What's your worth?

Remuneration has now become the central issue for attracting and retaining employees across industries. The compensation structure within the pharma industry has also undergone a sea change over the past couple of years due to the phenomenal growth in this sector, discovers Sapna Dogra.

A booming industry has led pharma companies to hunt for and retain professionals through lucrative compensation packages. As a result of which, the compensation structure in the pharma industry is almost at par with other sectors like manufacturing, IT and banking.

Need for qualified and competent personnel along with stiff competition are the important factors that have brought about a change in the pay structure in the pharma industry. As more players enter the market, there is an urgent need for qualified personnel and hence companies are seeking to attract and retain top talent by offering competitive remuneration packages.

A complex salary structure

Typically in India, salary encompasses basic salary, dearness allowance, any commissions or bonuses paid as a percentage of profit and retirals. Then there are other allowances and benefits like housing, conveyance allowance, leave travel assistance, special allowances and furnishing. Suresh Tiwari, Vice-President, Human Resource, Eli Lilly India, says, "The uniqueness of Indian compensation and benefits structure makes it one of the most complex pay structures in the world."

He advises that the most appropriate way to do the compensation benchmarking in the pharmaceutical industry is to have CTC or TCC (cost-to-company or total cost-to-company). This ensures an apple-to-apple comparison between the company and the market. In the recent times, compensation structures have undergone transformation after the Indian government kicked off globalisation initiatives in the early nineties, and global influence increased. Gangapriya Chakraverti, Business Leader, Human Capital Product Solutions, Mercer Human Resource Consulting, India, concedes that there are many pharma MNCs in the country and they want to put the senior people on a global scale.

Reforms in the pay structure

Though reforms in pharma compensation have been initiated, the pace of change has been slower as compared to other industries, particularly the IT and ITES sector. Mohinish Sinha, Associate Director and Head HR Practice, PricewaterhouseCoopers believes that due to the tremendous growth in the pharma sector and limited industry ready workforce, there has been significant increase in compensation in the pharma industry. Chakraverti points out that the average increase in salary in the pharma sector over the past three to four years has been in the range of 12–15 percent per annum, across all levels. In fact, at certain levels it is better than other sectors. "The change started late but picked up fast and the momentum is still on," she adds.

As per PwC, the average increase in manufacturing has been between 20–25 percent and in R&D between 30–35 percent in the last two years. Marketing compensation has also increased between 15–20 percent. Most pharma companies have a benefits-heavy structure where cash component is low but other benefits like car and housing is paid for senior and middle management levels. "At senior level the benefits are much better than even in the IT industry, but at junior levels the disparity is huge," states Chakraverti.

The pay policy

Variable pay and performance bonus, stock options for managers and above have become the order of the day in the pharma industry. This apart, benefits including house, car loan facility for employees who have been excellent performers are also been given by companies. "Till two years ago compensation was driven by internal equity and salary hikes and increments would be given across the board more or less on the same level," adds Chakraverti.

Companies are becoming especially competitive when it comes to luring top executives with a mix of high basic salary, incentives, Employee Stock Ownership Plan (ESOPs) and deferred pay. Companies are also increasingly looking at performance-based salaries, with variable pay as a percentage of salaries on the rise. "Compensation for sales has also increased considerably and many companies are gearing up for that as attrition has become a major issue in sales because significant employment opportunities have emerged for graduates in BPOs, retail and financial services" states Sinha.

"Globally, our company believes in pay for performance and we are quite aligned with the progressive industries including high-tech industries in terms of differentiating high performers from the rest," says Tiwari. He adds that for instance in Eli Lilly, an outstanding performer in a given year gets twice the pay increase compared to a satisfactory performer. As a result, movements in the scale are heavily influenced by the position in the range and performance.

K G Umesh, Head-HR, The Himalaya Drug Company, feels that the pay policy in the pharma industry has definitely caught up with other industries in the last two to three years. "One can comfortably compare our pay packages with that of manufacturing, FMCG, banking and finance," asserts Umesh.

