Global salaries are expected to rise by an average of 6% in 2008 – 1.9% above inflation – according to a study by Mercer. The study of 62 countries worldwide shows a strong correlation between 2008 forecasted inflation and forecasted average pay increases but also reveals wide global variation in both projections.

India can expect one of the highest pay increases in the world at 14.1%, nearly 10% above local inflation. North America and most Western European countries will experience the lowest salary increases worldwide.

"Some multinational companies are experiencing labour cost savings of 75% by sourcing labour from emerging markets. On the flip side, they generally need to invest more in employing supervisory staff and in training. We are starting to see that short-term cost savings from sourcing labour in emerging markets can evaporate over time. It is therefore essential for multinational companies to consider both current pay levels and future salary increases when deciding where to source their labour."

"Some companies that might otherwise be looking at emerging economies to establish their customer services are now reconsidering their options. Immediate cost savings are no longer the only consideration, as short-term affordability might be offset by long-term volatility in labour costs and inconsistent service quality in many emerging markets. A US company might decide to locate its call centre in rural America where there is a good work ethic, strong language skills and less competition for labour – and where projected pay increases are lower and long-term cost variations less volatile."

In Western Europe, Ireland is predicted to experience the highest actual salary increase (4.7%) as well as the highest increase above inflation (2.6%). UK pay is projected to increase by 3.1%, 1.1% above inflation. Projected salary increases remain fairly consistent across Western Europe, with actual increases averaging 3.4% and increases above inflation averaging 1.3%.

In Eastern Europe a different picture is offered as actual pay increase levels are forecast to stay amongst the highest in the world, at an average of 6.9%. Because inflation rates are also expected to remain high in this region (4.6% on average), increases above inflation will average only 2.3%.

Bulgaria is expected to see one of the highest pay increases in the region (9.3%) and with expected inflation rates at 4.4%, pay above inflation is projected at a high 4.9%. At the other end of the scale is the Czech Republic where the average pay increase (4%) is expected to be mostly offset by inflation (3.1%).

"We are seeing increased activity amongst European and global companies in relocating labour intensive units, such as shared service centres, to the Eastern European region. This region is becoming more popular due to strong multi-lingual skills, proximity to Western European markets and the rapid escalation of salary levels in popular off-shoring centres such as India."

North America
Modest pay increases and inflation rates are forecast for next year in both the US and Canada, with average salary increases above inflation expected at 1.9% in the US and at 1.8% in Canada.

Asia Pacific
Pay increases in the Asia Pacific region will pick up next year, with actual increases expected to reach 6.6% and increases above inflation reaching 3.3%. India is expecting the highest pay increase in the region at 14.1%, reflecting its buoyant economic growth; its pay above inflation is also projected to be the highest, at 9.8%. Vietnam is also expecting a double-digit actual pay increase at 11.9%, 5.6%above inflation.

In Australia and New Zealand, pay rises are more modest, projected at 4.0% and 3.9% while inflation is likely to be 2.5% and 2.6%.

- DeTimes (Source : Mercer)

Explanation: That is, how a CTC can be bifurcated so as to keep a particular amount linked to performance and credited variably in accordance with the same.

The process of performance based pay involves:

- Deciding and clearly defining the performance goals and the performance measures
- Setting the target bonus for different levels of performances
- Measuring the performance of the employee
- Giving rewards and bonus according to performance
- Most important is to communicate the policy clearly & accurately

Organizations are also designing variable compensation plans for various roles and positions in the organization.

Types of Performance Pay

Merit pay – The first step to performance pay, merit pay means setting some basic salary according to the position and the rank of the employee and the variable part of the salary is based on the periodic performance reviews.

Profit Sharing – Sharing the profits of the enterprise with the employees as bonus.
Incentives and Performance Bonus – Rewards for special accomplishments or fulfillment of the targets set such as sales commission.

Gain sharing - Sharing of gains as a result of the increased performance of the employees with them.

Although performance related pay has always been a topic of discussions and controversies with many arguments against it, but it has also been proved that performance based pay motivates employees to perform better and earn, and encourages learning, innovation, creativity, problem solving and empowerment which can be facilitated through proper performance measurement and reviews.

The general parameters for the measurement of employees’ performance in a BPO setup are:
Speed i.e. process performance,

-Accuracy and
- Productivity of each process,

Although the measuring parameters are different for employees at different level, but the general classification of the above mentioned parameters is as follows:

- Average Call Value (the sales made or the revenue collected etc.)
- Time and cost per call
- Average Handling Time (talk time and after call wrap up)
- Adherence to Schedule (availability to take calls etc.)
- Percentage of abandoned calls
- Discipline
- Attendance

Rank and Yank Strategy:
Also known as the “Up or out policy”, the rank and yank strategy refers to the performance appraisal model in which best-to-worst ranking methods are used to identify and separate the poor performers from the good performers. Then the action plans and the improvement opportunities of the poor performers are discussed and they are given to improve their performance in a given time period, after which the appropriate HR decisions can be made.

Well these are certain points that can be used for designing a performance pay strategy.
However, it is critical to effectively communicate the same right to the bottom. If that is done well, there will be less amount of obstacles in the journey of rolling out the same. Success is based on how it is implemented.

Inaccurate review ---> Salary Increase ----> Demotivation
Accurate review -----> No Salary Increase -----> Demotivation
Accurate Review -----> Salary Increase -----> MOTIVATION

I think it is important to have a component added to the current fixed package structure because any move to break the current fixed package structure will demotivate people. There should be gradual move towards fixed & variable components.

Increase the %age of variable/performance linked pay over the next couple of cycles and until you reach your fixed vs variable target %ages because salary payout budget needs to controlled for each cycle.

The components that you can put into the Variable pay - %age share of profit/Revenues at 1) Company level 2) Account level revenues and then 3) Individual level .The individual level depends on the individuals’ performance on the job and his /her achievement of the overall targets set for the individual ( obviously the targets vary depending on the individuals),ensure that all the targets get collectively rolled into a index number and this index number helps deciding %age payout for the individuals performance.

This must be kept in mind. So apart from a well designed strategy, effectively communicating and honestly implementing the same are extremely critical for success.

- DeTimes