Publications

Introduction

Indias economy is booming, with GDP growing at least 9% every year since 2005. With advantages ranging from its great service outsourcing capacity to its burgeoning consumer base, Western companies are increasingly starting operations there. Despite Indias huge population, however, the current expansion is tightening the supply of skilled labor. Furthermore, many differences in laws, compensation, and business culture can make HR in India a challenge. This article provides a brief overview of Indian HR laws and practices, as well as recent developments as of 2007.

Labor Market Overview

In raw numbers, Indias employable workers are highly abundant. Out of the population of 1.1 billion people, about 400 million do not work in agriculture. This large population is matched by a large educational network of over 10,000 colleges. India has over 25 million college graduates, and 7.5 million of those are in science and engineering. It turns out 2.5 million new graduates each year. However, this does not mean that skilled labor is readily available. A 2007 McKinsey survey found only 25% of India-trained engineers and 15% of finance and accounting degree holders are considered qualified to work for multinational companies.

Experienced managerial and technical personnel are in high demand as a result. Salaries are rising sharply every year, and job-hopping and poaching are common. Salaries are still significantly less than in the US overall, though in some industries, such as IT, salaries for top positions can be in the range of US salaries.

Legal Environment

In the 80s and 90s, India deregulated its economy to attract new business. Compared with the earlier planned economy, where private enterprise had to deal with constant red tape, business is now much easier. However, it is still onerous by American standards. Among the hazards one must deal with are: the huge number of laws on the books (estimated at over two thousand, but never codified); joint federal and state government authority over labor; and ambiguous laws. However, restrictions are often lighter for the newer service industries. The regulatory burden is no longer so heavy that it deters investment.

Working Conditions

Legal standards for working conditions in India do not apply uniformly. It varies depending on state law, whether a business is a specified establishment for labor law purposes, and other regulations. When in effect, regulations set standards such as annual paid leave of 19 days, a working day under 12 hours, and double pay for overtime above 9 hours a day or 48 hours a week. Governmental permission is also needed for female employees to work at night, though this is usually granted in service sectors.

Regulations almost always exclude managerial staff from their protection. In practice, managers usually receive the same leave terms as other employees, but they do not receive overtime pay.

Contracts and Termination

In standard Indian practice, an employment agreement will come in the form of a letter of appointment, which serves as a binding contract, though legal requirements take precedence. The letter will include such terms as salary, starting date, position, place of work, transfers, ethics, confidentiality, probation, and termination.

Termination in India is particularly affected by regulations. By law, a number of procedures must be followed, including just cause, notice, and arbitration. (These procedures are not applicable to managerial staff.) Without the proper procedures, firing can be challenged in court. This means termination must be done carefully: although misconduct is accepted as a cause for termination, inefficiency is not always accepted.

Compensation Structures

The prevalence of non-salary benefits is one of the most unfamiliar aspects of Indian HR practice for Westerners. The structure of compensation usually comes out to about 40% base salary, 35% flexible benefit plan, and 25% retirement benefits and performance-based pay.

Non-salary benefits are popular mainly because they were traditionally tax-exempt for the company. However, those tax advantages are being chipped away at, especially after the Fringe Benefit Tax (FBT), a new corporate tax established in 2005. The FBT lists tax valuations for many different benefits, such as entertainment, travel, and gifts, ranging from 0 to 30% of the benefits actual value. As a result of the FBT and other changes, benefits are being reduced somewhat. However, they are still a significant part of the Indian HR landscape.

Many companies use a Flexible Benefit Plan (FBP), where they assign an employee a fixed monetary amount to receive in benefit form. The employee can then choose what type of benefits to take this amount in, depending on personal and tax circumstances. Selectable benefits may include rent, house payments, transportation, medical insurance, childrens education, and subsidized loans.

Compensation Levels

Salaries in India vary widely by education, experience, language ability, and industry. As shown in the charts below, an entry-level IT hire may earn as little as US$2,000 annually, while an engineer freshly graduated from a reputable university will easily make US$14,000. In the most job-hungry sectors, salaries for particularly experienced staff have actually risen to equal or, in some cases, surpass American levels. IT managers with 15 years experience, for example, command about US$220,000. In general, though, pay for functional heads is generally about a quarter of American levels.

Pay levels continued to rise quickly in 2007. According to the Financial Express, in the period of April-September 2007, Indias top 500 enterprises paid an average of 22% more in compensation to all their employees than a year before. Another survey, by Hewitt Associates, found that executive salaries rose by 15% in 2007.

Public Retirement / Disability Programs

The principal official pension program in India is the Provident Fund. Although it is only mandatory for employees making under about US$167 monthly, it is used almost universally because of associated tax benefits. It takes contributions of 12% of salary from the employee and 12% from the employer. Its funds go to a retirement pension as well as to lump sum payments in case of death or disability.

There is also Employees State Insurance, mandatory for employees in specified industries making under about US$256 monthly. It pays benefits for death and disability as well as sick pay and maternity pay.

