The document discusses considerations for doing business in India, including: 1) Attracting and retaining talent requires understanding expectations of India's young workforce and providing competitive compensation and career opportunities. 2) Governance requires compliance with India's regulatory environment on hiring, wages, and benefits as well as disclosure of executive pay. 3) Statutory retirement benefits that are mandatory for employers in India include the Provident Fund and Gratuity plans.

1. Breaking Down Borders
Doing business in India
Padmaja Alaganandan
Vijay Gopal
www.mercer.com

2. Today’s speakers
Padmaja Alaganandan Vijay Gopal
India Business Leader, Human Senior Associate, Human Capital
Capital India
padmaja.alaganandan@mercer.com vijay.gopal@mercer.com
+91 9741522661 +91 9810049665
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3. Topics for discussion
1 Setting the scene
2 Attracting and retaining talent
3 Governance: The ‘people’ dimension
4 Moving critical staff into India
5 Ensuring the success of your expansion
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4. Setting the scene
India

5. Setting the scene
The India story
Today An enabling environment
 One of the fastest growing Largest democracy; stable
economies ; 9%+ growth rate government.
for 5 years prior to current
crisis Dominant private sector;
increasing withdrawal of
 Resilient economy – 5-6% government from business
growth at the peak of the
global crisis Robust banking sector; capital
markets
 Opening up sectors for
investment World-class IT & telecom
infrastructure
 Promising consumer markets
– A ‘connected economy’;
 Significant investment in economic efficiency &
infrastructure development quality of governance
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6. Setting the scene
Pacing ahead
Projected GDP Growth Rates for Select Upcoming Economies
8
GDP Growth Rate (%)
6
4
2
0
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35 2035-40 2040-45 2045-50
Brazil China India Russia
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7. Setting the scene
Beyond the crisis
 Indian economy coped well with the crisis; clear signs of
recovery
– Revised government growth projection for 09-10 at 6.9%; Q2 GDP
growth at 7.9%
– GDP forecast for 2010-11 is 7.9%
– 2010-11 to be a year of consolidation; launch into the high growth
mode
 India’s long-term promise still holds
– Growth primarily driven by the strong domestic market
– Domestic savings rate at more than 35%
– India projected to be the 5th largest consumer market by 2025,
worth over USD 1,500 Bn – CAGR of 7.3%*
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8. Attracting and retaining talent

9. Workforce trends
Where we stand
Population Median Age (In years) Ever expanding workforce
 Median age of 25.9 years, lower
than many countries in the world
 2nd largest urban population: 29%
of the total; projected to reach
37.8% by 2025
 Largest working age population
Demographic Profile worldwide by 2050
>65 years  Demographics signify a
0-14 years
predominant Gen X and Gen Y
workforce
 Attraction & retention of key talent
therefore requires deeper
15-64 years
understanding of workforce
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10. Understanding workforce expectations
Younger workforce, higher aspirations, more cash in hand
Share plans
Pension top-up
LTI Plans Investment
Pension Job security
Cash & Responsibility
Cash bonus Reliability
projects Insurance
Fast track Promotion
Stature & success
Career opportunities Work / life balance Career stability Health care benefits
Learning opportunities Career growth Saving for children Retirement planning
Mobility Saving for home Retirement planning Augmented income
Dependent care Financial planning
22 28 35 42 Age
Some goals span groups: predictable income/benefits, having meaningful roles,
opportunities for growth, being treated with dignity and respect
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11. Managing workforce expectations
Approach to talent
 With the influx of a new generation in the workforce of companies in
India
– HR practices need to align to the needs and aspirations of the new
employee profile
– Leadership development practices must evolve to support the
relatively inexperienced ‘middle managers’ being fast tracked to
sustain growth
 Attraction and retention of talent will continue to be the single biggest
challenge with respect to operating in India
 In a crowded talent market, developing and communicating a unique
employer value proposition will be a difficult task
 Aggressive year-on-year salary increases will put pressure on overall
cost management
 Lack of talent in high-growth sectors and specialized roles could mean
either higher investments in T&D or sourcing expatriate talent
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12. Broad areas of talent management that need to be addressed
Focus on leadership programs,
competency framework design
& assessment
Learning &
development
Compensation & Career
benefits opportunities
Attracting & retaining
Focus on position evaluation Focus on career architecture
and compensation structure
employees and PMS process design
Work environment Work profile
Focus on immediate manager Focus on organization structure
practices and team and role clarity
cohesiveness
Source: Mercer India Monitor, Nov 2009
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13. Governance
The ‘people’ dimension

