Performance-based appraisals: The new fad

Services in the IT sector are fast turning towards consolidation. Not only in
technical support, development and the related fields, the same is happening in
operations division as well. As the IT revolution took over India in the early
90's, backed by the increasing demand for IT services in USA and Western Europe,
Asia began to emerge as a favorite IT destination for global IT companies. This
was mainly because of its low cost and skilled manpower. India was indeed quick
enough to pick up the trend and soon began proliferating in this segment.

Companies across India are now keen to focus on providing employees with
higher increments, based on performance rather than higher pay packages. This
trend started a few years back with companies offering bonus to their employees,
which was generally calculated on the basis of company's output and the
employee's contribution to it. The trend has been modified over due course of
time to keep pace with the changing scenario.

Though until now there hasn't been much tampering with the way appraisals are
being executed, with the main criteria still being employee's performance; but
over the years the cost to the company (CTC) has been restructured and
bifurcated to meet the cost of the company. As Western Europe and USA began to
enter the era of stagflation with the US dollar losing its hold over the world
economy, the IT sector too suffered major setback and business loss from the
stagnation of the US economy. Indian companies, losing business in the USA, UK
and France had thus no option but to revise the pay-structure of its employees
considering the global scenario.

Companies across India are now keen to focus on providing employees with higher increments, based on performance rather than higher pay packages

Recent trends

With the dawn of globalization and out­sourcing, economies across the world
are increasingly becoming interdependent. The effect of the slowdown in the US
economy and the appreciation in the rupee is being felt across Asia, which is
where the bulk of IT production and supply takes place. A situation like this is
bound to have a major impact on the Indian IT sector, which is cutting jobs to
recover the situation. In such a scenario, employees' salaries are also taking a
hit. This is why many organizations prefer to give more emphasis on
performance-based incentives. The IT industry works on the premises of
productivity per employee. Recognition of merit across ranks has been the number
one consideration of the IT industry.

An increment in salary is dependent on performance to a large extent. During
every performance evalua­tion cycle, an average base increment is determined for
a particular level. There­after, depending on the performance of an employee,
the increment figure is increased or decreased. The performance depends on both
competencies as well as on the individual's performance in the assigned project
or role. Keeping this in mind, the employee is rated and eventually his/her
increment for a specific cycle is decided. The competency ratings are considered
while considering an employee for promotion or a role-change or enhancement.

The IT sector is dynamic and requires high skill sets. But has managed to
remain a desirable and interesting profession. Employee has much to offer its
practitioners, irrespective of a sudden slump in hiring and retrenchment
witnessed by the industry recently due to the global slowdown and the
depreciation of the US dollar.

Gearing employees

One major impact of the slowdown has been the increasing number of Indians
working abroad opting to come back to India. A plethora of opportunities in
India, decent lifestyle and comparable salaries are drawing Indian professionals
back to their homeland as the US dollar is depreciating rapidly than ever
before. On the other hand, freshers in the IT field are coming up assertively.
It is to be noted here that these freshers may find it difficult to climb up the
ladder easily as now the competition in workforce is getting tougher with the
NRIs coming back with richer expertise, knowledge and higher designation.

While there are millions of students with high salary expectations graduating
every year, the IT industry, as a whole needs to ensure that these students are
trained aggressively. Once hired, they must be trained with the right set of
skills before one can think of promoting or moving them up the hierarchy. These
skills can be instilled through structured and focused training programs that
deal with the specific needs of an individual identified by understanding the
personality. In most companies, this factor is ignored and therefore the true
potential of a majority of people remains untapped.

Challenges in recruiting

The crucial factors and challenges while recruiting in future would not be
too different than today, with employability being at the top followed by
retention. Considering a further expansion of the industry, factors like
cultural fitness and adaptability, core competency, global currency fluctuations
and optimum resource utilization are emerging as the primary parameters in the
sector.

There is a strong correlation between years of experience and a good salary.
According to the Kelly Services Handbook, the percentage growth in the salaries
in IT industry has been 12 to 15 percent on an average in the last fiscal.

It is expected that India will witness a moderate salary hike in the IT
industry over a period of one year as the slowdown in hiring persists. Even the
bigger IT companies have seen a drop in hiring. The US economic slowdown and
strengthening of the rupee has adversely affected recruitment, as well as salary
hikes.

Indian companies have been taking several remedial measures to fight the
impact of the appreciating rupee by increasing productivity and operational
efficiencies, and reducing the number of employees on the bench. At the macro
level, the Indian IT industry may see more consolidation and mergers, followed
by acquisitions. Though the industry is not expecting high salary hikes this
year, the overall growth would continue, getting ready for a rebound, few years
down the line.

While this may be the scene currently, in the long run one can be hopeful of
the situation turning in favor of India. According to Dr Shanto Ghosh, Director
and Principal Economist, Deloitte, Haskins and Sells, the silver lining is that
increasing pressure on American companies to cut costs and improve operating
margins in the face of a slowdown will actually result in greater outsourcing of
jobs to low-cost destinations such as India. “This will benefit the vast and
expanding outsourcing industry in India,” he added.

Avishek Rakshit

avishekr@cybermedia.co.in