The India Story ... Unfolding (Muninder Anand)

The India Story…..Unfolding 12th April, 2012Muninder AnandDirector – Information Product Solutions

Point for DiscussionSection 1: Changing LandscapesSection 2: Salary Increase TrendsSection 3: Compensation Mix Trends and BenefitsSection 4: Demographic Reward Drivers and Expatriate Salary ModelsSection 5: ConclusionMERCER 1

Changing Landscapes: Business, Leadership and HR

Current Business EnvironmentCEOs rank talent as #2 business challenge: Business growth andInnovation both dependent on talentRank Score 1 Business growth 1.65 “Consensus among CEOs is clear: having the right talent will make a critical difference in executing against 2 Talent .74 any of today’s business challenges” Rebecca Ray, Ph.D., The Conference Board. 3 Cost optimization .72 “Strategy and operational decisions 4 Innovation .70 are important, but defining bets are made on people.” Greg Summer, CEO. PerkinElmer 5 Government regulation .59 Importance-adjusted top three strategies Source: Conference Board 2011 global survey of 704 CEOsMERCER 3

Recent leadership conversations… “Imagine a company with 15000 employees, born yesterday, with no context or history. We are looking to redefine ourselves towards 2015 without any correlation with our as-is state” Chief Executive Officer , Generics Pharmaceutical Company “We are looking to increase our headcount to 150,000 people in the next couple of years. Rapid growth would merely be an understatement.” Global Head of HR , Consulting, Technology & Outsourcing Company “In the next three years our business in India will be as large as what we are globally now.” Global Head of HR , Generics Pharmaceutical Company “We can grow as fast as we want, we have a supply constraint. ” Chief Executive Officer, Beverage CompanyMERCER 4

Leadership Imperatives The art of leadership is creating a world that people want to belong to 80% companies looking• How do people experience you? towards changes in their leadership development• How do they experience themselves programs when they are with you?• What’s the new leadership model? Only 17% companies are confident about pipeline• Where are your next 100 leaders going of future leaders, to be come from? retaining leadership talent IQ + Technical skills + Emotional intelligenceMERCER 5

Leadership ImperativesMapping Emotional Intelligence Emotional Intelligence Emotional Intelligence Thirst for Constructive criticism Self Awareness Realistic self assessment and interest in feedback Sense of humour Trust Self Regulation Integrity Ability to deal with ambiguity A passion for work and new challenges Motivation Unflagging energy to improve Optimism in the face of failure Expertise in attracting and retaining talent Empathy Ability to develop others Sensitivity to cross cultural differences and diversity Effectiveness in leading change Social Skills Persuasiveness Expertise in leading and building teams* Daniel Goleman EI modelMERCER 6

Macro Economic Outlook : World and Asia Pacific

Global and regional GDPModerate growth of 4%-5% forecasted for Asia GDP - Global and Regional 8.0 6.0 4.0 Percentage (%) 2.0 0.0 2008 2009 2010 2011 2012 -2.0 -4.0 US Europe Asia Pacific World -6.0MERCER Source: IMA September 2011 8

Indian EconomyBalancing inflation & growth 12.0% 10.4% 13.0% 10.0% 12.0% Real GDP Growth (%) 8.0% 7.6% 11.0% 6.9% Inflation (%) 6.0% 9.0% 9.0% 4.0% 7.0% 2.0% 7.0% 0.0% 5.0% 2010 (Actual) 2011 (Estimated) 2012 (Forecast) GDP Growth 10.4% 6.9% 7.6% Inflation 12.0% 9.0% 7.0%MERCER Source: IMA September 2011 9

Trends : High-Tech and ITeS IndustriesMERCER 10

Hi-Tech Industry in IndiaOverall Trends Segment Trends • M&A have continued to be a strong • Product companies tend to pay a higher differential over services trend for expanding business areas and companies at higher levels talent potential • Semi-conductor companies • The ‘build versus buy decisions’ are continue to pay a premium at all being based on more mature models of levels skill tracking, incumbent level skill • What’s HOT in 2012 for Technology ? accounting and time to time evaluation – Trendy 3D with its rising popularity of skill expertise – Cloud Computing -‘King of data’ integrating with business systems • Management of overall costs of and applications to strengthen their business has come into focus: responsiveness to user needs, streamline workflows & reduce – Entry level salaries costs – Talent segmentation – Differential RewardsMERCER 11

