India. Moving. June A total reward view of India s express industry

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1 1 Moving India June 2012 A total reward view of India s express industry Delivering results The express sector is the unsung hero of India s economic progress and prowess. As the lifeblood of India s trade, this sector does not receive the attention and recognition that it deserves. According to the Express Council of India, the sector is valued at Rs. 10,000 crores and is growing at an annual rate of 25%. Indeed the future is bright with continued international investments and mergers and acquisitions. Organised players have monopoly over the express logistics industry. 65% of express business is in the hands of organized players, while semi-organised and unorganised players accounts for 25% and the remaining 10% of the market by EMS Speed Post. The landscape is radically different on the domestic front. In domestic front, unorganised players hold 41% market share because of price advantage. Organised players accounts for 45% and EMS Speed Post mops up the remaining 14%. Clearly there is some room for consolidation in the near future. The entry of foreign players has had a positive impact on the industry and been beneficial to the end-users. Increased competition and cost-sensitivities have forced players to be innovative with infrastructure, technology and services so as to meet customer needs. As such, the sector has witnessed a sea of change in its modus operandi, management practices and employment trends. However, more work still needs done in terms of operating model, job structuring, and people management. This is not surprising. Companies in this sector have been a fast-growth track. As such, the focus has been on seizing opportunities. For instance, more work needs to be done to attract and retain the top talent within the sector. This viewpoint covers Hay Group s survey of India s express sector, as commissioned by the Express Council of India. It seeks to understand the pay trends and its implications on talent management within this sector Hay Group. All rights reserved

2 A total reward view of India s transportation industry 2 Figure 1: Annual total company wage costs (2012) 4,000,000 3,500,000 3,000,000 Market Median Trend Lines Express Council Total Cost to Company - Annual (INR) 2012 Express General Industry Transportation Total Cost to Company Annual (INR) 2,500,000 2,000,000 1,500,000 1,000, , Clerical Junior management Middle management 2012 Hay Group. All rights reserved Senior management (Non- Executive roles) 1 Salary trends According to Hay Group s 2012 survey, the industry has forecasted a salary increase of 15%, which is higher compared than the general industry (Figure 1). All these positive trends and projections are constantly subject to the uncertain economic factors like increasing interest rates, fluctuating inflation rates, and high fiscal deficit. Our survey indicates that junior management and clerical employees are paid lower when compared their peers in the general industry. However, at the senior levels, the situation is reversed (Figure 2). Comparing 2012 against 2011, the salary increases are promising and positive. The express sector s actual salary increase was 11.7%, against the forecasted 12%. Furthermore, a steep increase of 15% is forecasted for the end of this year, against the general industry at 12% over. Staff turnover Put against the backdrop of an uncertain global economy, such an increase seems steep. However, with inflation rates closely tracking salary increases over the past few years (Figure 3), employees are getting less value for their wage, thus leading to higher turnover rates. Given its low glamour quotient and the tight talent pool in India, the sector has outstripped the general industry s employee turnover rates (Figure 4). In fact, it can be said that the express sector has been bleeding talent to competitors and general industry. As shown in Figure 4, there is a difference of 7-8 % between the express sector and general market. We attribute this turnover to the threat of merger and acquisition, management s leadership styles and career growth opportunities Hay Group. All rights reserved

3 3 Figure 2: Breakdown of salary increase forecast: 2011 vs 2012 Clerical/ Operation Supervisory/ Junior professional Middle management/ Seasoned professional Senior management/ Executives Overall 2011 (Sector - forecasts) 11.90% 11.70% 11.60% 11.70% 12% 2012 (Sector - actual) 12.90% 12.50% 12.20% 11.40% 11.70% 2012 (Sector - forecasts) 14.80% 15.10% 15% 15.10% 15% 2012 (General industry forecasts) 12% 12.30% 12% 12% 12% Figure 3: Comparison of salary increase, GDP and inflation rates ( ) (%) Salary Increases GDP Inflation - CPI proj Salary Increases GDP Inflation - CPI Figure 4: Comparison of employee turnover in express sector and general industry ( ) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% General Industry Sector 19% 18% 11% 11%

4 A total reward view of India s transportation industry 4 Figure 5: Comparison of pay within express industry Sales HR Ops Marketing Support services Logistics & supply Chain Finance Customer Service Mind the pay gaps Figure 5 shows the pay levels of jobs within the express sector. Some pertinent observations include: A significant pay gap between sales and customer care. At entry level, the sales function is paid INR 30,000 per month, compared to a similar job size in customer care (INR 18,000 INR 20,000 per month). However, the additional pay does not seem to stem attrition rates, as the highest attrition comes from sales, followed by customer care and operations. Graduate entry level salaries in administration and support services are still lowest in terms of employee turnover. Companies primarily lost talent to the wider transportation industry. As we can see in Figure 6, compensation definitely plays a pivotal role in the talent war. Comparing within the sector, express companies with international operations dominate the market, compared to the ones who operate in the domestic space. Companies in the domestic operations space pay relatively lower across all levels. While cargo, shipping and airline companies pay similar at the higher roles, there exist extreme disparities at the middle level, junior and clerical level roles. There are also pay gaps at the non-executive senior levels when international companies are compared to the other sub-sectors in the league. Let us look at the internal parity, which is another cause for concern (Figure 7). As we know, our employees perception of fairness and equitable treatment is a core driver of retention, engagement and performance. The perception of unfair pay within the organisation is corrosive, creating a climate of distrust and hostility, thus eroding performance and commitment. The pay jump to the junior management is more than twice when compared to the clerical roles. This is similar to the jump from junior to middle management. Such anomalies have a negative impact on employee engagement levels and business performance Hay Group. All rights reserved

