Tuesday, March 13, 2007

What is the best way to compensate IT folks?

What is the best way to compensate IT folks? (Indian Context and can be extrapolated to other countries)

Before I suggest... think about this...

Lots of people talk of ESOPs and the value it generates, while fixing the IT salary package for a new hire.

Recently I had a nice chat with on HR guy, who was explaining that the notional gain is also included on the ESOPs provided over the vesting year in the annual salary.

The logic does not hold good at all.

Say for example the option is provided at Rs 40 and the current market price is 200, the notional gain is Rs 160, looks nice that after one year you are sure to get it. But think this, the market is in a high and taking example of HFCL dropping from Rs 2000 to Rs 20 in 3 months, you should not include.

Nothing is guaranteed other than the real salary!


So here are the thumb rules of an IT package.. say the take home first, annual benefit next.


HRA (plus any housing benefit)
City Compensatory Allowance
Special Allowance
Transport Allowance (Max as per tax benefits 800 without vehicle & 2000 with vehicle)
Variable Bonus (and any other form of Org Bonus, and mention the minimum guarantee sum on acceptable performance - written in clear terms, and whether payable Bi-Annual)
Retirals (PF, Guaranteed Superannuation irrespective of no of years of service)

Dont include----

Gratuity = as this notional, can be written back in books, if a person leaves before 5 years.
Lunch and transport subsidy == as you might have the company in a far of place, and this is to motivate
Annual Gift - upto Rs 5000/- is allowed as expense, not FBT'ed.
ESOPs = notional gains are not guaranteed, what if the stock falls/nosedives? (Imagine this, Microsoft gave more options (doubled) once their stocks fell in 2001)
Annual vacation - this is the benefit of hard work and helps recharge
Sick Leave = unknown (family issues)
Personal Leave = urgent matters.


So if you are offering someone from a fresher to a Senior level person, please ensure that the best take home salary in a month is provided. (including the relocation benefits fully - house shifting costs, with 2 trips with family to see house and then to move with stuff, 3-4 weeks hotel stay with food (cut HRA, if need be), school donations if any = can be added into joining bonus)

So make a spreadsheet comparing one item of the current salary got to what you can provide, and the industry norm is 30% hike easily on the monthly take home (after taxes). Also if you have "not used a IT service provider/consultant" to hire (direct from a jobsite) that person, then that 10% package benefit to be added on to this. Also if you feel that person is the "right fit", you can add 10% more... all after tax only.

Also the very important factor, "Joining bonus", a person might use his vacation to serve notice... so rather than just paying that, give a handsome joining bonus, equal to 2 - 3 months salary. (initial expenses are always big, you know, when you shift to a new place)

The annual package can be played around a bit, showing additional guaranteed benefits at the "Met Expectations level". Here both parties should agree on what they expect from each other. (if a small company expects the turnaround of a bigger co. in terms of technology and process, it goes hand in hand with clients, will not suit well, with a typical IT work time 9 to 9 on weekdays, and on call on weekends).

You can also mention based on the performance of the company, and the growth, the ESOPs (if provided) are to grow to a certain level, but not guaranteed!

Note, a person might feel very comfortable to join and all are happy.

But what if things don't work out, like he had actually replaced someone in the job, and the shortfalls by that person was not listed, being very vague, so an "exit option" also to be provided (HR folks know well about this card - putting the fear of fear of loosing a job in one person). Like 3 months notice, either side, after the first 6 months review/probation. Serious efforts to be made by both sides for first 6 months to fit well on the job. So a person will have had the chance to accustom to the job, and try to fit well in that time, with periodic reviews. Both have invested well enough, so make sure, all parties are happy. No hasty decisions, as it will affect both. 6 to 9 months would be a reasonable time, but may not look good on the resume of the candidate. So it is imperative that the employer helps him to succeed.

This stops jumping.... the decisions are made from family side, and trouble should not be given in any form. It is always the family first principle.

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