What are the Focus Areas ?Balanced Score Card of major IT firms Revenue Focus Client • Infrastructure Consolidation: Shifting • Aligning business units to client fixed costs into variable costs verticals for better delivery • Extending the business value • Organization re-structuring based on proposition to expand the scope of lines of business business • Improving customer focus Process People • Focus on process re-engineering to • Virtualization and work load improve the efficiency levels and management achieve a higher return on investment at lower costs • Talent segmentation and differential rewards strategies • Cutting down on cycle timeMERCER 12

ITeS Industry in IndiaOverall Trends Segment Trends • Geographical diversification • Large Third party players will • Consolidation of Firms to gain larger outperform the smaller companies market share Captives will evolve • Leverage Emerging Technologies – “either-or” choice by parent • Improving Employability in workforce organization will be captive for • Leveraging “Domestic” demand value add “and” third party – Telecom provider for outsourcing base – Aviation transactions – Utilities • Movement to Tier 2/3 cities “How best can the industry turn the current challenges into opportunities and embark on the path of becoming an industry worth $225 billion by 2020” ?MERCER 13

Salary Increase TrendsMERCER 14

Salary increases – 2010 to 2012 forecastsAll Industries- India amongst countries with highest increases 14 12 10Base Salary Increase % 8 6 4 2 0 NZ JP AU TW SG HK KR MY TH PH ID CN IN VN 2010 2011 2012 MERCER Sources: 2011Total Remuneration Surveys and Market Pulse Surveys 15

Salary Increase forecast across industries over the years All Industries - on Annual Guaranteed Cash 16.0% 14.0% 12.0%Salary increase (%) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2008 2009 2010 2011 2012 All Industry 13.0% 9.0% 11.0% 12.0% 12.0% Consumer 14.0% 11.5% 10.1% 12.0% 12.0% Chemical 13.0% 8.0% 12.0% 13.0% 12.2% Pharma 13.1% 12.0% 12.0% 12.7% 12.8% Auto 15.0% 10.0% 12.5% 13.4% 14.3% ITeS 12.0% 9.0% 10.0% 11.5% 11.3% Hitech 14.0% 6.0% 9.1% 11.0% 11.0% MERCER 16 Source: IN TRS (2010, 2011)

Hi Tech segment wise salary increase trendsServices more optimistic on salary increase 12.70% 11.70% 12.00% 11.40% 11.50% Higher salary increase forecasted for Non-sales 10.40% individual contributors in services in comparison with the sales individual contributors At higher levels, product companies tend to pay higher differential over services companies A premium is paid by semiconductor organizations in the Hi-Tech industry Semiconductor Product Majors Services Majors 2011 2012MERCER Source: Mercer’s India 2011 Hi-Tech Non-Executive Remuneration Survey (Jan) 17

ITeS industry salary increase trendsConservative for 2012 11.50% 11.30% 12.0% 12.1% 12.0% 10.0% 10.0% 10.00% 8.8% 25P Median 75P 2010 (Actual) 2011 (Actual) 2012 (Forecast)MERCER 18

ITeS industry salary increase trendsCaptives continue to project higher salary increases 2011 (Actual) 13.4% 75P 12.0% 12.1%Median 11.3% 10.0% 25P 9.0% Third Party Captive 2012 (Forecast) 13.0% 75P 11.9% 11.9% Median 10.3% 10.0% 25P 9.0%MERCER 19

Compensation Mix and Variable Pay TrendsMERCER 20

Compensation mix Higher percentage of variable pay in the Hi-Tech industry • Individual and company performance are primarily used to determine variable payouts • As the level of employee increases, so does the weightage of company performance • Variable pay is primarily paid out on an annual basis • Where it paid out quarterly or semi-annually, it is for sales force earning sales incentives Mgmt-Sales 85% 15% Mgmt-Sales 65% 35% Mgmt-Non Sales 85% 15% Mgmt-Non Sales 85% 15% Prof-Sales 85% 15% Prof-Sales 67% 33% Prof-Non Sales 90% 10% Prof-Non Sales 90% 10%All Industries Hitech 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % % Fixed Variable Fixed Variable Source: Mercer’s 2011 India All Industry TRS (Mar 2012) Source: Mercer’s 2011 Hi-Tech Survey (Jan 2012) MERCER 21