A few years back the principle adopted was 'industry-cum-region' basis, which meant that the pay structure was designed after a survey of similar companies in the region. But in today's context it has lost relevance due to the surging demand for talent in a growing Indian economy. Changing policies and business environment have prompted companies to hire key talent by paying them salaries comparable across industries.

Managing internal equity

Companies do take care of the internal equities while deciding the compensation of new recruits. "In fact, many pharma companies have recently done salary normalisation in an effort to maintain internal parity," discloses Sinha. Companies today operate in a very competitive business environment. To survive and succeed, they need people who are performance-oriented. "Organisations excel only when they encourage merit. As such, compensation is based on deliverables and results achieved. People will be compensated differently based on their contribution and potential. Of course, to ensure that the system of performance assessment is fair and unbiased, companies hire independent agencies for the purpose," avers Umesh.

At Lilly, special consideration is given to ensure internal parity at the time of hiring an employee from outside. Also, continues Tiwari, at the time of giving the increments, a merit grid is used to ensure that employees at a particular level and having the same performance rating get the same percent increment for that year.

Incentive plans

Variable pay has become a major attraction in pharma companies nowadays. "Also, since most of the companies are expecting huge growth in revenues, the payout for variable pay can be as high as 20 percent of the base salary," says Sinha. Himalaya has bonus and incentives plans based on the performance of the individual employee, team and also on overall performance of the organisation in that particular financial year.

According to Umesh, this is very important because it motivates employees and shows them that the company appreciates and recognises their efforts.

"Formal bonus/incentive plans are very popular in the pharma sector; which companies are giving to their senior management (CEO and functional heads in the company) in the form of car, fuel and premium club memberships" says Chakraverti. Lilly also has an aggressive sales incentive for its sales employees and performance linked bonus plan for others. There is a renewed focus on more aggressive variable pay plan for non-sales staff to ensure the perfect alignment between the core function (sales) and the support functions like finance/HR/IT .

Technical/ Non-technical

Chakraverti reminds that even about three years ago, the salary was more or less the same across the board, but now specialists are being paid as per their value to the company. For instance, the R&D people will have different salary structure especially in specialised drugs or specialised area of medicine. Now market drives the salary.

Generally technical staff in production, quality control, quality assurance, R&D and technicians in new niche areas like custom pharmaceutical services are paid higher. But some non-technical functions like marketing and business development are paid on par with the technical staff. "Sales staff historically gets paid less in pharma as compared to their counterparts in the FMCG," avers Sinha. At Himalaya, there are no different standards for fixing compensation for technical and non-technical staff. The sales staff are eligible for incentives based on the achievement of sales targets while others will be eligible for a performance bonus payable annually based on the targets achieved by them or their team. "Pharma has been a better payer than other industries. Indian pharma companies per se pay individuals according to their worth to the company," says Chakraverti.

Dealing with aspirations

Companies have changed their strategy and are more aggressive on paying cash components to employees rather than benefits. "Compensation needs are very individualistic. While employees at senior levels are more interested in retirement benefits, the younger lot is more interested in cash in hand. The key is to customise the structure keeping these needs and the statutory framework in mind," states Tiwari, adding that keeping aggressive incentive plan is an effective way to ensure more cash pay and also performance. However, he warns that this should be done only when the company has achieved competitiveness in the fixed pay category.

One way to meet compensation aspiration is by adopting contemporary compensation standards prevalent across the industry. At the same time, companies should remember that compensation alone will not help organisations retain their top talent pool. Along with competitive pay package, good working atmosphere, learning opportunity, career growth, freedom to experiment and goals that adequately challenge their intellect will also play a major role in the job satisfaction of employees in an organisation. It is the combination of all these positive factors, which influences an employee's decision to stay with a company.

One of the biggest challenges before the pharma companies to make the transition in pay structure and philosophy to appeal to the younger generation. "They have to re-invent the compensation structure, which includes doing away with heavy benefits, and come to performance-based incentive. They are attempting to change, but it is not easy to take away benefits," says Chakraverti. She is hopeful that the transition will give way to a scenario where there will be equal mix of old people and younger generation and companies will strike a perfect balance between cash and benefits-oriented pay packages.

editorial@expresspharmaonline.com