role in retaining top talent. Other components like long-term incentive compensation, bonus and gain-sharing plans, benefit plans to address health and welfare issues, non-cash rewards and perks, too play great role in this aspect. Most companies find it necessary to offer a standard benefit package, including health, dental and life insurance, vacation and leave policies, investment and retirement plans. More than 90 percent employees say that they have a standard variable pay programme in their organization. Sector wise analysis found that the highest variable pay 20.7% reported by the financial services and lowest by energy sector at 10.1 percent. Average voluntary Attrition rates across sectors in 2016-17 are as follows:

●    Energy -8.1%
●    Automotive-8.9%
●    Enginerring-9.9%
●    Infra-11.4%
●    Logistics-12.6%
●    Consumer goods-13.2%
●    IT-14.5%
●    ITES-15.4%
●    Life sciences-16.1%
●    BFSI-17.4%
●    Media -18.5%
●    Retail-19.4%

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