The Need to Differentiate and Customize

The need to differentiate and customizeBenefits - an answer to the need • Need to relook at benefits keeping in mind the generational needs of the current workforce • With compensation structures becoming standard and compensation costs becoming more competitive, benefits to become a strong differentiator • A flexible and customized approach to benefits that provides “choice” to employees rather than a typical “one size fits all” approachMERCER 23

Where do benefits fit in?Adding value to the total package…• Reward budget not enough to “move the needle” on base pay• Benefits as a retention tool• A sustainable rewards practice• The perceived value of benefits to the employee can be greater than the cost to the employer of providing it! - Group buying power gives lower cost - Access to better terms and conditions - Status (higher benefits entitlements for top management) - Impact on productivity (wellness and medical check-up) - Impact on behaviours and long term cost (co-payments for healthcare) - Focused on specific employee needs (flex)MERCER 24

Benefits fit in everywhere…. Engagement Benefits play a significant Attraction role in employee Retention 62% 64%MERCER 25

Results of recent snapshot surveyWhat benefits HR thinks will be important to employees… Which group of benefits do you think has the highest 1 Flexible working arrangements impact on employee satisfaction? 2 Term Life Insurance 3 Health and Wellness benefits 4 Company car 5 Sabbatical leave 6 Paternity leaveMERCER 26

# 1 Newer talent pools89% of women who voluntarily leave their jobs — forexample to raise a child —want to go back to work but only 40% havebeen able to find full-time, mainstream jobs.MERCER 27

# 2 Increased mobilityForeign nationals are authors of the majority of patent applications filedby many US companies: 65% at Merck and 64% at GE and 60% atCiscoMERCER 28

# 3 EmployabilityEmployability will continue to be a huge problem worldwide. Because ofthe uneven quality of education systems, only 25% of Indian and 20% ofRussian professionals are currently considered employable bymultinationalsMERCER 29

Demographics driving RewardsMERCER 30

General Demographic Trends Falling birth ratesIncreasing life expectancyMERCER 31 2010 Managing Compensation and Benefits across Borders

General Demographic Trends Increasing Middle Class Addition to the working age population by 2018 (Millions)MERCER 32 2010 Economic Trends - IBEF

Talent flight risk - 54% seriously considering leaving $ $ $ ?MERCER Source: Mercer’s Whats Working Survey 2011 33

Gen Y poses a significant talent flight risk 70% 60% 66% 50% 54% 54% 53% 40% 44% 39% 30% 20% 10% 0% All 16-24 25-34 35-44 45-54 55-64 employees Gen YMERCER 34

Reward drivers for different countriesWhat employees in India value most? Most say work load is Views of senior reasonable and work/life management rise and 70% balance is possible say company is well-managed Benefits more important to Retirement programs not a attraction and retention, but priority satisfaction with them slips Pay is one of the top-ranked Employees see gains in element of the deal, but talent development satisfaction with it is down Increasing emphasis on ‘My One in two India workers is Job’ and managers get seriously considering leaving improved marksMERCER Source: Mercer’s What’s Working™ survey 35

Reward drivers for different countriesWhat employees in India value most? #1 Career Advancement #2 Base Pay #3 Training OpportunitiesMERCER 36

What’s inside employees’ mindsMost important value proposition elements: Asia-PacificMERCER 37

Employee Mobility The right People in the right Places & Roles at the right Cost for the right Time & Results People Remuneration Talent & Benefits Management Cost Place & Roles Return on Resource Investment Planning Time & ResultEffective mobility management requires the cooperation between business unit leaders, talent management,compensation and benefits, process and communication, third-party providers (including outsourcing) and ofcourse the employee and their family. MERCER 38