Types of Employees

Expatriates are less common in India than in most Asian countries. Among the industries most often hiring expatriates are pharmaceuticals, hospitality, and airlines.

Returnees, who were once rare, are now growing more common. Almost all Indians educated in the West previously preferred to continue to work there after graduation because of greater job opportunities and living standards. However, in 2007, Indias economic success and rising compensation levels drew more overseas Indians back to their home country. In addition, some Indians have had to return from the West due to increased difficulties in obtaining US work authorization. Industries where returnees are now more prominent include finance, engineering, pharmaceuticals, IT, and business process outsourcing (BPO).

It should also be noted that before 2007, returnees tended to seek compensation denominated in US dollars. However, due to the current weakness of the dollar, returnees are now more frequently asking for compensation in rupees. Some C-level executives whose compensation had already been set in dollars demanded and received compensation for the exchange rate shift.

Recruiting Methods and Trends

A broad range of recruiting methods is used in Indian HR practice. Much recruiting is still done informally; below the management level, walk-in interviews are common. In specialties like finance, engineering, and marketing, on-campus recruitment is often used to find entry-level candidates. Advertisements and recruitment agencies can be effective and even necessary to recruit for managerial positions. Internet job sites like Monsterindia.com and Naukri.com are also coming into wider use.

In recent years, companies which already have operations in India, particularly in IT or BPO, have been turning to employee referrals to hire new staff. In these systems, cash incentives are paid for successful referrals. In 2007, some major players in IT and BPO said that they now find 25 to 50% of their new hires this way.

Due to the need for trained college graduates and MBAs, foreign and domestic companies in India have increased their hiring from top Indian schools. For example, in 2007, MBAs recruited from the Faculty of Management Studies Delhi (FMS-Delhi) received starting pay packages 70% higher than in 2006. The hiring companies included multinationals like Microsoft, PricewaterhouseCoopers, and Arthur D. Little. Some foreign companies have also begun hiring more frequently from schools below the top tier, such as the University of Delhi.

The talent shortage has been severe enough to make some companies reevaluate their criteria for selecting employees. For example, ICICI Bank, Indias largest private-sector bank, started a probationary officer program in 2007, where they accepted 1,000 candidates without strong English ability. ICICI had decided that overemphasis on English ability was hampering their ability to find good candidates, since the majority of their business was not conducted in English. Therefore, the new program opened the door to a large supply of hardworking and ambitious Indians who would not have been considered before. These employees were given one year of additional training before starting work.

Companies are now awarding signing bonuses to wider ranges of employees. Before, it was typically senior managers and MBA hires who received signing bonuses. Now, multinational companies like Google India and Accenture India are increasingly giving signing bonuses to attract junior-level staff.

Major Business Schools in India:

Indian Institutes of Management (7 campuses)
Faculty of Management Studies Delhi
Jamnalal Bajaj Institute of Management Studies
Symbiosis Institute of Business Management
Indian Institute of Foreign Trade
ICFAI Business School Mumbai 
Narsee Monjee Institute of Management Studies
Indian School of Business

Major Science, Technology, and Engineering Schools in India:

Indian Institutes of Technology (7 campuses)
Indian Institute of Information Technology (8 campuses) 
Indian Institute of Science
National Institute of Technology (20 campuses)
National Institute of Industrial Engineering
Birla Institute of Technology & Science
Anna University

Employee Characteristics

Indian employees are typically analytical, hardworking, and open to relocation. On the other hand, their written communication skills often need improvement. Some socialization with colleagues and bosses outside work is seen as normal.

In evaluating a job offer, they will consider such factors as responsibility, promotion prospects, company reputation and profitability, title, travel, and the possibility of going overseas. Multinational companies are usually seen more prestigious, but some domestic companies are now offering competitive salaries to lure multinationals top talent, especially in the financial industry.

Retention

Once, many Indians hoped to stay in one job for life, but this is a thing of the past. Employees will now frequently study average industry compensation, and may switch jobs fairly readily. Indians may also take an overseas posting as an opportunity to relocate to the West permanently.

In this competitive environment, employers must work hard to keep employees satisfied. Some common strategies are: keeping salary levels in line with the market; offering pay-for-performance packages and implementing them transparently; and providing good food/leisure facilities.

Many employers are also exploring new, innovative solutions for retention. For example, the major IT firms Cisco and Infosys are both building large R&D campuses in India, which include attractive amenities such as sports facilities and upscale cafeterias. In June 2007, Accenture India created a website, Accenture Zone, connected to an upcoming Bangalore concert by the band Aerosmith. The site gave Accenture employees discounts on tickets, and had a drawing for free tickets. It also attracted prospective employees to learn more about the company by offering free Aerosmith songs and videos.

Conclusion

As Indias economy expands, its business landscape is also changing rapidly. Now more than ever, Western operations in India require capable, effective workers that can excel amid change. To find and keep these people, your HR strategy must carefully adapt to local culture and practices, while also proactively exploring new possibilities.

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