Trends and people practices in the IT and ITES industry

NASSCOM and Hewitt Associates study highlights some key reward trends and people practices that organizations are adopting in the IT and ITES industry in their growth lifecycle.

Movement of IT- ITES industry to tier II and tier III cities has expanded the talent base, but on the other hand the shift from low-end business processes to higher value knowledge based processes has amplified the challenge of hiring specialized manpower. The study also highlights that there is growing trend of the industry towards differentiated total rewards practices based on specialized skill and complexity.

Key Highlights - NASSCOM and Hewitt Associates study Total Rewards Study 2005

Attraction and retention of employees remain to be a key issue for the IT and ITes industry. With more and more sectors moving on a high growth trajectory, the talent war is increasing and attrition soaring. At the junior level surveyed organizations reported an average attrition rate of 30% in the IT and 40% in the ITes industry.

Capability development continued to be area of focus with 70% of the survey partners of the NASSCOM-Hewitt study putting emphasis on ongoing assessment of skills, knowledge and abilities to identify the employees’ development opportunities. The study reveals that organizations are actively undertaking employee development measures through initiatives such as job postings, internal transfers, job enrichment and job redesign.

Performance based pay is gaining ground within the industry as most employees view it as an opportunity to earn more. More than 80% organizations across these two industries report a prevalence of short term incentive plans and about 40% report prevalence of long term incentive plans with stock options being the most favoured.

Compensation movement as per the study has been in the range of 8- 10% on Total Cost to Company. Though over the years this industry has witnessed double digit salary increases, the actual compensation movement on median has not moved in the same proportion due to companies ramping up operations and augmented hiring.

Continued trend of a Cash heavy compensation. Organizations in this sector are increasingly designing compensation structures, which are tax friendly and allow employees to exercise their choice of benefits through a single flexible allowance.

Complexity based Compensation gaining popularity. Out of the 91 IT organizations approached, 27% reported a formal differentiation based on hot skills, whilst 41% said that they clearly did not differentiate between skills in specific functions. The rest maintained that they had no formal policy for differentiation, but differentiated compensation basis criticality of resource requirement. In ITES industry, 66% of the organisations reported a formal policy of differentiating compensation based on process complexity.

Bangalore and NCR reported a 3-6% increment in compensation over the national average. Most organizations do not have a very high differentiation in compensation across locations, those that do differentiate pay based on locations, primarily align it to attraction and retention challenges in the location and cost of living differences.

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