CostDetermining international compensation The external factors such Program costs as market competitiveness, benchmark to peers, assignment administration Assignment Duration and so on Equivalent Assignment Location Competitiveness pay with Assignees’ Nationality with other peers in the Assignees’ Family multinationals company Assignment Cost Centre Social Security & Retirals Taxation The core factors, which Parity among are usually unique to the Split pay nationalities assignee and tend to differ Ease of of expatriates for every assignment viz. administration assignment duration, assignee family Repatriation requirements and so onMERCER 39

CostScientific build up India Compensation Compensation (INR) Components International Compensation Compensation Basic 11,57,892 components (INR) PF + Gratuity 1,94,642 Total Base Pay 13,52,534 Base 25,92,627 Fuel & maint-4w 2,40,000 Cost of Living Allowance 3,09,378 Medical 15,000 Housing 16,92,000 Club Allowance 2,400 Special Allowance 15,49,148 Car 3,46,014 Food Coupon 16,200 Net CTC 49,40,019 Gift Coupon 5,000 Gross CTC 67,83,808 Superannuation 99,996 Vehicle Emi 1,96,824 Some Additional Benefits Gpa Insurance 180 • Medical (home country allowance will discontinue) Hosp Insurance 4,500 • Travel Insurance Total Choice Pay 21,29,248 • AD&D Pli Payable 4,74,792 • Spouse Allowance TOTAL CTC (Net) 25,92,627 • RelocationMERCER 40

Time & resultInternational assignment and employee categorisation International Assignments International Assignees• Long Term Assignment - Transfers of • Deputed Assignees – Employees sent 1 to 5 years’ duration with essentially a abroad but still retain status as managerial and business development employees of home location. purpose. • Short Term Assignees – Employees• Short Term Assignment - These sent abroad for a period of less than or assignments are usually single status up to 12 months foreign assignments lasting up to 12 months. • Third Country Nationals – Employees who are citizens of one country, hired• Commuter Assignments - These by global headquarters, to work in a assignments require the employee to third country carry out job related tasks by commuting every week or every two • Global Nomad – Multicultural, global weeks professionals who have no fixed home locationContracts, compensation & benefits are allocated depending on the assignment type and the category of international assignments the employee falls underMERCER 41

Expatriate Salary ModelsGlobal vs APAC 80 Most preferred compensation approach 69.3 70 Worldwide Percentage Prevalence 60 52.3 APAC 50 40 30 27.9 20 14.5 16.3 12.2 7 7 10 3.8 5.8 3.7 4.7 2.8 3.5 0 Balance Balance Host Home Plus Host Plus Higher Others Sheet (Home Sheet (HQ (Home or based) based) Host) Expatriate Remuneration ApproachSource: Mercer’s 2011 Worldwide Survey of International Assignment Policies & PracticesMERCER 42

Expatriate Salary Delivery Global vs APAC Expatriate remuneration delivery 5% 2% 10% Split between Home 16% & Host currency Pay in Home currency 16% 40% 45% Case by case15% Pay in Host currency Pay in third country currency 32% 19% APAC Global Source: Mercer’s 2011 Worldwide Survey of International Assignment Policies & Practices MERCER 43

Potential Priorities for 2012 and BeyondMERCER 44

Potential priorities for 2012 and beyondWhere to focus your efforts• Communication up – Continuously remind global colleagues of - The growth opportunities - The demand for talent - Employee priorities and expectations• Global changes may not be relevant here – Increased variable pay to drive growth in flat markets – Maybe more emphasis on base pay required in growth markets• Competition for talent from large locals – Do not try to outbid on compensation – Focus on non-financial components of package - Training, career development, knowledge transfer, international assignments, equitable and transparent performance managementMERCER 45

Potential priorities for 2012 and beyondWhere to focus your efforts• Talent management – Leadership development – Focus on the gaps and be targeted – Ensures more ROI• Communication down – Talk to employees! – Encourage your leaders/managers to talk to employees – Educate and keep them informed – Create a relationship, not a transaction• Get the basics right – Partnership between business and HR – Desired market position on compensation – Link compensation with developmentMERCER 46

muninder.anand@mercer.com

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The India Story ... Unfolding (Muninder Anand)

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