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The middle class Indian dream of travelling and working overseas is finally being realized, as many Indian IT service organizations have started using this exceedingly tempting opportunity as a Total Rewards tool, while leveraging their business needs. This article takes a closer look at this new trend. The success of India in software is the story of how Indian Software Services companies came to dominate the global IT outsourcing market, although some Indian product companies have also found notable success in the global and Indian space. Recognition of India as a high stakes player has come by the global firms which have set up operations in India, these operations are slated to be as large, if not larger, than their home country operations. The Global IT services firms have brought the battle to Indian shores and the battle lines are clearly drawn!Looking at the HR aspect, there are many reasons why Indian firms are managing to hold out against the global onslaught despite maintaining a lower policy line in rewards. While global firms are armed with time tested practices, we have Indian firms who understand ground conditions much better. The most notable is the onsite opportunities that the Indian companies provide. There are some other factors with only slightly lesser weightage like lucrative stock programs, meatier roles etc. which is another story. The leading Indian firms at anytime have more than a quarter of their total workforce posted overseas on short/long term assignments. It will not be fair to say Global firms in India do not post their employees overseas; it’s just that proportion is significantly lesser. We have seen a clear differential in pay between the Indian and the Global firms and the difference is at least 30% wide on an average and the gap widens as one goes up the hierarchy. |
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| The Dynamics of it all… | ||||||||||||||||||||||||||||||||||
| The onsite salaries paid by Indian firms are lesser than the going wage rate in the local labour markets yet the exchange rate differentials between India and the onsite market, which for the purpose of making a point, lets take to be the US, as it is the leading export destination for Indian software, clearly makes a case in favour of the onsite professionals as far as total compensation is concerned. Alongside is a chart from the latest Hewitt survey on onsite salaries of Indian companies. These numbers are for class A cities in the US and is calculated on the total cost to company (CTC) model. Given the fact that India and the USA share double taxation prevention treaty, an onsite employee ends up paying close to 30% tax on the salary earned in US and his Indian salary (which in most of the cases consists of Basic and retirement allowances) remains tax free.The cumulative effect of the exchange rate and the double taxation prevention is that the onsite employee is able to save and remit home at least one third his annual incomes. For someone with five years of experience and saving INR 10,00,000 annually is a significant incentive. | ||||||||||||||||||||||||||||||||||
| Who does it affect? | ||||||||||||||||||||||||||||||||||
| Indian firms have mostly cut off short term travel limits to a month or at best three months. The saving potential is not as high from short term travel as the median per diem for short term travel is about USD 70. What is interesting is that not everyone gets to travel overseas. The opportunity is reserved for either top talent or the loyal-tenured employee. Thus the windfall of overseas earnings is used as a lever to influence employee behaviour. In terms of absolute numbers, the promise of overseas travel allows Indian companies to attract talent, subsidise the high onsite costs by paying lower salaries in India and maximise profitability by keeping a trim wage bill. | ||||||||||||||||||||||||||||||||||
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| A Viable Option? | ||||||||||||||||||||||||||||||||||
| It is our opinion that in the long term, the total earnings of professionals in Indian and Global companies would differ by only a very small number. As, not everybody in Indian firms will not get a chance to travel overseas, it actually might make more financial sense in working for global companies. It will be tough to get empirical evidence to prove this as the variables will not allow us to find statistical credibility. Even if the Global firms clearly paid more, we feel that the value placed by Indian professionals on onsite opportunities will significantly outweigh monetary compensation. Indian firms have policies that allow spouses and families to accompany professionals on overseas trips, some Indian firms assist their employees in securing ‘Green Cards’. Domestically also, a lot of special privileges are extended to NRI’s. On the lighter side, acquiring the NRI status dramatically improves the matrimonial prospects of professionals! Taking a break from the conventional view of total rewards, onsite opportunities is definitely a factor leading to greater total compensation and hence it can be safely deduced that Indian IT service companies have been able to leverage a business need as a total rewards tool and attract and retain talent. |
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