5 5 Figure 6: Wage cost comparisons across management levels 4,000,000 3,500,000 Market Median Trend Lines Express Council Express - International Total Cost to Company Annual (INR) 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 Total Cost to Company - Annual (INR) 2012 Express - Domestic Cargo Shipping & Airlines 500, Clerical Junior management Clerical Middle management Senior management 775 (Non-Executive roles) Figure 7: Salary progression within companies 87% jump Move from middle to senior management 217% jump 210% jump Move from junior to middle management Move from clerical to junior management

6 A total reward view of India s transportation industry 6 Express reward While the overall survey results look promising, our interactions with the sector indicate that a very cautious approach is being taken. Though the budgeted wage increase is a double-digit figure, the dipping rupee value and the increasing fuel costs companies are having an impact on business performance. Hence companies in this sector are in the horns of a dilemma squeezed by talent attrition and rising costs. The war for talent will intensify in the short-term and widespread. And it is not going to get better soon. What can companies do help themselves? First of all, stop using remuneration as a weapon. Throwing more pay at the talent shortage has only resulted in a chronic case of talent-go-round with questionable gains. Instead, focus on knowing the value of the work being done in the company, knowing what we are paying for and not merely where we are paying against the market. Secondly, don t confuse equitable treatment with equal treatment. When it comes to pay, a one-size-fits-all approach does not work. In companies, there will be some jobs that are more mission-critical than others. Furthermore, we must also differentiate between high, average and non-performers. It is important to be clear what high and average performance look like; and what the corresponding reward will be. And this pay for performance approach has to be clearly communicated to employees so as to avoid rumours and resentment. Unfortunately, most organizations have reward philosophies, but few are written down. Even fewer communicate it to their employees. Thirdly, build line management skills. While the CEO may set the corporate directions, it is the line managers that make it happen. As business becomes more complex, managers need to know how to use their leadership skills to create energizing work climate, engage their teams and retain their high performers. Finally, companies can assess their operating model. In the expansion rush, we have seen several companies whose clothes not longer fit, where different departments are not longer in sync with each other. The most obvious symptom is when the same types of service delivery failures keep cropping up. If you see this happening in your company, it s time to do a gap and alignment analysis. In addition, the express sector can also work together to increase the attractiveness of the industry to job seekers. The sector can colloborate by articulating a common Employment Value Proposition, a concept which was originally applied to individual companies, but is no less relevant at the industry level. In this way, the sector can raise job-seekers awareness and increase its glamour quotient. We reckon that an integrated and sector-wide approach is required because the efforts of individual companies will not be adequately extensive to achieve the long-term and largescale results needed to keep the sector on the express route. The Express sector, and indeed the wider Logistics and Transportation industry in India, has seen tremedous growth in the past 20 years, thanks to the bountiful market opportunities. However, the time has come to look within for the next growth driver and to build organizational strengths to ride the economic uncertainties Hay Group. All rights reserved

7 7 About the survey: Hay Group India conducted the annual rewards survey for its member companies. 30 companies from the express industry and the transportation sector participated in the survey. The list of participating companies is shown on Figure 8. From the participating companies, 73% were foreign owned and 27% were domestically owned companies. The revenue group was spread ranging from less than INR 100 crores to more than INR 500 crores (Figure 9). The survey covered various aspects of remuneration planning and policy including actual and forecasted salary increases in 2012 along with other compensation practices like compensation positioning compared to market, turnover and review time. Figure 8: List of survey participants Figure 9: Breakdown of participants by revenue Aramex India Pvt. Ltd. Blue Dart Express Ltd. DHL Express (India) Pvt. Ltd. DTDC Courier & Cargo Ltd. Federal Express India Pvt. Ltd. FedEx Express Services India Pvt. Ltd. First Flight Couriers Ltd. GATI Ltd. Express, 37% TNT India Pvt. Ltd. UPS Jetair Express Pvt. Ltd. UPS SCS (India) Pvt. Ltd. Berhnard Schutle Ship Management India Pvt.Ltd British Airways Gulf Airways ISS Shipping India Ltd Airlines & Shipping, 23% Japan Airlines Company Ltd South African Airways Teekay Shipping < INR 100 Crores, 30% > INR 500 Crores, 37% Cargo, 40% INR Crores, 20% INR Crores, 13% FedEx Express Transportation and Supply Chain Services Freight Systems India Pvt. Ltd. Brinks Arya Hapag-Lloyd India Pvt. Ltd. Cargo Service Center Logistics Plus India Pvt. Ltd. Damco India Pvt. Ltd. Panalpina India Pvt. Ltd. DBSchenker India Pvt. Ltd. Vopak Logistics DP World Drive Indian Enterprise Solutions Ltd. Contact the author Biren Misra Business Manager Hay Group India e biren.misra@haygroup.com t Based in the Gurgaon office of Hay Group, Biren is the industry lead for the transporation sector. He helps organizations untangle the increasingly complex compensation information and processes that improve employee and business performance.

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