BPO Incentive Plans Lag General Market Practices

Attrition rates in India’s lucrative BPO industry are about 7.8 percentage points higher than in other industries, according to a report released by Hay Group, a management consulting firm.

The finding comes from a new report titled ‘BPO Special Sector Survey 2008’, which is based on Hay Group’s global online compensation and benefits database, PayNet. It showed that in general, staff turnover in India is 15.7 percent, but at BPO companies, attrition is the country’s highest at 23.5 percent, followed by communications (22 percent) and retail (18 percent).

The report explained that one of the factors is that the remuneration structure design is not as attractive when compared to other industries in India:

-- Short-term incentives account for only 4 percent of total remuneration, compared to 10 percent generally.

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-- Benefits are limited to those that can be enjoyed only post-retirement, like pension fund and gratuity, and not during the employment period.

-- While pay is generally designed to give employees more take-home cash, a higher portion is allocated to allowances like housing/rent and not base salary.

“The BPO industry hires a large number of graduates, who are bright and ambitious. From our analysis, the overall compensation structure design is not competitive when compared to general market practices. This means that BPO employees do not receive as much cash-in-hand as their peers in other industries. When you add unattractive remuneration to working shifts, lack of career development, and monotonous tasks, it is not surprising that employees leave when offered a small salary increase,” said Oscar De Mello, country head of Hay Group’s Reward Information Services in India.

“The BPO industry is a critical sector in the Indian economy, worth $11 billion and employing over 2 million people. However, if the industry is to achieve the projected $30 billion by 2012, we have to tackle this talent attrition issue now. We are all too familiar with what happens when employees leave – work falls through the cracks, unhappy clients. Contrary to belief, adjusting pay need not automatically lead to higher operating costs for BPO companies. By creatively designing their total reward package towards more short-term incentives and benefits, and linking the package to performance, companies can ensure that they get higher productivity without hefty increases in salary costs while minimising attrition costs and issues at the same time,” added De Mello.

The report also recommends:

-- planning a more robust combination of short and long-term incentives, such as performance bonus, Employee Stock Option Plans, deferred and retention bonus, that meets the aspirations and needs of their young employees so as to drive performance and improve productivity

-- effective communication of the compensation plan so as to promote employee buy-in

-- non-pay measures like open communications, promotion of team-based culture and transparent performance management systems

-- focus on providing opportunities such as career development, job rotation, and local/international mobility.