14. Dimensions to governance
 Deeper understanding of regulatory environment (labor laws & local
legislation) particularly addressing restrictive practices around hiring
and firing of blue-collar workforce
 Compliance with minimum wage and statutory employee benefits
requirements
 Compliance with disclosure norms around executive pay and benefits
liabilities as per International Financial Accounting Standards
 Managing increasing scrutiny on the performance of company board of
directors
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15. Statutory retirement benefits in India
Employer Employee
Plan Mandatory Plan type
contribution contribution
12% of basic
Provident Fund Yes Defined contribution 12%
salary
Defined benefit
15 days per year of service Up to 4.81% of
Gratuity Yes 0
INR 1,000,000 lump sum basic salary
Maximum
Defined benefit or
Supplementary Up to 15% of
No defined contribution 0
Superannuation basic salary
No fixed formula
Statutory retirement plans are often inadequate to provide sufficient
retirement income as contributions are based on basic salary which is
usually less than 60% of total compensation
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16. Schemes under the Employee Provident Fund Act at a glance
(for an employee who is a member of the EPS)
Scheme name Program type Financing Coverage
Employer: 1.67-3.67%
Employees Provident Fund Firms with + 20
Mandatory Employee:10-12%
(EPF) employees
Government: none
Employer: 8.33%
Employees Pension Scheme Firms with + 20
Mandatory Employee: none
(EPS) employees
Government: 1.16%
Employer: 0.5%
Employees Deposit Linked Firms with + 20
Mandatory Employees: none
Insurance Scheme (EDLI) employees
Government: none
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17. Driving pay governance through increasing board effectiveness
Board of directors
Delegates authority to the committee
 Monitors executive pay
from a shareholder
Remuneration perspective
 Approves pay philosophy,
committee
programs, and actions
 Ensures good processes
 Executive sessions
 Provides market  Transparency
trends and
financial analyses Executives
 Ensures informed
decisions based
Outside Internal  Provides
on objective strategic and
advice, not advisors resources
cultural context
just data
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18. Framework for pay governance and other elements
 Holistic approach to executive pay design and governance
 Pay and benefits, set relative to  Performance measurement
competitive and internal framework tailored to the company
considerations strategy and drivers of value
 Pay design, aligned with business  Performance targets, set to create an
strategy and value drivers explicit link between pay and
performance
 Employment and severance
arrangements  Pay outcomes, reasonable given
relative performance
 Disclosure requirements  Director compensation; Compensation
Committee charters and practices
 Regulatory rules
 Shareholder demands and influence
 Sarbanes-Oxley
 Transparency and disclosure
 Accounting and tax requirements
 Role of the Committee’s consultant
 Other elements of governance
– Board member selection, and effectiveness assessment
– Succession planning
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19. Moving critical staff to India
Employee mobility

20. International assignment issues in India
Employer perspective
 Talent readiness: Lack of skilled and readily employable talent in
specialized roles requires companies to source expatriate talent
 Diminishing labor cost arbitrage in high-growth sectors
 Unavailability of reliable market intelligence and benchmarking data for
tier 2 and tier 3 cities
 Managing employee mobility costs e.g. housing, hardship allowance
and travel
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21. International assignment issues in India
Employee perspective
 Safety  Medical care
 Cost of living  Remote location
 Inability to obtain certain goods  Benefits
 Tax issues  Pollution
 Work visas  Internet access
 Quality of living  Logistics
 SARS/Bird Flu/Pandemics  Schooling in rural areas
 Hardship  Housing costs and availability
 Food  Cultural differences
 Language barriers  Difficult living conditions
 Health concerns
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22. Ensuring the success of your expansion
M&A in India

23. Transactions in India
How M&A deals are done
 Regulated process
– National-level regulatory agencies and processes, e.g.:
 Ministry of Commerce
 Foreign Investment Promotion Board
 Securities and Exchange board of India
– Industry specific laws (e.g. BFSI sector highly regulated by
watchdogs)
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24. Transactions in India
How M&A deals are done cont’d
 Widely varying HR environment
– Target companies differ in maturity of HR processes
– Data availability and labor compliance are potential issues
– Prevalence of informal HR ‘practices’ along with formal HR policies
– Minimum wage requirements for blue collar; governed by state
regulations
 Typical HR issues
– Difference of compensation structures from other geographies
– Mandatory Provident Fund (DC) and Gratuity (DB) requirements
– Relatively high resource mobility and employee attrition
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25. Challenging deal issues at each phase
Typical issues during transactions in India
Due Doing Making the
diligence the deal deal work
Due diligence Doing the deal Making the deal work
 Statutory compliance  Deal structure  Employee retention &
engagement
 Compensation levels  Leadership retention programs
and structure  Harmonizing compensation
 Indemnity considerations and benefit programs
 Collective bargaining
agreements  Transition of critical HR  Integrating grades and titles
services
 Underfunding of DB  Organization design and
plans, where existing  Ensuring continuation of structure
insurance covers on Day-1
 Severance agreements  Talent management
 Interpreting “No less
 Long-term incentive favorable” clauses  Culture and communication
plans
 Harmonizing performance
 Leave liabilities management systems
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26. Transactions in India
Critical success factors
In our experience working with Indian companies, there are four major
challenges that emerge as critical success factors in M&A transactions:
1. Tackling employee liabilities, statutory compliances and union
issues
2. Employee retention and the leadership challenge
3. Rising labor costs
4. Organizational culture issues
Source: Mercer PoV article: HR Challenges of M&A in India
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27. Questions?

28. Questions & answers
 Please use the Q&A panel on the bottom right hand of your screen to
type your question
 To ask a question while in full screen mode, click on the question mark
button on the floating panel at the bottom right hand side of your
screen
 If there is not enough time to answer your question during the Q&A
period, we will send you an answer by e-mail
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29. Additional information
Where to go for help

30. For more information on regional strategies
Risks and opportunities
Visit our Breaking Down Borders
website to access articles, points of
view, podcasts and more information on
investing in India
www.mercer.com/breakingdownborders
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31. Future markets in the Breaking down Borders webcast series
 Doing business in India
Held When:
Webcasts will begin at
 Doing business in Japan the following times:
26 November
Delhi – 11:30 am
 Doing business in China Bangkok – 1:00 pm
2 December Shanghai, Hong Kong,
Singapore – 2:00 pm
 Doing business in Korea Seoul, Tokyo – 3:00 pm
16 December Sydney – 4:00 pm
Additional markets will be added in 2011
www.mercer.com/breakingdownborders
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32. www.mercer.com